I trust we're all familiar with the Paradox of Value -- that queer state of affairs in which diamonds, which are not good for anything, are very expensive, while water, which we all need to not die, is very cheap.

This has always reminded me of similar oddities in the labour market -- that a professional player of sports is paid millions of dollars a year, while a kindergarten teacher is paid much more modestly.

Am I correct in thinking that these are two sides of the same coin? Do the various resolutions of the Paradox also serve to explain the labour market? Or are there important differences between goods and labour that make this sort of approach unhelpful?


1 Answer 1


Both of these things can be thought of as Supply/Demand problems where the relevant concept is actually how Demand is decided.

First, let’s look at diamonds. Diamonds are of value because people give them as gifts, proposals can hinge on them, etc. Now why that is a question of history or sociology, but the key idea is that people want them and will pay to make sure they can also give them as gifts. It wouldn’t be fun to plan a proposal, get on a knee, and pull out a Ring-Pop..

Diamonds and water are both of high demand! The difference is that supply of diamonds is small, so people will have to compete via price to get their diamond whereas water is relatively abundant.

Professional sports players too follow this pattern. What’s really important for basketball fans is seeing the absolute best players compete. There’s a reason middle school teams don’t sell out stadiums. So the demand is not for an average basketball player, it’s for the best basketball player.

The supply of truly spectacular basketball players is small (as the majority of draft busts can show) and therefore their salaries are quite high. Teachers are relatively abundant, so their salaries are a low (tragically so).


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