During a stretch of recent downtime, my brain got to thinking about some economic aspects of labor, specifically as it relates to professional careers. While the idea spun around in my head, I eventually distilled my thinking down to two key compensation models for professional labor:
- You either get paid by the hour, or
- You get paid by the outcome
Pay by the hour is probably the most obvious model. As a professional, you spend your time working for a client on a project and you bill and are compensated for the hour you spend. What you get paid is driven by pure supply and demand, which is then driven by multiple factors, including your skills, your experience (which comprises both the number of years you have worked but also the type and variety of projects and clients you have worked on), your knowledge, and your network. As most professionals gain experience, one would expect to see your compensation per hour increase - you have more patterns and mental models you can apply to accelerate your work. Eventually though, there will be some cap on the rate you can charge, driven by the availability of substitutes (#econjargon). However, the benefit is that you have control over the amount of time you work - if you work more, you will earn more, work less earn less. This compensation model is what drives any number of professional services - lawyers, consultants, doctors, among others.
The alternative compensation scheme is payment by outcome. This is common among professions that make markets (e.g., investment banking, brokers, real estate agents). In this scheme, your experience, qualifications, even knowledge are secondary to your ability to execute and achieve an outcome. You could work thousands of hours or only a handful of hours and be paid the same amount (which could ultimately end up being zero or close to it).
Anyway, I just wanted to get my thoughts down and shared.