Suppose, on a reasonably competitive market, that Bob’s labor is worth at most $1/hr to any potential employer. (Suppose that this is the best Bob will be able to produce at any point in his life.) At anything over $1/hr, employers would be losing money every hour Bob worked for them.

However, suppose for Bob to lead a decent, fully human life (however some left-wing activist would like to define that), he would need to make $10/hr.

Now, suppose Bob works at fast-food chain McBurger in a competitive market economy where he gets paid his marginal product, $1/hr. Suppose that he therefore qualifies for government assistance, receiving an earned income tax benefit or basic minimum income, food stamps, and the like. Many on the Left would say that the government thereby “subsidizes” McBurger, because McBurger pays Bob less than it takes to keep him living well, and the government pays the difference. But this presupposes that if you hire someone for, say, 40 hours a week, you owe him enough money for him to lead a decent life.

I don’t understand where this presupposition comes from. If Bob is so lousy and unproductive that he can produce only $40 of value to McBurger in a 40/hr week, and if McBurger pays him for his marginal product, then this just means Bob isn’t productive enough to pay his own way in this world. Bob is going to be a net drain on the world–to keep him alive will require that he consume more than he contributes. From an economic standpoint, the world is better without Bob than with him.

Isn’t it more plausible to think that if there’s some enforceable positive duty to provide Bob with enough stuff to lead a life, that all of us, together share this burdensome duty, rather than just Bob’s employer? Why should Bob’s employer, specifically, be the one that has to bear the burden and lose all this money to keep him alive (at whatever level you consider decent)? This just seems like a kind of moral outsourcing to me. Why not instead Bob’s neighbors, parents, friends, or sexual partners? Bob does McBurger a service, and McBurger pays him for that service.

I’m not going to connect this directly to the Walmart picture above, because we can debate the empirics of whether the market is sufficiently competitive, etc., that any of this reasoning applies*. However, in reading websites and articles arguing that Walmart is subsidized by the government because many workers receive welfare benefits, it’s clear that the authors have not thought through the issue I’ve just presented. (Also, I’m definitely not applying any of this to third-world sweatshop workers, many of whom receive low wages simply because governments ghettoize them to poor countries rather than letting them travel in search of better wages. If you have been voting for closed borders candidates, then it is quite literally your fault that many third world workers receive low wages.)

Relatedly, I sometimes see arguments that go like this:

  1. McBurger made $200 trillion in profit.
  2. But McBurger paid many of its workers lower than living wages.
  3. Therefore, McBurger underpaid its workers.

But 3 doesn’t follow from 1 and 2. We could parody this argument by saying something like, “McBurger made $200 trillion in profits, yet it only paid $1500 for the Apple laptops it bought its executives. Clearly it could afford to pay more, since it has so much profit, so therefore it should.” Again, nothing like that follows. Since McBurger has so much money, it could easily afford to pay, say, $10,000 per laptop. Let’s say McBurger values the laptops at $3k each–at $1500, it’s getting a $1500 consumer surplus from the laptops. If McBurger bought 50 laptops at $10,000 each, it would still lose $350,000. This can hold for employees, too. A company with a high profit margin might be able to afford to pay its employees more than the marginal value of those employees, but it would still be losing money on each of them.

Imagine you argued for the following principle: “If you hire someone full-time, you have to pay that person enough to lead a decent life (defined as follows…), even if that person is so unproductive that you lose money by hiring him.” That kind of moral codes gives potential employers of the unproductive two options: 1) hire unproductive people at a financial loss, or 2) refuse to hire unproductive people. It forbids the middle ground–help out unproductive people (perhaps even, in the process, helping to make them more productive) by paying them what their labor is actually worth.

*Thus, a tip to people making the Walmart subsidy arguments: your arguments would be much better if you could establish, empirically, that Walmart employees are getting paid much less than their marginal product as a result of a market failure. When doing so, please keep in mind the difference between a market and a government failure, too. So, for instance, if you showed me that the average Walmart cashier had a marginal product of $170/hr, but she was getting just $13/hr because Walmart bribed the town aldermen to forbid Target and other competitors from establishing nearby stores, then you’ve got a real case.

EDIT: A question about living wage arguments. Suppose a homeless person offers to squeegee my car window while I’m stopped at an intersection. Suppose washing my window will take 60 seconds. Suppose that having my window washed is worth very little to me–I’d lose money on the transaction if I paid more than 10 cents. However, suppose that a living wage amounts to $30/hr. Am I morally obligated (not out of duties of beneficence, but out of justice) to pay him 50 cents, and thus lose 40 cents on the transaction?

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  • Jameson Graber

    This is exactly what I’ve thought for a long time, and I really don’t know why it doesn’t make more sense to the left. Indeed, “Isn’t it more plausible to think that if there’s some enforceable positive duty to provide Bob with enough stuff to lead a life, that all of us, together share this burdensome duty, rather than just Bob’s employer?” You’ve out-lefted the leftists.

    • Theresa Klein

      But the Left reads Marx, remember.

      • John Alexander

        As should everyone, especially Estranged Labor:-)

    • David Hovgaard

      This is nonsensical hogwash. Bob’s wages are set low not because he doesn’t contribute if he works he produces more than he is paid. Labor is an investment not a cost because like an investment the cost of labor is offset by the value of goods and services produced by that labor. Businesses always account for labor costs as part off the price structure. If they don’t they are fools. The reason companies pay low wages is simply because they can. These workers have no one to bargain for them. But that will change.

  • Philopoemen

    You criticize others for not taking their thought experiment to its logical conclusion, but perhaps you should have stretched yours into the opposite direction.

    What are the market conditions that have caused Bob’s work to be worth so little ($1 an hour)? Has the constant need for profit siphoned out the value that workers provide, by effectively removing the value of these profits from the normal flow of the economy? If companies like Apple spent their cash rather than hoarding it (to the tune of 100+ billion USD) would the increased flow of capital make Bob’s contribution worth a full $10 per hour?

    • rrelph

      The marginal value of Bob’s work product is totally independent of anyone else’s free market actions. Apple’s “hoarding” of cash is NOT hoarding as you perceive it. They aren’t stuffing those dollars in mattresses somewhere. They have them invested in banks, which lend them to governments, corporations, and individuals, who DO spend it. So the money IS being spent, so your statement that the profits are removed from the normal flow of the economy is simply false.

      It is simply a lack of imagination that prevents you from believing that someone’s work product could only be worth $1 per hour. It’s absolutely possible. The dishwasher who breaks a couple of dishes an hour, for example. The programmer who adds more bugs than features. The assembly line worker who puts the bolt in the wrong hole. The accountant who produces wrong sums more frequently than most.

      • Jason Brennan

        If you want to see some zero marginal product workers, get a job at Brown University, where half the administrative positions are sinecures for people’s nephews.

        • Sean II

          You can and should take that point further. If positive marginal product is taken to mean “making stuff that people would actually buy if it weren’t subsidized, and/or they didn’t need it to secure some bogus occupational license”, then it’s not just Brown, and it’s not just the administrators, who are posting a zero.

          Half the faculty would qualify as well. More than half, in your field.

      • Geoff Arnold

        You went off the rails with the words “free market”. A system such as ours, in which large corporations can buy changes to the taxation and benefits system that allow them to establish dominant positions which shift market equilibria in their favor is nothing that Adam Smith would recognize as a “free market”.

        • rrelph

          True enough… government is abused by large corporations as well as other self-interested parties, such as government employee unions. This is the fundamental argument in favor of small government.

          Strike the first sentence of my response if you’re so inclined. The rest stands alone.

        • Devon Sanchez

          Yes, we have a controlled market. Who is to blame for the unfairness of the playing field? A government (local, state, federal) that is too powerful, forcing change in our society. Picking winners and losers. Diminish (or eliminate) that power and you have a freer society, and thus a freer marketplace.

          • Geoff Arnold

            We’re talking about the 21st Century USA, not cloud cuckoo land. If you want to ignore contemporary political and economic realities, go ahead, but don’t be surprised if you’re ignored.

          • Devon Sanchez

            Cloud cuckoo land? What are you talking about? Is that where you went to take that picture in your profile? If you want to ignore that the system, as we have it, will reach financial ruin very soon due to unconscionable (not to mention uncountable) debt burdens, then don’t be surprised to find your head up your butt. The natural “order” of the marketplace will correct itself. Ignore that. Contemporary political and economic realities….hahaha….good one.

          • Aristophanes

            I like the Aristophanes Reference.

          • Devon Sanchez

            Do you believe “contemporary” political and economic realities differ from ancient, past or future ones?

          • Geoff Arnold

            Of course they difer. How do you apply this kind of analysis in Classical Athens (a slave-powered economy)? What kind of market analysis applies in a feudal society in which all economic activities are subject to Royal Charter? Or shall we discuss labor mobility in the context of medieval guilds? And then there’s religious taboos, and castes, and …. ;-)

          • Devon Sanchez

            How do you classify a slave-powered economy? How does mercantilism measure to fascism, feudalism to a constitutional democracy, a republic to socialism? How controlling were those societies, how controlling is our society? What is public debt? Labor mobility through medieval guilds, or national immigration services and public taxes? Religious taboos, castes…repressive societies? We have those. We give them different names. The outcome is the same, the only difference is the mode.

            Do you (truly) understand these “eras” of human history? Or do you presume to understand them?

          • Leon

            The principles that we use to conduct our analysis do not change.

        • ZPT205

          Sure, crony capitalism is a problem, but you can’t just jump from “crony capitalism exists” to “therefore big corporations have managed to create monopolies (aka, non-competitive markets) and pay workers less than their marginal value.” In other words, you can’t assume that because crony capitalism exists, crony capitalism has destroyed a _particular_ part of the free market without some kind of _particular_ evidence. Almost every significantly populated area has numerous businesses that hire low-wage labor. When was the last time you were in a decent-sized town with a Walmart but not Target? The kinds of businesses where it is easier to prevent competition tend to be higher wage ones.

    • http://www.stationarywaves.com/ Ryan Long

      I don’t follow you. What specifically is it about Apple’s spending its cash that would increase the value of Bob’s labor?

      • Philopoemen

        You have it backwards. It isn’t spending the money once it has been accumulated it; the problem is the market in which they were able to accumulate such money in the first place, hiding it in foreign banks rather than reinvesting it in the economy that allowed them to flourish in the first place.

        Otherwise, how do you explain that Bob’s father, who was no more skilled than his son, made a far more comfortable real wage for doing similar work?

        • http://www.stationarywaves.com/ Ryan Long

          Two things:

          First, their hiding it in foreign banks should, according to your argument, increase wages in foreign countries.

          Second, the explanation for the apparent decrease in wage value is the advancement of technology, the increasing role of capital in the production process (versus labor), and the fact that no line of work remains exactly as value as it has been historically. (The value of candlemaking is much different now than it was in 1789, but not due to the accumulation of profits.)

        • j r

          Bob’s father lived at a time when the United States had an out-sized share of the world’s productive capacity. The rest of the world caught up.

          We could always bomb Europe back to what it was after WW2 and see what we can do to take China and India and the rest of Asia back to subsistence level poverty. That might increase Bob’s wage a little. Of course, it would also increase the price of most of the things that he buys, so no telling what the effect would be on his real income.

