Wages, like other prices, are determined most basically by supply and demand, and this basic understanding allows for the explanation of two apparent paradoxes both dealing with large gaps between perceived value and relative cost: the gap between teacher's salaries and those of professional sports players, and the difference in price between water and diamonds. While one might be tempted to view the two gaps as of a fundamentally different kind, at least economically, they function in very much the same way, and even the fact that those selling their labor often have much less negotiating power than those selling diamonds or water relates back to the connection between supply and demand.
The gap between teacher's salaries and those of professional sports players is well-known, and as Murray Chass noted in the New York Times, in 2002 "the average player [made] $2.4 million, an all-time high. In three games, he earns what a typical high school teacher makes in a year, $45,000" (Chass 2002). Of course, this only points out the difference between average salaries; beginning teachers make far less, and in 2010, the highest paid professional baseball player was New York Yankees shortstop and third baseman Alex Rodriguez, who had an annual salary of $33,000,000 (Baseball-Reference 2010). That is just under double the $17,000,000 Derek Jeter made on the same team only ten years earlier (Landsburg 2000). The same article that notes Jeter's astronomical (for the time) salary discusses the teacher/athlete pay discrepancy, but it makes a misstep in comparing the two professions:
Others might grumble that something must be wrong when a ballplayer earns more than 300 kindergarten teachers. Surely it's more important to mold a child's future than to entertain a baseball fan. But here's what the grumblers overlook: Jeter's enormous salary comes to well under $10 per fan, while even the most poorly paid teacher earns well over $1,000 per student (Landsburg 2000).
First of all, as shown definitively by Norman Cloutier and Dennis Kaufman in "The Economics of Pro-Athlete Salaries and Ticket Prices," ticket prices and athlete salary are far from connected. Rather, ticket prices are optimized for maximum profit, so prices are set as high as possible without limiting the amount that can be sold (Cloutier & Kaufman 2005). Price them too high and not enough tickets are sold, price them too low and not enough profit is made. Instead, the connection between player salaries and ticket prices is more nuanced. The more attractive a player is to fans (for any number of reasons), the more tickets will be sold. Therefore, players may receive extremely high salaries in the hope that they will attract more ticket buyers, and the cost of tickets is, in the long run, does not go towards paying player salaries. As Cloutier and Kaufman put it, "teams increase ticket prices because they can, not because they have to."
The second problem of Landsburg's comparison of players to teachers is the idea that fans and students are analogous, mostly because the students are not paying for their education, so the $10 per fan vs. $1,000 per student argument does not really hold up, or at least does not go far in actually explaining the pay discrepancy. Instead, an article by Dan McLaughlin better explains the cause of this discrepancy, and even demonstrates its relation to the water/diamond paradox:
When we talk about the value of athletes vs. 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 (McLaughlin 2007).
He notes that considering the pay discrepancy as a debate between the relative value of either profession does not really acknowledge what is going on when sports managers and school administrators work out their employee's pay. When considering how much to pay a player the sports team owner does not determine that player's salary based on his relative societal worth compared to the average teacher, but instead determines whether that player's salary, considered as an investment, will serve to bring fans to games and procure endorsement and advertising deals for the team. Likewise, a school administrator only looks to the wages demanded by other teachers when determining any given teacher's salary, and would never think to base hiring practices on how important the profession as a whole is to society. In fact, the only pertinent detail that might cause one to consider societal worth in the juxtaposition of teacher pay to that of athletes is the fact that a majority of teachers in America are publicly employed, so individuals have slightly more direct influence over teacher pay than they do professional athletes. Even so, the ability to vote for those officials who may eventually decide on teacher wages and school funding is not enough to make the decision about what to pay any given teacher indicative of a larger societal claim.
McLaughlin's makes another point that elucidates what Landsburg may have been attempting to state with his faulty fans/students comparison:
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 (McLaughlin 2007).
Professional sports athletes, on the other hand, are relatively scarce, and their scarcity is what drives up the price of their labor as opposed to teachers (or water.) As McLaughlin states, "that rarity makes athletes the diamonds in the realm of professional endeavors." In his comparison of fans to students, Landsburg seems to be attempting to claim that in his example teachers made far more than one might expect considering their abundance. (This is reasonable point, but his analogy falls apart even though his basic claim remains accurate.) As he puts more eloquently later on, "lives are saved and enriched by the world's thousandth-best doctor and thousandth-best teacher. But there is no place in professional baseball for the world's thousandth-best shortstop" (Landsburg 2000). Understood in this way, the differences between water and diamond prices and athlete and teacher salaries can no longer properly be called a "paradox," because the monetary differences do not necessarily represent a universal determination of relative societal worth, something encompassing morality, culture, and history. Rather, they reflect a very basic economic calculation based on supply and demand, and the relative abundance of teachers and water in relation to professional athletes and diamonds accounts for their lower cost, even though the former may be considered "more important" than the latter.
There is one final point raised by McLaughlin which harkens back to the initial discussion of average teacher salary and the salary increase for baseball players between 2000 and 2010. After explaining the connection between diamonds and athletes, McLaughlin states "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" (McLaughlin 2007). By this, McLaughlin means that just as athletes of differing abilities rise to different levels of prominence and pay, so too do academics. In addition to K-12 teachers (which is undoubtedly what many assume when the word "teacher" is used), McLaughlin identifies "professors, consultants, professional trainers, public speakers, writers, etc." As existing on the same continuum of "teacher," and notes that at each step, "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." McLaughlin finally explodes the apparent "paradox" of the professional athlete/teacher pay discrepancy by pointing out that not only are the pay schemes for either profession considered in the same schema of supply and demand, but that the "paradox" relies upon comparing specific jobs at either end of the pay scale for their respective professions. A more apt comparison might be between a professor and a professional athlete, or perhaps a minor league player and a teacher.
The difference between teacher and athlete pay and water and diamonds is not actually as stunning as might first appear, especially when the underlying mechanism which regulates those prices is examined. Specifically, the abundance of teachers and water in relation to professional athletes and diamonds explains their much lower cost, and the difference in price cannot be described as a universal assumption regarding their relative worth. Instead, these prices can only be considered in relation to…