It’s a recurring trend on social media to complain about wages. Everything from the (debunked) gender wage gap to the simple greed of corporate overlords not paying a living wage. While there are a lot of valid complaints, such as wage stagnation and boomer disconnect about cost of living, the basic physics of wages and individual worth are always left out of the conversation.
In Episode 40 and Episode 41 we break down wages and the Nested Pareto Distributions inside of an organization.
What is a Nested Pareto Distribution, or NPD?
Pareto Distributions, or the 80/20 rule, is essentially that 80% of the production is accomplished by 20% of the people. NPD, will show that within the 20% of productive people, 20% of them do 80% of that work.
That means that in an organization of 100 people, 20 people do 80% of the work. Of those 20 people, 4 are responsible for 80% of what the 20 people produce. And of the 4 people, 1 of them is responsible for 80% of what they 4 produce.
This means that, at the extremes, 1 person could be responsible for 50% of an organizations production, while 50% of the people are responsible for a shared 1% of production.
How does this work in the real world?
In the real world the math isn’t this precise, but it’s closer than you think. In a corporate structure this translates to a hyper productive employee that makes 100x his salary for the company, while at the same time there are dozens of employees that don’t produce their own salary, let alone any multiple there of.
You will never be paid what you are worth, here’s why
For all the complaints about what constitutes a living wage, coworkers making more money for the same job, and all other complaints, the thing that is missing is what are you actually worth? Employment is not charity, you need to produce for your employer.
When you’re a small business owner, the rule of thumb is that each employee must produce 3x what you pay them. Let’s say you’re paying $20 an hour. Obviously they must be producing $20 and hour just to cover their own pay. What most employees don’t realize is that in addition to the $20 an hour, the employer has additional costs. Payroll taxes, insurances, employee mistakes, etc. To break even, or to cover their own cost, an employee must make 2x their pay. In this scenario, that’s $40 and hour.
But we’re not done. $40 an hour means that the employee is covering their cost, they have not yet produced any profits for their employer. That’s where the next $20 an hour, or a total of $60 (3x) an hour of production comes in. In other words, for the employer to make $20 an hour of profits off an employee, the employee must produce $60 and hour of labor.
This is why you will never be paid what you are worth.
“But Muh Benefits Package”
Those cushy benefits that you’re being offered? They all come out of your pay. Whether it’s paid maternity leave, health package, more vacation days, all of those come out of what you could be earning in raw pay. $20 an hour plus benefits means you turned down $30+ an hour with no benefits.
Someone has to pay for those bennies, and that someone is you.
Corporate Math is worse
The above scenario is for a small business. When you get into a large corporation, the math goes sideways. There are a seemingly endless amount of non productive jobs in any corporate structure. Jobs that, at best, stop the company from losing money, but will never earn a cent for the company. Things like HR Karen, Compliance Department nerds, Help Desk and every other made up title that stands as an impediment to progress.
When you hold a position that produces profits for the company, you are not only covering your salary, but the salaries of all the made up jobs. You are also covering their benefits as well.
Are you angry yet? You should be.
NPDs and your pay
This is where your NPDs come in. If you find yourself in any productive level of the Pareto Distribution, then you are carrying a certain number of non productive employees.
Unlike with the SMB example where you are earning 1/3 of what you produce, in the corporate world you are earning between 1/10th and 1/100th of what you produce. While all around you non productive employees (and yes, the CEO who likely is also non producing) are paid off of your labors.
So while Kidults across TikTok complain that the drone in the cubicle next to them earns $2 an hour more “for the same job”, you, the productive 20%, are producing all of their pay checks.
Start your own business already
The only way you will ever get the money that you produce is to start your own business. Period. I’ll say it again. The only way for you to make the money that you produce is for you to start your own business.
There simply is no other way for highly productive people to get paid what they produce.
So either accept your role as a corporate wage slave, knowing that all of your production goes to support non producers, or strike out on your own and start your own company.
What if I’m a non producer?
If you’ve come to the realization that you are a non producer, and you are not motivated to become a producer, then simply STFU and keep your head down.
Stop complaining about wages and hope no one notices that you are a net drain on the company.
Still Not Sure?
Ask yourself this, is your focus at work to provide value to customer, client and company, or is your focus on acquiring resources and favors for yourself?