          • Philopoemen

            That might make sense if the USA were the only country where real wages have stagnated. It is not. All industrialized countries seem to hit the same wall.

          • Les Kyle Nearhood

            well yes, it is called competition, Duh. as well as the aformentioned technological changes. And those will continue to put the whammy on manufacturing jobs. When we see the results of the 3d printing revolution the price of manufactured goods will fall to just slightly above the cost of their raw materials.

          • Mick Price

            It’s not competition, it’s the opposite. If competition were the problem prices would be going down faster than wages. The problem is that firms are focusing more and more on government favors rather than serving the public.

          • Jerome Bigge

            Part of the reason for this is “increased overhead” caused by government regulation which in many cases exists to benefit “some” at the expense of “everyone else”. For example, what would the income of doctors be without government regulation such as prescription laws that effectively give doctors a legal monopoly over access to medical drugs. Most of which will “not” make you “high” or are “habit forming”. Nor is controlling your blood pressure, cholesterol, blood sugar, etc all that complicated. The AMA was founded in 1846 with the “objective” of “improving” both the status of doctors and their income. Just as the AFL-CIO, the UAW, UMW, Teamsters were created to “improve” the incomes of those workers belonging to the union. And while labor unions organize against employers, profession organizations are organized against everyone else, the operational principle the same in both cases. That is, organization to prevent the “free market” from functioning. Prevention of “competition”. Raising the cost of living. Destroying jobs. Making people more “poor” than they would be without these regulations that favor the “few” at the cost of the “many”.

          • Philopoemen

            What would prevent that collusion from happening organically in a world without governmental regulation?

          • Jerome Bigge

            More difficult to do if you don’t have the government behind you. There is a certain amount of truth in the comment that the US has the finest government that money can buy…

        • Mick Price

          But if they hide it in foreign banks won’t those banks lend it to someone, thus putting the money back into the economy? How do you know that Bob’s father was no more skilled than his son? And why would corporations putting money somewhere where it is spent by someone else, as opposed to directly spending it, be the reason for lower wages?

  • ChrisBurkhardt

    Labour markets are not competitive; if employers ever paid the lowest-earning workers their marginal product, then profit would be $0 (instead of $200 trillion).

    Workers are NOT laptop computers, and should not be bought and sold as such. They are persons, with inherent dignity, who produce ALL of the value kept by corporations as profit.

    • rrelph

      So the person who saves the money necessary to buy the tool that enables the worker to do the work of 20 deserves no compensation for their risky investment in the tool or their deferred gratification to save the money to buy it? And what are we to do about corporations that lose money? Should employees be expected to pay for the privilege of working for a money losing operation?

      Shouldn’t the risk takers get SOME sort of reward for taking the risk in forming the corporation and guaranteeing the income of the workers?

      • ChrisBurkhardt

        Risk is a cost which should be compensated, not “rewarded”.

        If employees pay to work for a money-losing operation, and tax-payers pay so those workers can eat, then it’s just a roundabout way of subsidizing failing corporations. Who does that help?

        • rrelph

          Compensation… reward… semantics. Call it compensation if you’d like, you still didn’t address the argument I made proving that workers should NOT get “ALL of the value kept by the corporation as profit.” The people who funded the corporation and bought the tools deserve some compensation as well for the risk they assumed.

          • ChrisBurkhardt

            By “profit” I mean what’s left beyond costs (including risk). The difference between the wealth created by workers and their wages.

          • rrelph

            If profit is what’s left after costs, including risk, what you have is what we have… the compensation for risk is not a fixed, knowable quantity.

            But I sense you are proposing that all corporations should be “debt financed”, with all “equity” owned by the workers. I have no problem with workers forming corporations with that structure and would love to see more of them. In fact, when I hear people complaining about how little corporations pay workers, I want to ask “so why don’t you form a corporation that pays them more?” Clearly, they’d get all the best workers, giving them a competitive advantage against the greedy corporations that underpay these workers. I don’t see any laws against such worker-owned corporate structures.

            But I also have no problem with people with money owning equity in corporations that offer more predictable income to workers. After all, many employees would rather have a predictable income stream than one that varies from quarter to quarter based on factors outside their individual control.

          • Neverfox

            “the compensation for risk is not a fixed, knowable quantity”

            But it would be subject to the market, at least, if it weren’t just the label given to profits resulting from the bogus notion of a property right in a contractual position.

            “I don’t see any laws against such worker-owned corporate structures.”

            Because they’re hardly necessary when you don’t have laws against the employer-employee relationship. Is it really a surprise that a firm structure that allows one to “routinely capitalize into the value of the asset the possible future profits that depend on a “non-owned” contractual position of the residual claimant in some productive opportunity” (as David Ellerman put it) would win out?

          • Bryan C. Winter

            This is a very strong argument. It is for that same reason I have no issues with Unions. If you consider a Union nothing but workers banding together to bargain from a position of strength over the value of their Labor, that is a good thing.

            The only time a Union bothers me is when they use legal mechanisms to increase their leverage. Of course this isn’t the Unions Fault. They are simply using all available incentives to increase their bargaining power. This is why it is so important governments allow a diversity of agreements or non-agreements, without predeciding what the best route is. The process of figuring these things out is valuable in and of themselves.

          • CT

            “By “profit” I mean what’s left beyond costs (including risk).”

            What about time? Present goods are valued higher than future goods.

          • Theresa Klein

            I guess one could come up with some sort of insurance based scheme where the worker-owned cooperative pays a premium to the insurance company to protect against a loss or bankruptcy, and distributes profits to the workers after payment of the premium. I’m not sure how much different this would be from paying dividends to investors though. Instead of paying many shares, you pay a single insurer. The insurer would probably charge more if the economy appeared to become riskier, so wages would go down in economic downturns. Cyclical profit and loss fluctuations would have to be managed as well, so that employees don’t buy big houses during good years, and end up being unable to afford them in bad ones. So you’d probably need some addtional level of insurance to keep wages steady instead of constantly going up and down with each blip in the market.

          • CT

            Based on quite a number of conversations with socialist anarchists, your insurance company would be worker controlled banks which would issue money as companies required them … no insurance needed. So in other words, we’d live in a fantastic new world where time preference and risk no longer existed.

          • Les Kyle Nearhood

            Well I give you kudos for coming up with an idea but a co-op type company, which is what we are talking about, would be much better served by simply saving a percentage of it’s earnings to be paid out as a holding action when times are bad.

          • Neverfox

            Most actually-existing worker-run firms already have ways off addressing this, primarily through the institution of internal capital accounts.

          • Theresa Klein

            So the question is, do such worker-run firms pay better than other firms and if so, why isn’t everyone doing it? Is there a law against it?

          • Neverfox

            I’ve already addressed that above but to repeat:

            “Because they’re hardly necessary when you don’t have laws against the employer-employee relationship. Is it really a surprise that a firm structure that allows one to “routinely capitalize into the value of the asset the possible future profits that depend on a “non-owned” contractual position of the residual claimant in some productive opportunity” (as David Ellerman put it) would win out?”

          • Theresa Klein

            Neverfox, if your worker-owned co-operatives are so much better for workers, then it should not be necessary to make exchanges of money for work illegal to get people to choose it.

          • Neverfox

            Exchanges of money (and other property) is precisely what I’m arguing for. An employment contract involves an exchange of money for the responsibility, a clearly fraudulent arrangement. Responsibility is neither money nor property, viz. it’s inalienable. If you really cared about ensuring that all contracts involved only title transfers, then you would demand that “all business enterprises (like all criminal conspiracies) would be legally constituted as jointly self-employed partnerships.” As I’ve already said, bringing up “better for the workers” is a red herring.

          • Shawn P. Wilbur

            I always seem to deliver the labor before the paycheck comes. I doesn’t seem to be any more valuable for it. Maybe workers should demand cash on the barrelhead…

          • CT

            Do you understand the concept of ‘time value of money’ or (more technically) the exchange of present goods for future goods? Based on your response, you clearly do not.

          • CT

            To further illustrate, you receiving your paycheck a week or two after providing your labour services is not an exchange of present goods for future goods. Try again …

          • Scott

            And they’ve compensated themselves more generously than the guilded era. Not sure how your point holds much water.

      • John Alexander

        Workers are taking a risk also.

        • rrelph

          I’m not sure what you’re referring to… please be more specific. But I’m pretty sure that the magnitude of the risks assumed is very different.

          • John Alexander

            What I had in mind is that workers agreeing to take a position are taking the risk that the management of the organization are going to make good sound business decisions that are going to benefit all who work in the organization. The magnitude of the risk may in fact not be greater for the CEO than the worker. “Magnitude’ does have a value connotation as well as a factual one. if there is a slowdown in market demand, even if the percentage of harm is distributed equally, the CEO is still in a better economic position than the worker. Reducing income 10% of 1m contrasted to 10% of 20k harms both, but the one with 900k is still better off then the one with 18k relative to purchasing power etc. If the organization fails all are harmed and assuming they both end of with 0, the harm is equal. Of course, in reality the harm is never equal, is it?

            Besides one has to argue that because one has started a business and hired people that that person deserves more. Starting a business and hiring people are facts, ‘deserving’ is a value. How does one derive the value from the fact?

          • CT

            “that that person deserves more”
            It’s not about ‘deserving’. It’s about what’s ‘required’. Saving/investment is what increases the total (or quality) stock of goods and services (at least in the libertarian theoretical construct). Some libertarians say that interest/profit/surplus value is required in order to induce people to save and invest to compensate for risk (which I think is a terrible argument), or that interest is the price of productivity or use (which I think are less terrible arguments) or they’ll say (as I agree with) that present goods are valued more than future goods and that interest is the ratio which regulates those valuations. But no serious libertarian says anyone ‘deserves’ anything.

          • John Alexander

            I am not a ‘serious’ Libertarian. In practice, people do think they deserve what they have earned; if I earn x then I deserve x. Or, if I have a right to x, then I deserve x.

          • CT

            “In practice, people do think they deserve what they have earned”
            I am quite sure that many do believe this, but that is a terrible justification for the existence of interest/profit/surplus value and most serious libertarian (capitalist) thinkers do not justify it that way.

          • Theresa Klein

            Workers are trading profit for security. When I accept an hourly wage or a salary, I’m agreeing to give up some of the profit from my labor in order to have a steady guarenteed paycheck.
            Anyone who has every been self-employed or started a small business will inuitively understand this. Being your own boss means you get 100% of the profit, but you also take on 100% of the risk. You might find clients this week, and get nothing the next. You might invest thousands of dollars in producing a product, then find that you can’t sell it for more than the production cost.
            When you go to work for someone else, the investor is the one who risks losing money on the investment. You get paid whether the company earns a profit or takes a loss. You might lose your job at some point, but the bank isn’t going to seize your house to pay off the company’s creditors.

          • John Alexander

            I agree if you are the only person involved in the business. But once you hire another person, that person is also assuming risks. These risks may be different, or different in scope, than the ones the owner has, but they are risks none-the-less. Many workers lose their homes, savings, etc. as a result of losing their jobs, often, but not always, as a result of some decision that business owners made. In these instances that are paying off their creditors, are they not?

            Isn’t it part of the argument for worker management systems, i.e., self-directed work teams, syndicalism, etc., that because the worker is taking a risk that they should have a voice in the decisions made that affect their lives?

