In the same year our nation declared its independence, Adam Smith published his classic book, Wealth of Nations, explaining almost everything about how a free economy behaves. He pointed out that when labor of a given sort is abundant, the price of that labor gets driven down. That’s why people do not receive top dollar for working in miserable sweat shops, even though those of us with a choice can smugly declare, “You couldn’t pay me enough to do that work.” However, desperate people are the puppets of economic law, and the world teems with them.
Conversely, when labor of a certain kind is in high demand and short supply, pay goes sky high. That’s why some MBAs and software engineers get six-figure salaries right out of school. According to Adam Smith, over time the attractive salaries will persuade more people to enter those disciplines, which will increase supply and cause their pay scales to drop. Pay scales constantly teeter towards an equilibrium point at which supply is perfectly balanced with demand. Theoretically, if the job market called for 500,000 plumbers, pay scales would adjust until exactly that number were available. In the real world this never happens, but in most markets you can detect the teetering in prevailing pay practices.