In our Guide to Wage Differentials, we explained how wages are determined by supply and demand. Speaking of which, here is a puzzle that grabs attention:
Why do Cristiano Ronaldo and Lionel Messi earn such enormous salaries compared to almost everyone else?
After all, even offering massive wages cannot instantly create more world-class footballers. The answer lies in one of the most important ideas in labour economics:
Price Elasticity of Supply (PES) of Labour.
If you are aiming for an A* in A-Level Economics, this concept is essential. The concept is also crucial for achieving a Grade 9 in GCSE Economics.
What Is the Price Elasticity of Supply of Labour?
In simple terms: how quickly do workers “show up” when wages rise?
The Price Elasticity of Supply (PES) of labour measures the change in the quantity of labour supplied. It determines how responsive this change is to a variation in wages.
- Elastic supply: a small wage rise leads to a large increase in workers applying.
- Example: supermarket delivery drivers or café staff.
- Inelastic supply: even a huge wage rise leads to very few new workers.
- Example: nuclear physicists or world-class footballers.
This difference explains why some jobs pay modest wages while others command extraordinary salaries.
Why Is the Supply of Some Jobs So Inelastic?
The key reason is barriers to entry.
When a job requires rare skills, long training, or exceptional talent, the supply of workers cannot increase quickly. This is true no matter how high wages rise.
1. Training Lead Time
It takes many years to develop the skills required for elite positions. Even if salaries are doubled overnight, the supply of qualified workers cannot expand instantly. In the short run, supply is fixed and highly inelastic.
2. Talent and Vocation
Some occupations require innate ability or a special calling.
You cannot simply train thousands of young players and expect them to become the next Cristiano Ronaldo or Lionel Messi. Elite footballing talent is extremely rare, and the global demand for it is enormous. This combination creates exceptionally inelastic supply and astronomical wages.
3. Artificial Barriers
Professional bodies, licensing requirements, or elite club systems can restrict entry into certain high-skill professions. By limiting the number of qualified workers, supply remains low and wages stay high.
What Makes Labour Supply Elastic?
The opposite case occurs when barriers to entry are low.
If a job requires few qualifications and minimal training, many people can apply quickly when wages rise.
- A café raises pay by £2 an hour → half the students in town apply.
- There is a large pool of available workers.
- Firms do not need to offer high wages to attract staff.
This is why many low-skill labour markets settle close to the National Minimum Wage. The supply is so elastic. Competition keeps wages down.
The Backward-Bending Supply Curve: When High Wages Reduce Work
At very high wage levels, something unusual can happen. An individual’s labour supply may become backward-bending.
Two forces are at work:
- The Substitution Effect: higher wages make leisure more expensive, so people work more.
- The Income Effect: once people earn enough, they may prefer leisure to extra income.
Eventually, someone might say:
“I would rather take a holiday than earn another £500 today.”
This is especially relevant for superstar athletes; once they are wealthy enough, they may reduce playing time or retire early.
How Does Labour Demand Make Ronaldo and Messi So Expensive?
While the rarity of talent explains the supply side, the real secret behind those billion-dollar contracts is different. It lies in the explosive intersection of Labour Demand and Marginal Revenue Product (MRP).
In the eyes of a club like Al-Nassr or Inter Miami, a superstar is not just a player. They are a revenue-generating machine. The demand for elite football is a derived demand. It comes directly from millions of fans wanting to buy shirts, subscriptions and match tickets. Consequently, the Marginal Revenue (MR) generated by a single “Ronaldo goal” or “Messi assist” is astronomical.
Their MRP justifies a wage that would bankrupt a small city. This occurs when you multiply their incredible physical output (MPP) by the global commercial value of their brand. Simply put, a club is willing to pay a king’s ransom. The demand for their “product” is so high. The player still brings in more cash than they take home in their paycheck.
The Economics Verdict
If you want a high-paying career, the lesson from Ronaldo and Messi is clear:
Make your labour supply inelastic.
You can do this by:
- Gaining rare and valuable skills
- Investing in higher education and specialist qualifications
- Entering professions with high barriers to entry
The harder it is to replace you, the higher your “price” in the labour market.
That, in the end, is why superstars like Ronaldo and Messi earn astronomical wages. It is not because they are more important. It is because their labour is almost impossible to replace.
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