          • Theresa Klein

            I don’t see the risk of future unemployment as a risk you are “assuming” when getting hired. That risk pre-exists whether you accept a job offer or not. Obviously, when choosing an employer, you should consider how stable that employer is likely to be, and before you buy a house, put some thought into whther your employer is going to be bankrupt in five years. Know the financials of the company you work for so you’re not blindsided.
            You could say that by investing time and training in a particular career, you’re taking on the risk that your skills will be too specific to a particular company, and thus decrease your ability to get another job. But even in a utopian worker-owned cooperative, you would still not be able to prevent technological change from making your industry obsolete.

          • John Alexander

            “I don’t see the risk of future unemployment as a risk you are “assuming” when getting hired.”

            Well then I guess we will not see eye-to-eye here. But, I would suggest that for anyone that has been a wage earner the possibility of future unemployment is always present. In fact, I believe that some economists have suggested that the notion of wages includes the idea of saving for such occurrences. How often is the threat of losing one’s job used by owners/management to control workers? (I know I used it.) This also applies to the business owner. Just switch out the words ‘future unemployment’ with ‘lose of future clients’ or ‘future market shares/demand’ and everyone is in the same situation regarding risks of future economic loss.

          • Theresa Klein

            The possibility of future unemployment is always present. Precisely. It was there before you got hired, the employer doesn’t create it by giving you a job. But if you don’t accept a job, you lose every minute of labor time you are not producing something. I can’t see how taking a guaranteed loss is supposed to be a lesser risk than working for one day with the risk of getting fired the next.

            At least with the one-day employment contract, there is a legal obligation that you will be paid X amount for your one days labor, regardless of whether the company has any clients or makes any money.

            What would you rather take: A) X dollars with the possibility of more on future days or B) nothing ?

          • John Alexander

            Your 1st paragraph supports my point that workers take risks. What you say also applies to the owner.

            Obviously A, but what does that prove? Would you rather take A) A distribution of income where I get 99% and you get 1% or B) Nothing? It is a ‘false dichotomy’, isn’t it.

            Most of the business failures that I am aware of are the result of poor management decisions, not bad laws or regulations. The worker suffers the consequences of these decisions, as does the owner, etc., but they systemically have no say in the decisions. I would think that a Libertarian would support the idea the everyone affected by the decision/action should have a role in making that decision. If they do not, then how can they argue that they support the individual?

          • Neverfox

            I don’t see the risk of future capital loss as a risk you are “assuming” when you deploy it. That risk pre-exists whether you deploy the capital or not. Obviously, when choosing a business model to put your capital behind, you should consider how stable that business is likely to be, and before you buy a house, put some thought into whether your business is going to be bankrupt in five years.

            But there’s a really important sense of risk that isn’t being considered here, and it’s the one that is most relevant to the question of who is responsible for profits. Risk is just tautologous with bearing costs. In an employment firm, the employer is assumed to bear all the costs and so gets the profits. But that rests on the assumption that the employer can, in fact, bear the costs of the employees’ actions simply through the magic of paying them a wage. Wage is a cost, right? Well, yes, but it’s a cost that doesn’t align with the de facto responsibilities on display. Anyone working in the firm is de facto responsible for using up the capital and is therefore de facto bearing the costs. This cannot be transferred through any kind of contract, let alone an employment contract.

          • Theresa Klein

            Neverfox, the analogy is not apt at all. If you convert your money to a hard asset like gold, and stuff it in a safe, you are taking absolutely no risk at all with your capital.
            By comparison, not working is not like stuffing money in a mattress. Any minute you do not spend producing something is lost completely, you cannot save it for later when you will get a better wage.

          • Neverfox

            Except that stuffing gold in a safe is often labelled, in these discussions, along the lines of “deferred gratification.” It is claimed that something is lost (precisely the something that needs to be compensated or “rewarded” when it is eventually deployed) every minute that it is not spent. So yes, the defenders of capital owner-employers want to have it both ways. They are claiming, just as I riffed off of your comment, that the “risk pre-exists whether you deploy the capital or not.” The risk of all that lost gratifying time or the risk of the capital itself. Except when this logic is applied to the employee, your conclusion is that the risk can be dismissed accordingly. I’m only asking why then we shouldn’t dismiss the risk in the case of the employer?

          • CT

            “Except that stuffing gold in a safe is often labelled, in these discussions, along the lines of “deferred gratification.”"
            And they would be dead wrong. Gold stuffed in a safe is no different from the cash that’s lying in my wallet that I plan to spend in about 5 minutes. These 2 things are not deferred gratification since it can be spent at any time.

          • John Alexander

            I am using ‘assuming’ to mean ‘taking on.’ For example, when I assume the role of worker I take on the responsibilities, duties, etc., of what that role requires.

          • j_m_h

            Right to work? Business goes bankrupt due to poor or corrupt management?

            You’re seem to be suggesting all employment is like government work. Evern union jobs don’t really have the security you seem to imply in your first paragraph.

          • j_m_h

            Really, corporations enjoy depreciation to recapture their investment workers have no such protection for their capital goods, homes or human capital.

      • Neverfox

        @ChrisBurkhardt:disqus didn’t say anything about not compensating them; profit, by definition, has already taken account of costs. If you have a tool I need, then I bet you that it has a rental price. If we agree on it, then that settles it (including the fact that I, not you, would gain the output of using what I’ve rented.) There’s no need for any talk of “risk” or “deferred gratification.”

        “Should employees be expected to pay for the privilege of working for a money losing operation?”

        Employees shouldn’t exist, but firm members should bear the costs and reap the product of their collective efforts. How else should it work?

        “Shouldn’t the risk takers get SOME sort of reward for taking the risk in forming the corporation and guaranteeing the income of the workers?”

        They should get whatever the market will bear in terms of the cost of the property provided. If they rent out tools or loan money, then there are well-established forces at play for pricing these things in the market. Property, after all, is subject to transfer under contract, unlike the responsible actions of people.

        • Theresa Klein

          Employees shouldn’t exist, but firm members should bear the costs and reap the product of their collective efforts. How else should it work?

          Shouldn’t they also take the losses too, then?

          Is a situation where you get 100% of the profits and pay 100% of the losses necessarily better for you?

          Why shouldn’t people be free to enter a contract where they get a fixed wage and someone else collects the profits, or takes the loss?

          • Neverfox

            “Shouldn’t they also take the losses too, then?”

            Isn’t that what I said?

            “Is a situation where you get 100% of the profits and pay 100% of the losses necessarily better for you?”

            Why is it a question of what’s better rather than what’s just? Though I tend to think justice has good consequences.

            “Why shouldn’t people be free to enter a contract where they get a fixed wage and someone else collects the profits, or takes the loss?”

            People can enter into whatever contracts they like, as long as they are actually valid contracts. It’s really no different from the fact that I cannot legitimately enter into a murder-for-hire contract that renders me not guilty of the murder I go on to commit. Nothing prevents a jointly self-employed company from paying for “insurance” services with (or simply giving away) their profits to the person who would have been their employer. From a dollars-and-cents perspective, it might all work out the same. But then again, they might not and it might not. There’s a world of difference there, particularly as regards the decision-making of the work community.

          • Shawn P. Wilbur

            The “fixed wage” that most low-wage workers actually receive may fluctuate dramatically, with hours of employment varying according to profits and losses, and productivity demands often steadily increasing the cost to the worker of the fixed wage.

          • Theresa Klein

            @Neverfox
            You think forcing workers to take risks they would prefer not to take is “justice”?

            Nothing prevents a jointly self-employed company from paying for “insurance” services with (or simply giving away) their profits to the person who would have been their employer.

            Great. Have at it. Nobody is stopping you.

            @Shawn – your hours may increase or decrease, this is true, but whether you actually get that $7.50 for any given hour does not depend on whether the company turns a profit on your labor. You have a contract that is legally binding and the company is legally obligated to pay you. By contrast, in Neverfox’s worker-owned co-ops you will only get paid if the co-op turns a profit. If the co-op does not turn a profit you will have to pay the co-op to make up the loss. How is that better?

          • Shawn P. Wilbur

            The employment contract is legally binding, but the company is only legally bound to pay me, if they decide to give me hours, while, of course, I am bound to make myself available for whatever hours they might decide to give me. In the best case situation, I am paid the lowest wage the labor market will bear–and unless the labor market changes dramatically from current conditions for low-wage workers, I probably still can’t control what my contract obliges me to in terms of increased productivity. Meanwhile, the workplace i structured specifically to include or exclude any given worker merely on the basis of increasing profits for the owners, which means no worker tends even to be used as efficiently as they might be.

            Working for yourself is, of course, a risk, but it is a risk with some potential for compensation. I don’t think you understand the risks taken by workers at present, for which they are generally “rewarded” with even greater precarity, if the employers can get away with it. I’ve actually lost pretty much everything as a sole proprietor, while I watched executives who ran the last retail firm I worked for into the ground walk away with some pretty fat compensation.

          • Theresa Klein

            Right. Working for yourself has both risks and rewards. Some people prefer not to take the risks, and are willing to give up the rewards in exchange. What you want to do is FORCE workers to accept both the risks and the rewards. You want to BAN them from reducing their risk by giving up the profits of their labor.
            I’m not saying that taking an hourly wage or a salary completely eliminates all risk. Of course it doesn’t. It is, however, FAR less risky than being self-employed or being a co-owner of a worker-owned co-op.
            Why should it be illegal for workers to agree to give up any profit/loss potential in exchange for a guarenteed hourly wage?

          • Shawn P. Wilbur

            Um. Really?

            Have I said that I want to “FORCE” anyone or “BAN” anything? Have I talked about making anything il/legal? The correct answer is “No.”

            If I was to take the same hyperbolic approach to the question, I suppose I could claim that you WANT people to go without a LIVING wage–and DIE! But see how unsatisfying that is as either rational debate or witty repartee…

            My point right along, in all my comments on this thread, has been that risk and reward do not actually seem to be distributed in the actual workplace in the ways that your theory seems to suggest they should be. Those who profit by maximizing the risk of employment are as often as not able to profit from the failure of a firm, while the “guarantees” to workers are actually rather meager in practice. Firms demand a monopoly on the availability of workers, in exchange for the chance to labor, receiving a fixed rate for labor which may fluctuate wildly in intensity, productivity, value-creation, etc. Workers are generally not in a position to determine if their capacities will be adequately used by employers to generate value, and workplaces are often structured in ways that sacrifice the productivity of individuals workers to the larger task of disciplining the labor force.

            Employers are not innocent of the risks and costs imposed on workers. The very nature of the present capitalist system practically demands that they impose them–and do their best not to compensate for them–because labor is customarily seen as the one truly flexible factor of production and distribution. In retail, pretty much everyone knows that the most severe inefficiencies are generally in real estate commitments, but those are untouchable property relations, and for some reason it seems easier to assume that some large percentage of workers are actually incapable of working, despite widely-circulated reports of booms in worker productivity. So we have a lot of costs and inefficiencies imposed by employers, and we have a low-wage workforce close enough to actually not making enough to *live* for that to be a real and pressing concern (for them, if not for you or the employers), despite productivity that seems to have steadily increased. Whether or not you think that mandated wage controls are a useful tool for rectifying things, and I am very skeptical, the situation ought to at least suggest that something is rather badly wrong with the economy.

