The 5 Factors that Affect Wages and Profits

According to Adam Smith, there are 5 factors that affect wages and profits:

1. The agreeableness or disagreeableness of the employments

A job’s difficulty, cleanliness, and/or honorableness can lead to different wage and profit levels

2. The difficulty and cost of learning them

A job that requires a high degree of techincal skill will lead to higher wages than one that is simple. This explains the high wages given to specialized IT professions, surgeons, and expert lawyers.

3. The constancy or inconstancy of employment in them

Seasonal jobs get paid differently than non-seasonal ones. Here, Smith gives the general rule that “The lowest common earnings may always be considered as the earnings of the majority.”

4. The small or great trust which must be reposed in those who exercise them

Smith gives the example of doctors whom we should trust to cure us

5. The probability or improbability of success in them.

Lotteries (chance of winning) and insurance (chance of loss) are examples. Venture capitalism and adventurous jobs are also given