Let me preface this by saying I never studied economics, I have minimal understanding of supply-and-demand, and I’m naive enough to believe that people, for the most part, are decent and moral. Get your mocking and snickering out of your system before reading on…
If the minimum wage didn’t exist, would market forces eventually result in people being paid according to their productivity? Here’s my thinking.
[ol]
[li]Employers want to pay as little as possible[/li][li]Employers want reliable, productive workers[/li][li]Employers want workers who will keep the customers happy and coming back[/li][li]Workers want to make as much money as possible[/li][li]Some workers will always give their best, some will do just enough, some will do their best to avoid all work[/li][li]Employers will pay for productive employees[/li][li]Workers who want to earn more will produce more[/li][li]There will be a bidding war for the best workers[/li][li]Those who don’t want to make the effort won’t make the money, since there’s no guaranteed minimum[/li][/ol]
I’m sure there’s a flaw or two in my thinking. But I think back to my working days as a civil servant. Our office was full of GS-11 engineers. Most of us took pride in our work and did our best. One guy in particular went over and above all the time, often to the detriment of his family life. At the other extreme was the guy who would go out to his truck for an hour ever day and take a nap - not at lunch, but in the middle of the morning. But, except for steps based on longevity, we were all pretty much making the same money. Apart from pride in one’s job, where was the motivation to excel?
Same deal with a minimum wage job - is the person who’s making minimum today going to do more work when minimum wage goes up to $15? I’m guessing not…
Because empirical evidence has shown that it doesn’t work. We can debate all day over why it doesn’t work, but the fact that it doesn’t is clear from history.
I unfortunately don’t have enough time to give this question the response it deserves, but I’ll start the ball rolling with comments on a few items on your list:
Workers want to make as much money as possible – Not always. There are many instances in which workers turn down overtime paid at time-and-a-half, for example. And it’s not unheard of for an employee to turn down a promotion that comes with a substantial raise. In general, employees balance their compensation with other important facets of their jobs and their lives.
Employers will pay for productive employees – I’m not sure this is always so, but let’s say for sake of argument it is always true. It presumes though that employers can recognize which employees are more productive, and this is very often not so. Many organizations put a lot of money and time into performance appraisal systems, but managers admit to themselves that the best of these don’t do a very good job.
*Workers who want to earn more will produce more *-- This statement assumes that employees know what types of performance actually enhance their value to the employer. Would that that were so! As a consultant on employee pay programs I’ve dealt with many employees who were absolutely convinced they were underpaid because of all the extra things they were doing and completely missed that they weren’t doing a very good job on their core responsibilities.
The motives of the “market” consist of producers’ high profits on one end and consumers’ low prices on the other, and advancing wages are inimical to the interests of both.
Can you cite this evidence for all definitions of “fair”? Surely you mean that it doesn’t work for some very particular definitions of “fair”, but without knowing what those definitions are, how can one judge whether it “doesn’t work” or not?
The question can be generalized to “can the market set fair prices?”. A wage is just a special case of a price.
The quick answer is no, not really, but there’s no system that’s better.
Pricing is very hard. The value of anything is so dependent on context that is is simply impossible to set a correct price based on first principles. We know that centralized economies failed miserably, and in large part this was due to incorrect pricing. It doesn’t matter how smart your team of economists is. They don’t have the information or capability to translate that into correct pricing (never mind any additional effects like corruption).
Markets seem to be the only way to get prices that are remotely realistic. They still have all kinds of problems due to information asymmetry and such, but they succeed more often than the alternatives due to their self-correcting nature. Of course, all kinds of effects can impede this self-correction, but the fact that it exists at all puts markets well ahead of the alternatives. You might think that it’s inefficient that your coworker is 25% as productive as you and yet gets paid the same, but what if the difference was 10x, or 1000x? There is no limit to how far off prices can get. However bad it seems like it is, it could be much worse.
Like democracy, free markets are the worst form of economy, except for all the other ones.
Yeah, I expect “fair” depends on whether you’re giving or receiving. Or maybe it’s what both sides agree upon - each yields a little with a promise of reevaluation after a specified interval.
In the ideal world, when we deliver for our boss, we are rewarded as a valued employee should be. Then again, no matter how well we file those TPS reports, it’ll never be worth $250K and a company car.
Unions used to prop wages up. Government regulations protected workers. Now, both these trends are on the wane. Are business owners nicer now? So we don’t need these protections?
No…they don’t. There are regulations against child labor, for instance, and laws prohibiting selling oneself into slavery…even voluntarily.