          • Bryan C. Winter

            I think that this is mostly wrong not because the theory is wrong, but because your assigning some ‘value’ to labor, and saying they aren’t being compensated properly. I think your over-estimating the value of labor.

            It costs a company something like $65,000 dollars a year to pay the average worker their salary, if that worker is making 40K a year, after health care, insurance, and everything else is taken into account. That amount (worker cost) has kept pace with all other costs. Health care costs especially are much higher than the general economy however, and this has deflationary pressure on total wage.

            Furthermore wages are increasing dramatically world wide. Industrial contries are mostly just competing with the rest of the world now, and the rest of the world is very much willing to work for much less. This is driving wage increases over time, as the system is supposed to. Especially when you think about how most production happened in europe and the US, we were basically getting economic rents for the rest of the world being in poverty. The marketplace is distributing that value to the world, as we speak. Wages are going up like 9% a year in China. That isn’t a broken system. Workers get paid their costs and the supply of labor, not some ratio of their productivity. The only way to increase wages is to increase demand for labor, which world wide is going up. However when markets balance, certain well positioned actors like the United States tend to lose some ground. That is all that is happening.

          • Shawn P. Wilbur

            That’s a very nice bit of boosterism for capitalism, which, unfortunately, doesn’t seem to actually address any of the questions. The question of assigning value to labor is not something I introduced, and, in fact, isn’t all that important to what I am saying. But I suspect that the defenders of the status quo are going to continue to speak in generalities and global statistics, without getting their hands dirty with the actual details of what it means to be a low-wage worker in the US.

          • Bryan C. Winter

            I know exactly what I means as I was once a low wage worker. However, agreeing that we have very low wages for some workers, from that does not follow mandates to require some level of wage.

            My earlier points, about the value of labor are still valid. Labor is still a commodity, and the signal a low wage sends about a workers value is still important. It has the effect of reducing the number of low wage workers over time. As people are dissatisfied with the money they make, they gradually learn more skills so they can command a higher salary.

            Today I bought a sub at subway. The person at the counter did not speak English. This does not bother me at all. I am very much pro-immigration, and people can speak any language they choose, though it made my transaction slightly more confusing for both of us.

            But I wonder if that person would have had a job if Subway was required to pay $16 dollars an hour by law? Chances are, that wage to go to someone who had already worked a job like that for 5 years. No one will hire someone with no experience, who doesn’t speak English, and isn’t willing to stay for 3-5 years to build value for the owner. at $8.00 an hour, I can afford to hire someone who will stick around for 6 months part time.

            I agree 100% that wages for some professions are too low. to live on. But the solution isn’t a mandate. It is an increase in labor demand through growth. Easing the barriers to get into other careers (such as federally recognizing low cost education solutions as actual college credit) could also go a long way.

          • Shawn P. Wilbur

            I haven’t advocated a mandate anyway, but I’ll continue to oppose the feelgood market narrative. The State is subsidizing employers. Workers are subsidizing employers. The notion that people would “prefer” a wage which does not meet basic needs is, if true, pretty clear evidence of a spectacularly broken economy. But, of course, your whole argument depends on the notion that some very broad swath of the labor force is not “worth” basic necessities, which suggests a very twisted notion of “worth.”

          • Neverfox

            “You think forcing workers to take risks they would prefer not to take is “justice”?”

            Well, justice pretty often takes the form of things I “would prefer not” to do. If justice had something to do with my preferences, it would be a very fickle thing, to say the least. But again, risk here only means being properly recognized as the responsible party. The matter of material costs is in theory an insurable thing. I haven’t heard any reason why, all things consider, one could’t exactly recreate the set of risks inherent in an employment firm, if one were so inclined. The point, of course, is that maybe you wouldn’t be so inclined.

            Saying that what I’m talking about is tantamount to “forcing” someone renders the word meaningless. Am I forcing the hit man to take risks he would rather not take by saying that a contract that grants him immunity from the guilt of murder isn’t worth squat?

            “Great. Have at it. Nobody is stopping you.”

            It should be obvious from what I’ve said already that granting legal immunity to fraudulent contracts, allowing for the application of human leverage to equity investments, severely distorts the distribution of capital and thus the likelihood that such firms can compete.

            “By contrast, in Neverfox’s worker-owned co-ops you will only get paid if the co-op turns a profit.”

            Nonsense. This is incorrect both empirically and conceptually. Assuming this isn’t another apples and oranges comparison, and profit means the same thing in both cases, the only thing labor isn’t paid in the case of zero profits are….profits. At less than zero profits, things start to eat into what would have been a “wage,” but it’s still greater than zero (and with the use of various risk-absorbing mechanisms that are common in these kinds of firms, the risk of actually receiving less for any given take-home check is on par with the risk of wage cuts decisions that employers make, except without the conflict of interest). At the point where revenue can only cover non-labor costs (to capital suppliers, creditors etc.), then the choice is find more funds or shut down, but then that’s not really different from the case of an employment firm unable to met its wage obligations.

      • Shawn P. Wilbur

        If we’re talking about retail, I’m pretty sure “guaranteeing the income of the workers” is largely accidental. The low-wage worker is generally risking a full-time commitment of their availability to the employer for a frequently uncertain–and often very uncertain–commitment from that employer to actually employ them. Should employees be compensated for the risks they take?

        • Theresa Klein

          In general an additional risk of future unemployment tends to be compensated by increased pay. Even in the fast-food industry, lots of workers will change jobs if they feel their employer isn’t giving them enough hours, or is not predictable in the amount of hours they are given.
          Also, this is one reasons why consultants charge more than the hourly rate for a salaried job. The consultant has no expectation of future employment, and so has to charge to cover the risk of not having any clients and time spent on self-promotion and networking. Similar for temps and contractors. You get paid a premium because you know that you may be unemployed again in the near future.

          • Shawn P. Wilbur

            Perhaps addition risk *should* be compensated by increased pay, but the trend in low-wage retail is that precarious labor is rewarded with increased precarity and increased productivity demands. The value of the wage relative to work accomplished–and thus in relation to the value created, if those directing the work are not just idiots (in which case, they should bear the additional costs)–decreases and the likelihood of drawing the wage for any given hour becomes less certain. That’s the reality, and some version of it pertains in quite a variety of fields. Change “hour of labor” to “course,” and the analysis of low-wage retail easily becomes an analysis of part-time university instructors.

    • Jason Brennan

      My response is just to ask you to go read a micro econ textbook and then report back to me.

      • ChrisBurkhardt

        Do you have any recommendations?

        • j_m_h

          For what Jason is talking about just use Google and check out some online content of any of a number of universities. Look for information on profit maximization. I suspect what he’s getting at is that Labor’s marginal product is not equal to the total product of the firm since Capital is responsible for some of the productivity.

          If you want to read a good book economic choice get a copy of Cost and Choice by James M Buchanan.

        • Les Kyle Nearhood

          Basic Economics by Thomas Sowel

      • John Alexander

        I would suggest that instead of reading a text one should get a job in a foundry, or mine, or field, and have to live on the wages paid them in that type of environment and then do philosophy. People do not live in thought experiments. Being subsidized by the State to teach is a wonderful gig if one can get it, but it is not really an example of wage labor, is it? Besides, I would hazard a guess that many of your universities upper level/grad courses do not have the number of students necessary to ‘break even’ and are being subsidized by other departments/courses that have more than the break even number in them. If you want the true market value of your course offer it at a storefront as see how many people would take it. Teaching it in a university gives an unrealistic value to any course. Your thoughts.

        • Les Kyle Nearhood

          Well in that case I ought to be your economic Guru. Since I am not an academic (although I did write an economics book). I have worked a lot in blue collar as well as white collar jobs. I have been part of a failing industry as well as a victim of technological obsolescence. And I have even started my own small business. So if life experiences count more than theory, I am your guy.

          • John Alexander

            :-) I spent thirty-five years in the foundry industry in positions ranging from hourly paid to Director of Operations. I have also been an adjunct (visiting, affiliate) in philosophy for over 25 years. 15 of those years overlap. I have also been a consultant.

          • Les Kyle Nearhood

            Well there you go ! Between the two of us we can keep all these ivory tower academics in line.

      • Shawn P. Wilbur

        If the response is just to claim a commenter is ignorant of the basics, then some guidance from those that presumably aren’t seems in order, doesn’t it? If “inherent dignity” isn’t a properly economic concern, surely the ability of workers to actually live–as opposed to actually dying–has to factor in somewhere. How many workers do you imagine cannot actually produce value sufficient to provide for their survival, for any employer at any point in their life? How does that number correspond to those not actually drawing a living wage? If the correspondence isn’t very close, and I suspect from my experience in low-wage retail environments that it isn’t, then how convincing is an argument based on poor hapless Bob, who will always be a burden on society?

        • Les Kyle Nearhood

          The example was an extreme one, but it was just to make a point. My own experience in retail is that most workers are marginal. Those who have to settle for that type of low wage work often fall into the following catagories. (1) very young and inexperienced, often living with parents (2) older, already retired or semi-retired who are just bored or just like earning a little more spending money. (3) those who are on their way up in the corporation and will, eventually be earning much more. (4) those who are just not very smart or good at anything and will never be much more than minimum wage workers. – . In the Example the point being made was that instead of society subsidising Wal Mart, the opposit is true. If Wal mart did not employ these marginal workers, then we would have to pay even more to them in social relife. So Wal mart is subsidising us.

          • Shawn P. Wilbur

            In an important sense it simply doesn’t matter if retail workers can do “more” in the sense of “more than retail.” Unfortunately, like many other trades, retail has been dumbed down a great deal in the last couple of decades, but even if it was an inherently “dumb” trade, my point was not one that depended on the excellence of the workers in question, but on whether or not the majority of workers are capable of doing work “worthy” of a wage that allows living, as opposed to, y’know, not living. I’ve certainly worked with a lot of “marginal” workers over the years, but probably very few that weren’t enriching someone enough so that they should be able to have enough to get by on.

      • j_m_h

        While Chris may be incorrect in his statement (maybe not depending on how we’re defining MP) I’d suggest that your use of these ideas is equally as flawed.

        I suggest you talk a bit more with people like Steve and Peter about these models and reality — there are no real world production functions from which a firm calculates each workers marginal revenue product to establish their wage.

        A more accurate description of wage/compensation policies within the modern corporation, and even small businesses, is combination of market wage formation (without any PF/MP information present) and public choice decisions.

    • Bryan C. Winter

      Your making a moral, and not an economic argument. Economics reigns supreme here. They do not produce all the value. The value is produced by a combination of things, and one component of that producing all the value is inherently non-sensical.

      Now I agree, that a business should pay its people well. However, I am against compulsing it, and requiring it. There are many countries with high minimum wages. This countries also have high youth unemployment. When you distort the economics, that value is then pursued in other ways. An employer might decide you need 5 years expeirance stocking shelves to get a job, since he/she has to pay $16 an hour, and they want to get their monies worth. That combined with increased competition for those formerly low paying jobs, will result in more automation, increased unemployment, greatly increased youth unemployment and employment being based upon political connections.

      All your doing is pricing the poorest, youngest, and least skilled people out of the marketplace, and giving that money to older more established workers.

