Wages: Risk and Reward

"Look, what does a capitalist do? Let me ask you that, Mike. Huh? Tell me. I mean, what does he make, besides money? I don't know what he makes. The workers do all the work."
--John Reed (Reds)

Many view the incomes of successful entrepreneurs and the capitalists who fund new ventures with resentment and covetousness. The premium that these people earn over everyday workers isn't fair, so goes the argument, and the wage gap needs to be closed--by force.

Prof Bylund observes that wages are adjusted in the market to compensate for risk. Most new ventures fail, leaving entrepreneurs and capitalists out in the cold when things don't work out. The uncertainty associated with venture success requires that those bearing the risk of failure face  prospects of high reward if things do work out. Otherwise, why would anyone take the risk?

To demand pay equal to "full [ex post] value" of one's labor is to demand to be treated as an entrepreneur: you won't get paid if things don't work out. The alternative is to earn the market wage regardless of the venture's success, and leave uncertainty-bearing to entrepreneurs.

— Per Bylund (@PerBylund) January 28, 2019

Everyday workers bear no such risk. They are hired to supply labor that, when mixed with the tools supplied by capitalist investors, help the entrepreneur create value for consumers. Those laborers essentially forego the high risk:reward relationship for a lower one--one associated with a steadier paycheck.

Yes, if the venture goes bust, then workers have to find another job. But meanwhile they would have earned a steady income. Entrepreneurs and capitalists, on the other, may have little or nothing to show for their effort. They could lose everything.

Those workers who detest the high incomes of those who start and fund successful ventures are free to forego their steady jobs and become entrepreneurs or investors themselves.