[Smart Economics] Income Is the Reward for Benefiting Others

High Income Is Justified and Moral

It is said that nation’s MC Yoo Jae-suk earns about 15 million won to 25 million won per TV appearance. Son Heung-min of the English Premier League proved his value with a five-year contract worth an annual salary of 11 billion won. Calculated as weekly pay, that comes to 220 million won.

We are often startled by the size of certain celebrities’ incomes. Some admire them and envy their success, while others resent them, wondering whether they are being paid too much.

But it is worth considering whether it is really desirable to admire or resent such high earners unconditionally. Their income is determined by how fully they exercise their talents and by how many people are affected by them. For example, if Yoo Jae-suk appears on an entertainment program and brings laughter to many people, broadcasters can confirm his influence through ratings, and if he films a commercial, his market value is determined by the extent of the change in sales after the advertisement airs. Broadcasters and companies try to spend money as efficiently as possible, so they do not pay appearance fees without reason. Ordinary people, however, usually encounter only fragmentary information through the media—such as how much someone is paid per appearance—and judge based only on that.

The More Satisfaction You Give Others, the Greater the Income You Earn

Income is a kind of compensation received in return for providing goods or services to others. Therefore, the amount of one’s income can be compared to the degree to which one benefits others. The more one benefits others, the greater the income one earns; the less one benefits others, the smaller the income one earns. This is both the principle and the morality of a market economy.

This becomes even clearer when viewed from the consumer’s perspective. When choosing a product, consumers carefully weigh “performance relative to price” and try to choose what benefits them most. If prices are the same, they choose the product with better performance; if quality is the same, they choose the cheaper one. If consumers are willing to pay a great deal of money, that implies the product or service provides them with substantial benefit. That benefit may be something visible, such as price competitiveness, quality, or performance, or it may be intangible value such as memories, dreams, or pride. In other words, in a market economy, only those who possess the skills and talents to provide the goods and services that others truly need and want, at the right time and in the right place, can justifiably earn high incomes.

Consider the cases of Yoo Jae-suk and Son Heung-min. As the title “nation’s MC” suggests, Yoo Jae-suk has won the love and support of the overwhelming majority of the public and has made every entertainment program he has led a success. It is no wonder he is called a “guarantee of ratings” and is the first choice when casting an MC. There is only one Yoo Jae-suk, but there are countless places that want him, so naturally his market value can only soar through the roof. This is the principle by which wages are determined in the labor market according to supply and demand.

What about Son Heung-min? From a young age, he was regarded as one of the best prospects at the prestigious German football club Hamburger SV, and later claimed several “firsts for an Asian” with Bayer 04 Leverkusen and England’s Tottenham Hotspur. Son, who also led South Korea to victory at the Asian Games as a national team player, has become one of the world’s best footballers, combining both skill and marketing appeal. Since he can produce top-level results in any position, it is only natural that many football clubs want him. Here, too, the strict law of supply and demand applies, and Son Heung-min’s market value is the result of the price-determination mechanism of the Premier League market.

Why Astronomical Salaries Are Possible

Income formed through the market can never be unfair or irrational. For example, specialists and engineers earn higher incomes than many other occupational groups. But is that income really unearned income gained for free?

Their high incomes are the result of enduring expensive tuition, specialized study, and the stress of competition. The same is true of entrepreneurs who invest while risking the loss of their entire fortunes. The high profits of successful entrepreneurs are the result of taking risks and investing, as well as the reward for creating new value. And what about famous entertainers and athletes? The source of their high incomes is the talent, skill, and value they continuously provide to others. In this way, high income as the result of exceptional effort can never be a proper object of envy or criticism.

▲ Please remember

Income is a kind of compensation received in return for providing goods or services to others. Therefore, the amount of one’s income can be compared to the degree to which one benefits others. The more one benefits others, the greater the income one earns; the less one benefits others, the smaller the income one earns. This is both the principle and the morality of a market economy. Here, too, the strict law of supply and demand applies.

Sung-no Choi, President, Center for Free Enterprise (CFE)

---

Original title: [스마트 경제 읽기] 소득은 타인을 이롭게 한 대가

Author: Sung-no Choi

Date: 2020-11-16

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=6&idx=23234