      Also moral arguments against outsourcing are fallicious. Because your just depriving that money from poor workers who want a chance to gain capital, work skills, and grow.

      Your making the mistake of beleiving that in a capitalist economy, you work for a wage. You don’t work for a wage, you work for an opportunity to get promoted into a higher position and increase your value to society. If your being payed little money, that is because you are adding little value, and your hurting society if your getting more than your value. For some people, this is necessary, we do have a duty to our fellow humans, but that duty is alot lower than people think it is. I would argue less than 1 in 20 are entitled to subsidy based on hardship. For everyone else, their productivity is a choice.

      • ChrisBurkhardt

        Economics without any moral valuation can be only descriptive (and without much room for the “bleeding heart” moniker).

        Minimum wage laws are coercive distortions on the economy, but they act counter to the much larger distortion of private property. If it is true that capitalism cannot employ unskilled labour without high levels of exploitation, then that is an argument against (not in favor of, as you seem to imply) the wage system.

        > You don’t work for a wage, you work for an opportunity to get promoted into a higher position and increase your value to society.

        Yuck. If that is really what I’m working for “in a capitalist economy,” then all the more reason to embrace anti-capitalist libertarianism.

        • Larry Eubanks

          Please explain why you say private property is a distortion? Distortion of what? I suggest the idea of private property is simply something like: “The keyboard I’m typing this sentence with is mine and not yours.”

          • ChrisBurkhardt

            I mean the usual sense of “private ownership in the means of production” that is the heart of most critiques of capitalist production. Which is almost the opposite of your example. Private property enforces relations more like: “The keyboard you are typing with is mine, and so is everything you produce with it.”

            I hope it is clear how that distorts markets. It’s not of no importance that property literally requires armies of soldiers and police to enforce against workers.

          • Larry Eubanks

            No, I don’t think it is clear at all. It seems to me that what is exchanged is precisely property rights. Thus property rights do not distort markets.

            I also see many exchanges that are “self-enforcing” (to borrow an idea from Mancur Olson) and thus do not require government nor armies of soldiers and police.

            I also say that my keyboard is a tool just like any item used in a production process. I don’t know about “everything you produce with it.” I do think the ideas I’m trying to express by using my keyboard are my ideas, and not your ideas. But, if I’m trying to produce a book with my keyboard and my ideas, then I think I will have to make exchanges with many other people so that I can publish my book. Those exchanges will involve what others own and I don’t own. I cannot take from others what I do not own, and I produce very little (maybe nothing) with only my ideas, my fingers, and my keyboard.

          • Neverfox

            “It seems to me that what is exchanged is precisely property rights.”

            Then surely you can lay it out for us. If I use a tool you own to produce something, what would be the set of title transfer contracts that would give you an immediate and clear property right to the product?

          • Larry Eubanks

            Perhaps you can see that part of the beauty of liberty and property is that much is negotiable between two people cooperating in voluntary exchange.

            So, let me play along just for a few minutes. I presume you have not stolen my tool. Good. I presume you know that it is my tool, and of course not your tool. Good. I presume you own yourself, and thus your labor. I do not think your labor is owned by me, or anyone but you. Good.

            Now, how can we imagine that you have come to use my tool. I believe I must have let you use my tool. Agreed? It seems to me there are quite a few possibilities for the terms of our agreement by which you use my tool in the process of making something of value.

            For example, you might be my neighbor, and you do not have a ladder and ask if you can use mine. I say yes, you may use it for $0, and let’s say there are no more terms. Or, I could say, please, use my ladder to repair your roof, but because you are using my ladder, I want to own your roof in exchange. I’ll bet you would say no. And, because you say no, I will not own your roof, even if you use my ladder to repair it. But, you could say yes, because after all, we all know that it is your roof. So, I say, well, okay, how about if you buy me a beer in return for using my ladder to repair your roof. This you might say yes to, since the cost of driving out to Home Depot to buy your own ladder is likely to be more than the cost of a beer.

            I say there are a great many possibilities for the exchange between you and I by which you come to use my tool. And, you and I can negotiate a very specific deal for ourselves about who owns what when it is all over. I don’t say I get to own the output just because you use my tool. The output also became output because it was your labor, and not my labor, using the tool.

            If you were my employee, then I presume you had agreed to use my tools in productive activities of my choosing, and in return I agree to pay you a wage, say $15 per hour of good honest work. I’m sure there would be other conditions to this sort of arrangement that we both voluntarily agreed to.

            I want to imagine one more possibility by which you have come to use my tool. You might say to me that you don’t want to be my employee, you want to be my partner. The deal you want is, I provide the tools, and you use my tools with your labor to produce a product we sell. The product will be sold and we will split profit 50-50. I say that doesn’t work for me, and say no 60% for me and 40% for you. You say yes. It seems like we can say that you and I jointly own the product that we have agreed to sell. The income, or profit, I guess we also jointly own, but in the end I take 60% home with me as mine and you take 40% home with you as yours. Now the split between us can be any numbers because the bottom line is we voluntarily agreed to those numbers, whatever they are.

            I say it is a beautiful thing. Since you own your labor you can agree to a wage, any wage you want. You can insist I pay you a wage and give you the product you produce, but unless you choose to use force, I can simply say: “No, that just doesn’t work for me.” And, I can insist that you work for me at $5 an hour, and you can simply say: “No, that just doesn’t work for me.” Given that we each own ourselves, we can agree to any terms we like. Thus I say there are a great many terms by which you could come to use my tool, and some of those terms may well mean you end up with some ownership of the product.

            I hope I have been able to lay it out for you. There are many possibilities. We will know about clear property rights to the product only after you and I have reached an agreement about a successful exchange between us.

        • Bryan C. Winter

          I wasn’t even aware anti-capitalist libertarian-ism was a thing. Libertarianism is at its heart a rationalist economic doctrine.

          The issue though comes with ‘deciding’ what a good wage actually is. World GDP, is about 8000 dollars per person, per year. That is it. That is all the money and productivity the world makes. If you tell me that all men are entitled to 24k A year to work a job, then your basically saying that 2/3rds of the world should not be unemployed. Giving people more money does not increase the amount of goods and services the world produces. Capital growth has NOT caught up with all the needs of the worlds citizens. That isn’t a failure of capitalism. That is the simple fact that capital takes time to grow.

          In the US, wage stagnation is mostly due to competition with countries with much lower wages. However those low wages are rapidly rising. Once those wages are the same or comparable, I expect US Wages to start rising again. This, once again, is a good thing. Propsperity is actually spreading to the world, under a capitalist regime. It isn’t a minimum wage in china that is increasing the amount of money they make …. it is capital growth, an increase in the total productive capacity of the planet.

          There is limited resources in the world. The distribution of those resources is a moral question true, but also an economic one. I would argue it is immoral to deprive poorer people the opportunity to work.

          Also the last bit, about ‘why’ you work, is the diffrence between people who are employees for their lives, and people who end up employers. You increase your value to society when you learn a skill to earn more money. If your working 40 hours and then going home, eventually your job will be replaced by a machine or a person who does it better. A Job is not an entitlement, it is earned. Working for money is a path to poverty. This is less an economic statement, and advice about life. If your in the same job for 5 years and you don’t run your own company, your dead in the water. The world moves fast, and it is getting better all the time. But in a world that gets better, you need to get better with it.

    • Les Kyle Nearhood

      Sometimes it is instructive to witness raw primitive marxism.

    • SMIA061948

      You can solve this problem yourself. Open a business across from the nearest McDonalds or Wal-Mart and hire all of their workers away from them by offering them what you consider to be a living wage. Be sure not to keep any excess profits, if you happen to make any.

      It’s a lot easier to complain about what other people do than to do something yourself.

      • ChrisBurkhardt

        > It’s a lot easier to complain about what other people do than to do something yourself.

        I won’t dispute that. I certainly don’t have the capital to out-compete capitalists, even if I had the energy (or thought cooperatives were a viable strategy to begin with).

        • Anonymous

          Ah, so you just expect them to adopt your unviable strategy.

    • ZPT205

      “Labour markets are not competitive; if employers ever paid the lowest-earning workers their marginal product, then profit would be $0 ”

      I politely suggest you consult an economics textbook, because you are clearly mistaken about at least one of the terms you are using. In this case, your confusion is probably about what “marginal” means.

      Suppose I have a firm where I make $-2/hour with 0 workers (due to my rent or whatever), $10/hour with 1 worker, $18/hour with 2 workers, and $25/hour with 3 workers before wages.

      If the price of hiring a worker is $10, then I will hire one worker and break even. The _marginal_ value of the first worker is $12, because that’s how much money I make from hiring that worker. As long as I can hire workers for $11.99 or less, I make money by hiring one worker. But suppose workers are just $7 an hour. Then, I make more money by hiring a second worker, whose marginal value is $8. (18-10.) But I’d lose money by hiring a third. This is what it means to pay workers their marginal value, (or one cent under their marginal value– economists round) which is what happens in a perfectly competitive market.

      You should see by now why your statement that firms in a competitive market should make $0 an hour is wrong. They’re not making any money off of the Nth worker, but they’re making a little money off of the (N-1)th worker, even more off of the (N-2)th worker, etc. In my example, if wages are $7.99 an hour, I only get one additional cent by hiring the second worker. But I’m making $2.01 off of the first worker.

      The whole concept of marginal value confused economists for quite a while. Even Adam Smith got it wrong. He was a proponent of the labor theory of value, later adapted by Marx, which is basically the argument you’re making– that all the value of production comes from the workers, and thus any profit a firm makes must be cutting into the value added by labor. The bad news is that your argument is based on a total fallacy; the good news is that it’s a fallacy that confused quite a few very intelligent people for a long period in history.

  • j r

    Short answer: this is neither an economic not a political theory argument. It’s propaganda. Full stop.

    • rrelph

      You’re describing your content-free comment, right?

    • Jason Brennan

      Do you mean that my post is propaganda or that the argument I’m responding to is propaganda?

      • j r

        The former.

        I also don’t think that your squeegee guy analogy will convince many progressives either. In fact it will only play into their narrative that the defense of free markets is really about destroying the power of organized labor to advocate for good, well-paying, secure jobs and reduce us all to the equivalent of squeegee guys so that the 1 percent can keep ringing more and more profit out of the economy.

    • rrelph

      How do progressives view the employee-employer relationship if not as a transaction exchanging work and money?

    • Theresa Klein


      Libertarians tend to view the employee-employer relationship as transactional. Progressives don’t. Progressives want to imbue the relationship with a whole set of rights and responsibilities that are above and beyond the normal set of rights and responsibilities that we all have as human beings and as citizens.


      Because libertarians fundamentally think all people are equal and progressives don’t. Libertarians see the employer-employee relationship as an exchange amoung equals. Each with the same legal rights. Each with the same legal responsibilities.
      Progressives see the relationship as one of superior (employer) to inferior (employee). The superior has legal and moral responsibilities to care for his inferiors.

      • Mike Sturm

        I think one thing to be cautious about overlooking is the use of “employer” as a singular noun. When you say “employer/employee”, it almost sounds fair, like a game of 1-on-1. However, “employer” is, in almost every case (except for the squeegee guy one, I guess) a collective noun. And once that is acknowledged, things seem a little less fair. After all, at that point, we’re talking about an entire structured body of people whose interests (paying the employee as little as possible while getting the most productive power) against one person, who may have no real idea of how much their labor is worth. It sounds to me like going into a negotiation where one party was allowed months of prep work and data, but you were just asked to participate, and were handed a worksheet with 2 data points.

