In the South Park episode, “Chickenpox”, Kyle wonders why Kenny’s family is so much poorer than his. Gerald tells him that a functioning society needs “gods” to do the high-skilled work and “clods” to do the low-skilled work (see clip).
This is a fairly common economic fallacy. To prove it’s false, I’ll show that in a society of all “gods”, people would still do the low-skilled work, and furthermore that low-skilled wages wouldn’t be any lower than high-skilled wages.
Assume that everyone is equally highly-skilled and that there are high-skilled and low-skilled jobs on the market. Because of competition, wages are determined by productivity: employers bid wages up to the point where they are equal to the value the employee contributes to the firm (the discounted marginal revenue product). You might think that the high-skilled jobs will pay more since they are more productive, and this is true, but this arrangement can’t last. Since everyone is equally skilled, they will flock to the high-skilled jobs, increasing the supply of high-skilled labor, and lowering its wage (this is because of diminishing marginal productivity: the productivity of high-skilled jobs decreases as their number increases). Similarly, the supply of low-skilled labor will fall, increasing its wage.
This process will continue until the two wages meet. To see why, suppose the low-skilled wage is less than the high-skilled wage. Then it pays for those in low-skilled jobs to take high-skilled jobs by bidding down those wages, which also has the effect of increasing low-skilled wages. So wages will be equal across the board.
But doesn’t this contradict the fact that wages are determined by employee productivity? No, because of diminishing marginal productivity and the prices of the goods produced. As more people take high-skilled jobs, the productivity of each additional worker falls (marginal productivity). This is because, with only a few workers, they can just do the most productive work. With many workers, they will also be doing less productive work, diluting the productivity of high-skilled labor. Similarly, with few workers in low-skilled jobs, they just do the most productive work.
A further effect comes from changes in the prices of the goods they produce. With many people producing high-skilled goods, their price falls (as a result of increased supply), reducing the productivity of high-skilled labor. With few people producing low-skilled goods, their price rises, increasing the productivity of low-skilled labor. For example, if there were very few gas station attendants, their wages would be quite high, so high in fact that it may become cheaper to automate the job with technology (as has happened with gas pumps and is happening with checkout lines).
So even though the gas station attendant does the same work, he becomes more productive (in the economic sense) as the general productivity of labor rises. As more and more people leave the gas station attendant profession for more productive jobs, the remaining gas station attendants become more valuable and their wages must rise to compensate them for the opportunity cost of taking a more productive job.
In a world with large variations in individual productivity (with both “gods” and “clods”), people do the work they are most productive at and are paid accordingly. And if nobody is willing to take a job at a given wage, then that wage will have to rise, or the job might be automated if that is cheaper. So general increases in productivity benefit individual clods because their opportunity cost, and hence their wage, rises.
