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Rich Athletes, Poor Teachers

July 11, 2007

Tags The EntrepreneurFree MarketsPrices

Top professional athletes regularly sign multi-million dollar contracts, with signing bonuses and lucrative product promotion deals.

Why do professional athletes make so much more money than, say, professional teachers? Do people really value sports more than they value education? Teachers provide a service that is generally accepted as contributing real value to the development of society. Some people view sports, however, as superfluous. They think of it as something that society could function well without. It doesn't seem to make sense that work deemed important by most people could be valued far less than that which may be unnecessary or seen as frivolous to many.

This is similar to a paradox of old: Why are diamonds so expensive and water so cheap, when water is absolutely essential to the life of every human, and diamonds are basically luxuries that every person is capable of living very well without? The answer is scarcity.

When some item is widely available in abundance, such as water in most inhabited areas, the next unit acquired will be relatively inexpensive, the value applied to it by users will be low. If you don't take one gallon now, there will always be more where that came from. If something is scarce, diamonds for instance, buyers will bid the price up because many people want the few gems available. The value to the chooser of the next available unit is the only thing that matters in decision making. The more readily available the supply, the lower the price will be. The higher the demand, the more people who want the item, the higher the price will be. The price eventually agreed upon is a balance of both forces, supply and demand.

When we talk about the value of athletes versus the value of teachers, we are talking about particular choices with limited scope. We don't have to make the choice between all athletes or all teachers. We are not selecting the profession of sports to the exclusion of the profession of education. The real choice made in every day life is how much the employer values what this particular teacher offers, and how much the team values what that particular athlete offers.

There are some very good teachers, but teaching in a typical classroom is not generally a route to superstardom. There are relatively limited classroom positions in any geographic area, and usually plenty of competent and capable people willing to fill the spots. They are similar to water in our example. They may be necessary; they may be very good; they may provide a valuable service; but they are also abundant.

Aspiring athletes get to be superstars because they have some type of rare talent. Top athletes can do things that mere mortals can't. Most have paid a heavy personal cost to get there. Many more try, but don't even come close. Only a tiny fraction actually make it to the big time. The level of ability and dedication it takes to be a superstar is, indeed, very rare. That rarity makes athletes the diamonds in the realm of professional endeavors. They have millions of adoring fans willing to pay money to see them. The supply is extremely low and the demand is extremely high. They command a high price for the same reason that diamonds are expensive.

All athletes, however, are not diamonds: some are rubies; some are quartz; some are coal.

Those who are not diamonds command less pay and may play at lower levels, farm teams, semi-pro or amateur leagues.

There are also different levels in teaching. While some are not called "teachers," they still need to be included for comparison. Some are called professors, consultants, professional trainers, public speakers, writers, etc. The level of pay for any of them depends on the perceived value of the skill each individual exhibits in relation to the skills of those that would replace him or her.


Hence, a renowned consultant or professor with a significant reputation, someone who is a popular writer or has taught many thousands of people, may actually make millions of dollars. He or she is just as much a teacher, and, though called by a different name, can be thought of as a superstar of teaching.

 

In the case of both athlete and teacher, the rarity of the skill and the number of people who benefit from the individual determines the level of pay. Scarcity in relation to the level of demand determines value for all things.

 


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