        So perhaps the proper paradigm for libertarians would be “organized company/employee”. That might make the nuances stand out from what (superficially) seems like a clear-cut and simple judgment.

        • Theresa Klein

          If you want to make an argument to libertarians, you’d probably want to say “collective entities vs. individuals”, and make a general argument about all collective entities relationships to individuals. Should there be obligations to individuals created by organizing into a group that don’t derive directly from individual transactions?

          • Mike Sturm

            I’m not sure that you can make a general argument to encapsulate all the different kinds of relationships there are between collective entities and individuals. Some collectives may have obligations to individuals that others don’t, and there may be some relationships that are transactional and some that aren’t.

            My overarching point, though, was just that I don’t see how a transaction between a collective and a single individual could be one between equals. It almost seems that by definition, it would not be. But just addressing the example of a laborer and a firm, the firm may (under your preferred libertarian rights scheme) have the same rights and such as an individual. However, that does not make them equal, at least not in any way that matters in a debate about distributive justice. The collective has more power, by numbers and by organizational standards. There is intimidation, there is a real power structure at work at that point. I just don’t see how that can be an efficacious kind of “equality”.

            I think to characterize progressives as seeing the collective/individual relationship as “superior” and “inferior” is a bit of a skewed evaluation. I would, as I did above, characterize the progressive view on the relationship as “powerful/much less powerful (but not powerless). That disparity in power is where the problems really creep in.

          • Theresa Klein

            How does Walmart intimidate people into taking a job?
            A government can call the police, arrest you, throw you in prison, torture you execute you, all legally. All Walmart can do is not hire you.
            If you want to talk about collective entities that employ intimidation, please look at unions.

          • Mike Sturm

            Please don’t get me wrong, I’m not arguing that Wal-Mart intimidates people into taking a job. What I am arguing is merely a reply to your point that libertarians see the “employee/employer” relationship as one between equals. I don’t think it can be construed that way, just as there is no way to coherently view the relationship between governments and individuals as one between equals. It is false both based on numbers and on the power that each part wields.

            As for your claim that “all Wal-Mart can do is hire you”. I believe that such a claim severely underestimates the possibilities of coercion within a company. Yes, if there is coercion taking place at a company, you may have the choice (nominally) to leave. However, one cannot ignore the rich history of intimidation tactics that companies all over the world have practiced (and continue to practice). Citing some nominal freedom of a worker to leave a job does not relieve a firm of their obligation to refrain from abusing/intimidating/coercing workers—neither does an appeal (via analogy) to government coercion.

          • Theresa Klein

            I’m fine with having a discussion of proper workplace ethics once you are actually hired. That’s certainly somewhere where I think you can create internal cultures that are more or less “libertarian”.
            But we’re talking about the wage you get hired at, which is prior to any coercion. Other than the monopsony power argument (and I don’t think Walmart really exercises monopsony power anywhere), I don’t see a power disparity affecting the wage here. If you were talking about salaried positions, it’s hard to know the prevailing wage for a position, things are too specialized, and so the company may have access to more information about the “true” prevailing wage for that partisular specialized skill. But for minimum wage workers, you’re talking about a large number of essentially indistinguishable unskilled laborers in a large labor market with many employers. It’s hard to see how one could supress wages by hiding information about the true usefullness of a generic unskilled laborer.

      • John Alexander

        I would like to know why you think all people are equal and how the employer-employee relationship is an exchange among equals. I have been on both sides and they are not equal.

      • Les Kyle Nearhood

        That sounds a whole lot like feudalism Theresa.

      • j r

        Because libertarians fundamentally think all people are equal and progressives don’t.

        That’s a bit much and too much a pat on our own backs. There are lots of libertarians who don’t think all people are equal and lots of progressive that do. The difference is that progressives tend to be much more paternalistic and to look for coercive, top-down means of enforcing equality.

  • John Alexander

    You beg the question with the assumptions that you make in the 1st paragraph. Furthermore the 2nd sentence in the fourth paragraph also begs a lot of questions. Why assume that the reason that Bob can earn only 1.00 is because he is lazy and unproductive? I can earn only a per course wage (the 1.00 scenario) for teaching because the school where I teach hires adjuncts instead of full-time professors. Am I lazy, or unproductive?

    • Geoff Arnold

      To spell out John’s second point, you write: “if McBurger pays him for his marginal product”. But why would McBurger pay for the marginal product if they can get away with paying less? Again, we are not dealing with a free market with an infinite number of participants, free movement (entry/exit/transfer), and perfect information. In a high-unemployment environment, the market-clearing wage level may be substantially unrelated to the marginal product.

    • http://www.stationarywaves.com/ Ryan Long

      By definition, you are not more productive than your per-course wage. Because I wish to earn more income than what my employer gives me, I produce economic goods on the side. My productivity is lower in each of these lines of work than I would like them to be, but if I wish to earn more, I am required to produce more.

      It’s nothing personal, it’s just a fact.

      • John Alexander

        If one equates ‘productive’ to mean ‘wage’ then you are correct. It depends on how you define ‘productive.’ As an adjunct I had many more papers published and professional presentation then any of the tenured or tenure track professors at that institution in my department. Are papers and presentations being productive? How about teaching more course than tenured or tenure-track professors?

        • http://www.stationarywaves.com/ Ryan Long

          That’s up to the person or entity who pays you for being productive. You don’t pay a car mechanic extra just because he happens to be an excellent violinist. Or maybe you do. It’s a personal decision based on what you decide you’re paying for.

      • good_in_theory

        Actually it’s not a fact. Marginal product is only a measure of productivity under (1) certain assumptions about how one defines productivity and (2)given those assumptions, certain conditions which don’t hold anywhere in the real world.

        • http://www.stationarywaves.com/ Ryan Long

          Be more specific.

          • good_in_theory

            The marginal revenue product theory of productivity holds under perfect competition under the standard neoclassical assumptions. Where this model does not hold, the theory doesn’t hold. Others in this thread have responded in more detail.

            However, the theory is on its face false as a description of, to paraphrase Brennan, “how much value Bob produces.” It’s a theory about factors of production, not the individual components of the factors Even granting the assumptions that lead compensation to each factor to equilibrate to its marginal revenue product, It can’t tell you what each individual component of a heterogeneously composed factor produces.

          • http://www.stationarywaves.com/ Ryan Long

            Okay, thanks for clarifying.

            Actually, my point of view need not rely on the marginal product theory of productivity. Generally when I use the phrase “productivity,” I’m referring to output per unit of time. This second definition is consistent with what I learned in my econ courses, as well as what is described by the popular dictionary of economic terms “Investopedia.” http://www.investopedia.com/terms/p/productivity.asp

            The point being that, in the final analysis, one is paid to produce something. It’s up to the payer to determine what labor they’re interested in buying. If the seller of labor produces a lot of work that is above and beyond what the employer wanted to buy, that may or may not be of interest to the employer, but it will certainly have no impact on present wage. (Although, it sure could influence a future wage – no guarantees though!)

            The above holds true regardless of whether the market for low-skilled labor is perfectly competitive. If you feel it is not, that would be an unorthodox claim. But even if so, I am not sure how it would counter my argument.

          • good_in_theory

            But you can’t reliably infer output per unit of time from wages. Certainly wages give you an idea.

            As to “the final analysis,” people will spend no more on something than they are willing to spend. But what does that tell us about the specific returns, or output, generated by those things on which they have spent money? We don’t know if the output of what someone has spent money on equals the amount of money they spent on it.

            As to thinking the low skilled labor market is not perfectly competitive being “unorthodox,” I don’t see how that market could be seen to have perfect mobility or zero transaction costs. If it’s orthodox to think it does, then the orthodoxy would appear to be at odds with reality.

            Now if we return to the proposition, which is now something like, ‘you cannot produce more output per unit of time than you earn in wages per unit of time,” (replacing “productivity” with output/time and “per course wage” with wage/time), we can simplify that to “your revenue product cannot exceed your wage”.

            But this just dashes itself on the same cliffs. You can say this about factors of production as a whole in perfect competition. You cannot say it about individual elements of the productive process in specific in perfect competition, and you cannot say it about factors as a whole outside of perfect competition.

          • http://www.stationarywaves.com/ Ryan Long

            I think you might be missing my point. You can’t infer output from wages, but you don’t need to, since output is always known. That is, an employee is always aware of what he/she produces. No inference is required.

            Output need not equal the money spent on it. One would rather hope that, for the employer, output was greater than the money spent on it; while, for the employee the money was greater than the output required to earn it. This is a fundamental law of trade: If I don’t value what I get *more than* what I give up to get it, then I won’t engage in trade.

            Third parties don’t determine whether the beneficiaries of trade have benefited. The beneficiaries themselves do. Third parties can only observe whether or not the trade occurs. If it does, then it must have been “worth it” to the parties involved; if it does not, then it must not have been worth it. If it happens repeatedly over a period of time, then we can only assume that both parties felt they were getting a good deal. Otherwise, they wouldn’t have continued repeating the same transaction over and over.

          • Theresa Klein

            I’m in agreement with Ryan here, however, I have actually observed situations where an “employee” is effectively involved in an abusive relationship with an “employer”, where the employee basically doesn’t get paid, or doesn’t get paid nearly as much as he could be earning elsewhere, but irrationally stays in the job. I’m actually talking about a freelancer and a client who only sporadically pays him.
            One of the things that’s nice about taking a job with a real company like Walmart is that you have an enforcable legal guarentee that you actually will be paid what they say they will pay you.

          • good_in_theory

            Are employees aware of what they produce in the relevant sense? Are they aware of the pricetag of the value they contribute to an endeavor? I don’t see why one should think so.

            So you’ve demonstrated employer/employee relationships are pareto efficient. What does this have to do with the question of how much value workers are responsible for creating?

            Or is there a different question being answered here? What’s the question to which, “trades are pareto efficient” is the answer?

            (Tangentially, it’s also not the case that the supposed beneficiaries pre-trade assessment of the value of their transactions determines the post-trade value of the transaction – it’s not the case that our expectations determine our experiences). So a trade need not have necessarily been worth it, though repetition is a sign that it was.)

          • http://www.stationarywaves.com/ Ryan Long

            I don’t see why it would matter to an employee what the selling price of a widget is, since that does not factor into the employee’s decision to sell labor. Wages are the only prices that impact the selling decision of a person selling labor.

            Based on this and your previous comments, I am lead to believe that you see value as being a universal and cardinal thing. I see it as being entirely subjective. Jelly beans, for example, may have a particular selling price, but to me (a diabetic) they are deadly poison that I count as a bad rather than a good. Nevertheless, many millions of jelly beans are sold every year – just not to me. Value is subjective.

            Thus, an employee and an employer may differ in their valuation of the widget, and even in their valuation of labor. But, so long as they agree on a price and go through with the transaction, my previous points hold.

          • good_in_theory

            I’m not sure why you infer that I don’t hold a subjective theory of value, or hold an objective theory of value. I don’t see the grounds for thinking that in what I wrote. Nothing I’ve written requires value to be objective, or is untrue with respect to subjective theories of value, AFAICT.

