Sunday, May 23, 2010

High Prices and Fairness

High prices are often associated with greed and a lack of compassion. Companies that charge high prices are considered to be taking advantage of their customers, and unfair to those who don't get the company's service. Yet most people don't think twice about charging a high price when it comes to looking for a job.

Your salary is the price a company must pay for your time and effort, so seeking the best salary is essentially charging the highest possible price for your work. Are you greedy and uncompassionate for doing this? Are you taking advantage of your new company? Not at all — you're just taking part in the fair and widely beneficial system of competitive pricing.

High prices are considered unfair for a couple reasons:

"People who pay high prices are being exploited."

If this were true, then people who receive high salaries would be exploiting their companies. On the contrary, companies choose to pay high salaries to valuable workers just like people choose to pay high prices for valuable services. In free market competition, the price system requires a mutual agreement between buyer and seller — it doesn't get any fairer than that.

"Some people can't afford pricey services."

A service's high price shows how highly valued it is among the population. There are many people who can afford a pricey service but do not value it highly enough to purchase it, which means that the scarce service is left for those who value it the most. Along these lines, your job search matches you with the company that values you the highest among all companies that could have afforded to pay your new salary.

But what about the people who legitimately cannot afford a needed service? For one, these people are greatly benefited by private charity.1 In addition, the price system will help them in two ways. First, a service's high price signals other businesses to start providing that service in order to profit from its high price. The increased supply will drive down the price so that more people can afford the service. Second, the high price encourages hard work and saving, enough of which will allow anyone to eventually get the service.

With ample competition, the price system is fair because both sides have to agree, and helpful in sending resources where they are most valued.

1. The United States is the most charitable nation in the world.
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