• Basic Economics and Salary Negotiation

June 07, 2019

Basic Economics and Salary Negotiation

Having some basic understanding of economics can most certainly help workers when it comes to negotiating hourly wages or salary. 

Most people think that a business sets the price of labor; you go in, your boss tells you what you're going to make, and that's it. 

That's not really how it works. That's simply the 4-move checkmate that businesses often use to get you to agree to a certain wage quickly. They'll often use terms like 'non-negotiable' and 'set by corporate office' etc. 

You have to understand a very simple economic truth: in a market economy you are selling your labor. 

Sure, in a market economy there is an average-value to labor in a specific field, (For example, the price of labor for truck drivers is higher than fast-food cashiers.) but the reality is that, ultimately, you're setting the price.

You are the seller of your labor.

If you are selling apples roadside, the buyer doesn't set the price of the apples, you do. Labor is no different in the true sense. 

If you're at an interview and the manager tells you that the job starts at $11 an hour, they're wrong... what they are actually saying is "$11 is what we would like to pay you for your labor."

If you've done your research and understand the market value range for the position you're applying for, and you've determined the lowest you will accept is higher than $11, then you're ready to negotiate. 

Tell the manager or interviewer that you've assessed the market value and have determined that you're willing to sell your labor, for this particular position, at $12.50 per hour. 

Much like the roadside apples, if you price them too high, people wont buy them... The employer is actually a customer, just like the apple-buyer. He/she is buying your labor. 

If the manager or owner (customer) feels $12.50 per hour for your (seller) labor is too high, they can continue to negotiate or they can show you the door, but you remain the seller and, therefore, you set the price. They can either choose to accept your price or decline to purchase.

The free-market or market economy model of buying and selling labor is quite clear; employees are selling labor to the employers. 

Understanding basic economics can give you an advantage in the working world. As such, we recommend reading Dr. Thomas Sowell's book 'Basic Ecomics' for a more thorough explanation.

Basic Economics by Thomas Sowell

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