The most productive young people will always be undervalued by large organizations, because the young have no performance to measure yet, and any error in guessing their ability will tend toward the mean.
The above paragraph, if true, demonstrates that the labor market is not an efficient free market as libertarians would like us to believe. Workers who lack bargaining power or lack the ability to market themselves (creating the perception of high value where none actually exists) get the short end of the employer employee relationship.
But can Arnold Kling’s advice to young people to start their own businesses instead of being employees really work for more than just a very tiny percentage of exceptional young people? The answer is no.
Most businesses are really about marketing and sales, and not about the quality of the product produced. Can one who is unable to sell himself as an employee magically be able to sell himself as an entrepreneur? Most likely not, because these are the same skills. The unfortunate reality is that the person best able to obtain a big salary for himself is the same person who will be most successful in starting his own business.
Furthermore, there just isn’t much room in the economy for many more small businesses. As I explained in a previous post about small companies, big businesses have marketing economies of scale that allow them to sell their products even though their products may be inferior to the products of smaller competitors.