            The price of a widget matters because the question I’ve been considering is, “what portion of the product of a firm can be attributed to the individual inputs in that firm,” or, to put it another way, “how valuable is an employee to the firm which employs him.” The assertion I took to be at hand was that “an employee is no more valuable to his firm than* his wage.”

            *Equivalent phrasings: does not produce any more than; produces no value in excess of; is no more productive than.

            The chain of reasoning in Brennan’s post was that Bob is paid the in wages the same (cash) value of the marginal revenue product he creates when he is hired, ergo the amount of value which Bob creates is equivalent to his marginal revenue product.

            Your development of this was that it is necessarily true, or true by definition, that the value of one’s productivity is defined by/as their wage.

            But the cash value of one’s productivity (A) is the cash value of what one is responsible for producing when it sells on the market. The cash value of one’s wage (B) is what one can command in the labor market, from one’s employer. (A) and (B) are determined in distinct, related but not equivalent, transactions. The marginal productivity theory of wages suggests that A=B, but that’s an empirical, not a logical equivalence and it depends on the relevant conditions holding.

            Or is your position that there *is no comparing whatsoever* the value of the outcome of transactions between different parties, or maybe even between transactions, because the act of valuation is some sort of completely independent, unique, incomparable thing? We can only know that transactions were beneficial, period?

          • http://www.stationarywaves.com/ Ryan Long

            So far, I agree with you except when it comes to what you have called “Equivalent phrasings.”

            An employee is no more valuable to his employer than his wage. This is a statement with which I agree.

            When you replace “is no more valuable to his employer” with “produces no value in excess of his wage,” you have completely changed the subject. The latter does not follow from the former, nor is it in any way equivalent.

            For example: We can hire Yo-Yo Ma to sweep the floors of our office building. Yo-Yo Ma is certainly capable of much more than that; his is a rare and valuable talent worth far more than a janitor’s wage. But if we hire Yo-Yo Ma to be a janitor, then the value of his work to his employer at the office building does not exceed the market value of a janitor.

            So it really is like I said to John Alexander before: Just because a person may produce additional market value than his wage, that does not guarantee that his employer is interested in investing in that value. There is obviously more to it.

            Hence, a prolific academic publisher may not have any reason to expect a higher salary if his university hired him to teach. Hence, Yo-Yo Ma can expect a cellist’s salary when he is hired as a cellist, but a janitor’s salary when he is hired as a janitor. Hence, I perform a certain function for my own employer and then go home and perform additional labor for my side-business. Hence, $1 Bob is $1 Bob so long as his worth to McBurger is $1.

            I’m sure we’re all more economically valuable than our salaries – just not to our own employers. That makes all the difference. If we want to capture our additional value, we need to either find other work or convince our present employers that they should value us more highly.

            And, once again, none of this rests on any assumption of market perfection.

          • good_in_theory

            When I wrote, “no more valuable to his employer,” I assumed it was implied that I meant, “no more valuable to his employer with respect to the tasks he performs for his employer/the tasks his employer hires him to perform.” I’m not talking about someone “value” independent of the particular situation under discussion – I’m not talking about their “total value” (or whatever one would call it) of someone in all situations in which they exist.

            The point that people produce more of value in other situations than the value for which they are compensated for in their employment situation strikes me as a non-sequitur. Yes it is trivially true, because in no case does one *only* produce things of value in one’s job. The question though is whether how much someone is paid for their job is an accurate reflection of how much value they produce *for their job*, not in general.

            Your comments are on point and to the question when you write, “I’m sure we’re all more economically valuable than our salaries – just not to our employers.” But this is the proposition that is false – ‘that we are no more valuable to our employers than our salaries’, and the obvious fact that we produce more of value than we produce in our job is a diversion from the falsity of that proposition, which *does* rest on the assumption of perfect competition.

          • http://www.stationarywaves.com/ Ryan Long

            I am glad we agree that the points I made above are trivially true. That means you had in your mind some additional point. Truth is, I cannot fill in the blanks. I am aware of the fact that you disagree with me about something, but I can no longer see what it is.

            I responded to John Alexander and pointed out that producing in excess of what one is hired to do is no guarantee that one can therefore command a higher wage. I stated that this was a fact and nothing personal. You responded that this is only a fact in a purely competitive marketplace. Upon further investigation, we agree on what the facts of employment are.

            So then it falls to you to demonstrate why John Alexander can command a higher wage by virtue of the fact that he produces things over and above that which he was hired to produce.

          • good_in_theory

            I stated what I disagree with you about in the final paragraph.

            “I’m sure we’re all more economically valuable than our salaries – just not to our employers.”

            This implies that, ‘we are no more valuable *to our employers* (not in general) than our salaries.’

            This is false. Or rather, it is only true if certain rather strong assumptions hold. It also strikes me as equivalent to the initial statement to which I was responding “you are no more productive than your per course wage,” where “productive” means “valuable to your employer.”

            So I don’t think I was importing anything; rather I think I’ve been responding directly to assertions you’ve made.

            John Alexander could, potentially, command a higher wage than what he was hired to produce for multiple reasons, but this question strikes me as a diversion from the proposition I’ve been focusing on, which was the first sentence of the first comment I replied to. In any case:

            1. he produces more (for his employer) than what he was hired to produce.

            2. We’re in the short run and it costs less to continue to hire Alexander at a higher wage than it does to fire and replace him.

            3. Alexander is the boss’s nephew and is not compensated on the basis of what he produces.

            4. The boss cannot accurately track how much Alexander does or does not produce, so his perception of how much he produces is malleable, so bargaining over wages can at best only approximate his productivity, and whether we go over or under is in large part a function of the circumstances in which bargaining occurs

          • http://www.stationarywaves.com/ Ryan Long

            I think I see what you mean, but it is a rather convoluted point that rests on what I consider to be less-reasonable assumptions than mine. At best I can say that what you appear to be arguing also strikes me as being trivially true, but in no way contradicts anything about the thrust of my point.

          • good_in_theory

            I don’t see anything unreasonable about thinking that wages are at best only a proxy for productivity, or anything complicated about the point that how much someone is paid for their job does not tell us how much they produce in their job.

            In most lines of work, no manager has a precise and accurate read on how much an employee contributes. Maybe direct sales jobs are an exception.

            What is the thrust of your point? It seemed to me to be that, “one produces no more than their wage,” and that, “to earn more one must produce more,” and this is an unambiguous fact. But it’s not factual.

            People produce both more and less than their wage. And to earn more one must make their employer believe that it would cost more to lose you than to give you a raise over some time horizon. Actually producing more is optional, and whether producing more would close a gap, keep parity, or widen a gap between pay and product is an open question.

            I don’t think the truth of my point is trivial, though it may be obvious, because the assumption that wages tell us about productivity is often used to support moral arguments about desert and entitlement which depend, in part, on the equivalence.

            See, for example, Greg Mankiw’s recently poorly argued and poorly researched article in JEP, linked to over at CT http://crookedtimber.org/2013/06/16/annals-of-anti-egalitarian-hyperbole/.

            Or Brennan’s initial post, where Bob getting paid his marginal product is taken to imply that Bob produces no more than his marginal product, and therefore paying him anything more would be subsidizing his no good wasteful life.

          • http://www.stationarywaves.com/ Ryan Long

            I think the comment you just wrote is the one you should have started with. We wasted a lot of time and bandwidth to arrive at what amounts to only a marginal improvement in our understanding. I appreciate the nuance, but you certainly could have taken us there faster.

          • good_in_theory

            Well, it’s hard to respond directly and quickly when the truths being assumed multiply and change from post to post

            We went from “no one produces more than their wage” to “workers necessarily know how much output they make” to “all trades are pareto efficient” to “the only price a worker cares about is the wage he is offered” to “people produce more of value than what they produce within their job/workplace for their employer” to “producing more of value than your employer values does not guarantee you a higher wage.” (For summary purposes, 1 and 2 are false, 4 and 5 are true.)

            It’s hard to read the last statement and the first statement as equivalent, and hence respond to the first statement as one would to the last statement, when the last and the first statement are not the same.

      • John Alexander

        I may be missing your point. Using academia as a paradigm is probably not a good idea. Wages are not equivalent to production. Productivity is related to output – wages are what is paid for the labor for that output. Two workers producing widgets (what originality) are paid $10.00 per hour. There is an expectation that they will produce between 8-12 widgets per hour. One produces 80 in eight hours, the other 90. Both are paid $80.00 for their labor.

        The problem that I have with Jason’s analysis is that he equates the two. I also think that using the worst case example is inappropriate and misdirects the discussion. If Bob did not produce at the expected rate, I would fire him. We all know that labor is a cost of doing business. If I move my business to a market with lower labor costs I do not lower my productivity expectation. That said, if everyone has to pay a livable wage as the minimum wage we would adjust to that just like we adjust to paying the rates for other things associated with doing business, i.e., energy, raw materials, insurance, etc. This way we all pay for everyone starting at a livable wage and not falling below that line, all things being equal.

        • http://www.stationarywaves.com/ Ryan Long

          But the two workers are equivalent with respect to their employment contract: both meet their quota. It may be in the employers interest to offer the more productive worker an efficiency wage, but if the worker is content, then everyone is getting the deal they signed on for. Maybe the less productive worker is the smarter of the two, because he need not work as hard for the same amount of money. Maybe a million things.

          Why don’t we pay everyone *more* than a living wage? Why don’t we just make everyone millionaires? What happens when, ceteris paribus, everyone’s wage increases my a million dollars? Sounds like nominal inflation to me.

    • Jason Brennan

      I’m not begging any questions. I’m framing the issue, be careful to say that whether any of this applies to the real world (which might not be a competitive market) is open for question.

      Also, I said “lousy,” not “lazy,” and the labor market in academia is much weirder than the labor market in hamburger flippers.

      Simplifying the issue: Suppose Bob doesn’t produce enough value per hour that he can trade to keep himself alive. Should his employer be the one that has to lose money to keep him alive, or should that burden fall on all of us?

      • Bob Huddleston

        Who sets this “value” you speak of? Does Bob set the value by working for what he’s offered so as to have a job, or is the “value” set by the Company who believes that to pay Bob more means that instead of being profitable, they will be operating at a loss? Is the value skewed because there is social subsistence programs, and the corporation has spent money to incorporate it into their business model and pay people to help their employees receive this aid, costing them less than if they were to pay the difference as part of the wage to Bob? I would surmise that Bob, restocking inventory or doing whatever he is told to do that is “support” related and not directly “sales” related is always going to be a “net loss” that is designed to be offset by the actual selling of the product or service.

      • John Alexander

        I stand corrected on the word usage. Although, I do not know what is worse; being a lousy worker or a lazy one. I suggest the latter as we might be able to turn a lousy worker into a good one easier that turn a lazy one into a energenic one. I think that we all share the burden. If Bob worked for me I would fire him if he could not meet the requirements of the job. He can receive some compensation for which we pay in taxes and/or increased prices.