There are also laws against price-gouging in emergencies. There’s a hurricane about to hit, so the local hardware store jacks up the price of plywood to $1,000 a sheet. Oh, wait, no, they don’t: that’s illegal.
An unregulated market is an ugly thing. That’s why regulations have come into existence in the first place.
There are some positions where it’s extremely hard to find employees with the necessary skills, no matter what employers are willing to pay.
Conversely, there are some positions with so few skills needed that they can be filled by virtually anyone.
There are some positions in the middle where skills are needed, but demand and supply are roughly balanced.
I’m fascinated by the health care industry. Everyone agrees healthcare is a growing industry. It’s an extremely service-oriented, labor-intensive industry with many positions that are impossible to automate. An incompetent employee can literally kill a customer. It also has extremely high non-personnel costs. To cut expenses, many health care workers are paid at or just above the minimum wage and even highly trained, better-paid nurses have high turnover rates. Under those conditions how can anyone determine a “fair” wage?
Markets tend to produce fair results when the contending parties have similar power. When 3 mom & pop restaurants compete for business in Smallsville you’ll find the one that’s most efficient economically while offering the best product will succeed far more than the other two.
Now drop a McDonalds in there with massive corporate backing, the ability to buy hamburger for far less than $1/lb, etc.
How well do the mom & pop’s do now? The vastly unequal power McDonald’s brings to bear will make a mockery of the idea of “fair competition.”
An even better example is a small company that makes some retail product and sells it to many mom & pop stores to sell on to consumers. Then somebody like Target or WalMart notices the product and wants to buy it for their stores. How much do you think the negotiation over prices, delivery schedules, and payment terms will be a battle of equals when it’s Target vs. Smallsville Widget Makers, Inc.
Most job seekers are competing for the attention of vastly more powerful employers. The bargains they strike for wages and other employment terms are not bargains between equals. More typically the employer has the choice of dozens or hundreds of similar applicants and the employee has two choices: take the job or go hungry.
That’s not a market.
To be sure, there are exceptions. A tiny fraction of employees can almost name their price. E.g. the major sports players and entertainers. And we certainly see the market at work when wages for quite ordinary jobs skyrocket in boomtowns like in the South Dakota fracking boom.
But I suggest the boomtown phenomenon demonstrates just how far out of whack supply vs. demand has to get before mainstream workers gain significant pricing power for their product.
That’s the nice thing about markets. They take the “decent and moral” out of it and leave prices in the hands of “how much value people believe something has”.
Generally yes. Keep in mind that market forces don’t just include wages. They also include the price of every good and service, a component of which is the cost of labor that goes into it.
Generally these things are true. But to work, free markets require a couple of things:
there are many buyers and sellers
each buyer or seller is a price taker
all sellers supply the same, identical product
buyers and sellers can enter and leave the market at will
IOW, it presumes all employers are created equal and employees are relatively interchangeable.
In reality, labor markets don’t work like this, other than for low-level jobs. Employees tend to be “sticky” to their jobs or job markets because changing jobs take effort, particularly if they are in a different town.
There are also significant barriers to entry for jobs with significant pay. Namely, they typically require expensive advanced degrees and other training.
As for what’s “fair”, it’s really up to whatever you can negotiate between an employer and an employee. People talk about the “power of employers”, but there is a reason a lot of people choose to be freelancers, contractors and consultants. They like having the ability to take jobs at the going market rate.
Also, when people complain about “living wages” in places like NYC or San Francisco, keep in mind, the reason the cost of living in those cities is so high. It’s because there are a lot of people making a lot of money. The flip side of that is you tend to need to be in places like NYC or SF if you want to go into tech or finance. You don’t need to live there to be a schoolteacher or busboy. You can do those jobs literally in any town in the country.
Most people, when confronted with the task of constructing a de novo metric for value without reference to markets run into the diamond-water paradox. Human brains aren’t used to thinking super intuitively about margin cases and so therefore come up with wrong solutions unless specifically trained against it.
You don’t see anyone crying about protecting all of the artisanal CPU makers with their hand wound, 1Khz CPUs that cost $5000 being put out of business by big bad Intel who, by using economy of scale, can pop out multi-Ghz processors for $100. There’s no intrinsic reason, except for media fuelled nostalgia to prefer mom and pop restaurants over giant corporations. If McDonalds can buy beef cheaper due to greater efficiency (there’s no magic fairy wand that large companies can wave to automatically get goods at a cheaper price, getting the price down requires an enormous amount of hard work to wring efficiencies out of the system), that’s a good for the consumer, not a harm.