        The reason that I think you beg the question is that you frame the discussion using a worst case scenario. Why frame the discussion around a lousy worker who will never get any better? Why not frame the discussion with a worker who is motivated and talented but cannot find employment that fits her level of capabilities and potential. She may still have a market value of only $1.00 to all possible employers in terms of what they are willing to pay in wages. We might be more sympathetic to her then we are to Bob and based on this seek out a different resolution for keeping her alive. If we assume that most people are not lousy or free-loaders, but want to contribute and succeed then we might start out with a livable wage as the bottom line. As I mentioned in another discussion, business will adapt to this, like we do to dealing with the other costs of doing business.

        Anyway, it has been a good post. Thanks

  • http://www.stationarywaves.com/ Ryan Long

    Nothing about this issue makes any sort of sense to me, not even from a leftist perspective.

    The way it was supposed to work was that we, the collective, which includes McBurger, all pay into the public coffers, and those in need will draw from them. Assuming McBurger pays its taxes, then it has fully accounted for its individual responsibilities.

    The collective supposedly taxed McBurger explicitly for this purpose. Are we now to believe that McBurger owes taxes to the collective for esoteric reasons, and that the funds from the collective are subsidies to anyone who engages in a business transaction with a welfare recipient? What were the original taxes for?

  • Bob

    The author clearly doesn’t have much understanding that corporations – say Walmart – are creations of the State. Speaking of corporations, the First War of American Independence was not caused by taxes but by a tax rebate for the East India Company (at that time the biggest international corporation in the world), meant to drive out of business its smaller American competitors.

    There are those who think they understand economics…and then there is reality.

    • rrelph

      Economically speaking, it doesn’t matter if Walmart is a corporation or a dba/sole proprietorship. So your history of corporations is irrelevant, economically speaking.

      • Philopoemen

        It does matter, because Wal-Mart’s size and market share are what have allowed it to drive retail wages down. Look back a few decades and it was perfectly normal to make a decent living by working in retail. That is now almost impossible.

        • rrelph

          The reason it may have been possible to make a decent living in retail is because people without degrees and licenses used to be able to do many more things than they can today. It’s simply supply and demand. The supply of retail workers is MUCH higher than it used to be because the alternatives for unskilled labor are much reduced. In contrast, of course, more money flows to those in jobs that do require degrees and/or licenses.

          http://ij.org/licensetowork

          Additionally, with government imposing increasing taxes and fees, and increasing the costs for everything else indirectly via regulation, the cost of a basic “decent living” has risen much more than retail wages.

          Still, I question your premise somewhat… As a high school kid in 1976, there’s no way I could have survived on what the local pizzeria was going to pay me, or the McDonalds or Radio Shack. It may have been possible to survive on what the local specialty retailer (say, the local camera store) and I think it’s still possible for such truly speciality retailers. It’s true that more people now get their cameras from a “big box” retailer than from the local store, but THAT is partially (substantially?) an artifact of better information dispersal… A camera buyer doesn’t need to establish “trust” with a local salesperson any longer to know that a particular camera is a “good choice”. We just go on the web and read reviews and get crowd-sourced information about reliability and usability.

    • Jason Brennan

      Yeah, clearly, you got me. Zam!

      But I forgot to mention that McBurger is limited-partnership, not a corporation. Ouch!

    • j r

      Saying that a corporation is a creation of a state is a little like saying the Smith family is a creation of the state just because Mr. and Mrs. Smith have a marriage contract.

      There is literature on the firm. It’s funny that you make a comment accusing others of not understanding economics and show yourself lacking in the process.

      • Les Kyle Nearhood

        Besides which, the East India Company was not a corporation in the modern sense. It was a special creation of the Crown given monopoly and even law enforcement and war powers.

  • mikewaz

    Sure, I can understand the argument against making businesses provide Bob a living wage because they would effectively be losing money by hiring him. I can also support the argument that we collectively should make sure Bob can live off of his wages by providing additional support beyond what he gets from his job.

    The question then is where should this support come from? Most libertarians tend to oppose the state providing financial support to individuals. The only legal option I see after that is private charity. Unfortunately, there are all too many of us who take John Galt’s command to live life solely for themselves seriously and, if state support of the poor and downtrodden were abolished, would not give another dime to privately help these people.

    • http://www.stationarywaves.com/ Ryan Long

      To what extent do you believe it an individual’s right to determine whom he will help?

      • mikewaz

        Nice trap question. If I assert any extent greater than none, I oppose property rights and the freedom to spend money as desired. If I assert no extent at all, I’m a heartless bastard who gets his jollies off tossing the poor to the curb.

        • http://www.stationarywaves.com/ Ryan Long

          I don’t see it as a trap question, and I certainly didn’t intend it to be. You yourself said that “The question then is where should this support come from?” I cannot answer that question without first knowing to what extent we are allowing individual choice to govern my response.

          I see my question as being a moral dilemma that belongs to you, according to what you see “the question” being. I don’t believe in government welfare, so it is not my dilemma to resolve.

          • matt b

            Ryan,

            Is your position sensitive to consequences? To bring up one of Jason’s old challenges: if a social insurance state led to a society with almost no poverty while a totally laissez-faire state led to a sharp increase in poverty/ and misery would you still favor the laissez-faire state?

          • http://www.stationarywaves.com/ Ryan Long

            Sensitive to all consequences, yes. A society in which “poverty” (which is relative) were eliminated, is also a society in which comparative advantage has been greatly reduced. Do the benefits of social equality outweigh the costs of a less dynamic economy? Pretty hard to say, but I am inclined to say that comparative advantage is much better than income equality. What do you think?

          • matt b

            I’m a sufficientarian like many of the people on the blog. I think what matters is empowering all people to lead minimally decent lives. I could not care less about income inequality as such. If the rich became three times richer tomorrow and the poor only two times richer income inequality would increase. If you buy into the “equality is primary” argument this would be a worse world. So no I don’t think equality matters as suh but a minimum standard for all strikes me as morally imperative and, yes, I do think free market capitalism gets us most of the way there.

    • rrelph

      Do you have any evidence to support your claim that there are “too many” who are willing to help their families, friends, and neighbors? How did it work BEFORE there was government-provided welfare?

      • good_in_theory
        • rrelph

          Interesting, but not applicable… I specifically cited “families, friends, and neighbors”, not strangers.

          • good_in_theory

            Why should one believe the demonstrated effects don’t hold between families, friends, and neighbors? Yes, the experiments didn’t test a difference between the acquainted and the unacquainted, but why expect a different outcome?

          • Les Kyle Nearhood

            Well because our knowledge of human nature and human history seems to point to a decided difference between the way we treat strangers and the way we treat those we know.

          • good_in_theory

            And college students in the same community are strangers? In any case the mechanisms and mannerisms demonstrated by the monopoly game experiment don’t seem to me like they would be stopped by kinship ties. I suspect you would see the same patterns.

          • good_in_theory

            My knowledge of human nature and human history seems to point to the fact that many people quite easily and often act like dicks to their family, especially when money is involved.

          • matt b

            There were a lot more elderly people in poverty before Social Security. I’m no big fan of it in its current form but the concept at the heart of its existence is sound. I think the hard libertarian position here is a little disingenuous because it involves denying, often in the face of some pretty compelling empirical evidence that aspects of the welfare state work quite well, but at the end of the day your position is that even if these programs did achieve their intended results they would still be immoral because property rights are absolute/ near absolute but since that’s a position almost no one accepts outside of a small group of libertarians (maybe even a minority within libertarianism) you don’t want to discuss it much.

          • Les Kyle Nearhood

            My opinion is that we need some sort of social programs for a variety of reasons, primarily that the people will demand it.
            But the type of program and how it is funded matters a lot. Social security would not be in the horrible shape it is in now if it had been a real investment. If even half of those funds had gone into real investments it would be solid right now. Instead it was a immoral Ponzi Scheme.

          • matt b

            We agree.

      • mikewaz

        It didn’t work very well at all. Most of us alive today weren’t around for the Great Depression (you’d have to be 84 to have witnessed the beginning of it), but people demanded the government create a social insurance system, aka Social Security, because family, friends, and neighbors were not able to support them. If you eliminate the minimum wage and all government support for the impoverished without ensuring an alternative support system, all you will be doing is recreating the very conditions that led to those programs in the first place.

        http://www.theatlantic.com/politics/archive/2011/05/the-past-and-future-of-entitlements/238678/

        • Les Kyle Nearhood

          It worked well enough until the government created a massive depression. However, you are correct. all modern states will demand some sort of social safety net. The trick is to create one which will not be used by politicians to buy votes and will not grow outside of the ability of the economy to pay for it. Our present Ponzi scheme will be completly broken in just a few years, so it will be interesting to see what happens.

    • Jameson Graber

      “Most libertarians tend to oppose the state providing financial support to individuals.” You’re at BHL. That’s not necessarily the case here. I, for one, am a fan of Milton Friedman’s negative income tax idea, or something like it.

      • mikewaz

        I am as well, but that seems to be a less than common policy to support elsewhere in the political spectrum.

  • Jod

    No doubt Bob’s wages are tied to his pathetic lack of productivity. Shape up, Bob.

    • Jameson Graber

      I’m guessing the assumption behind this comment (“Shape up, Bob”) is that libertarians blithely assume that everyone can and should just “shape up,” without assistance from the state. But I don’t think this blog post should be read in that context. That’s not being fair to the overall content and themes of BHL. At some point, some people will need assistance, and I accept that this may have to come from the state. But should it come from the state in the form of wage laws, or simply in the form of direct aid? That’s the question here, not whether Bob is deserving of support.

      • reason60

        Direct aid unfortunately divorces the value of Bob’s work from his wage.
        Simply by working, Bob contributes value to society as a citizen, husband, sibling and father.
        Allowing the marketplace to determine the value of Bob’s work creates a bizarre circumstance where work itself can variously be wildly precious, or modestly valuable, or utterly worthless, depending on arcane global factors having nothing to do with what Bob contributes to society as a gainfully employed person

        • Jameson Graber

          I disagree. “Simply … working” is not enough. It ought to be productive, meaningful work, as determined by the needs of society. But these needs are constantly changing. Bob should try as much as he can to tailor his skills toward those areas of production which are useful.

          The “circumstance where work itself can variously be wildly precious, or modestly valuable, or utterly worthless” is actually not at all bizarre, in fact it’s always been that way. The market economy may seem like an “arcane” way to organize production, but it is the best way that’s ever appeared to allow the very innovations which we can use to save the poor from destitution.

          I strongly recommend Hayek’s The Fatal Conceit.

          • reason60

            How meaningful can work be, if it is nothing more than a transaction?

            That sounds like the Homo Economicus view of work, one that is wholly without a moral foundation.

            When you say that the market is the “best” way to organize production, what is your criteria to judge “best”?

            Isn’t the purpose of societal organization to accomplish something more than efficiency? For example, isn’t the purpose of our societal organization to produce a flourishing of the human spirit?

          • Jameson Graber

            “Isn’t the purpose of societal organization to accomplish something more than efficiency? For example, isn’t the purpose of our societal organization to produce a flourishing of the human spirit?” Emphatically yes. And I would think it would be impossible to produce that flourishing of the human spirit apart from working to produce something genuinely desired by others.

            When I say the market is the “best” way to organize production, I mean that it is the only known system which both allows individuals freedom to change course based on personal goals and simultaneously allows society to respond to real needs and desires. If you set up a job for Bob simply to grant him the dignity of working, it becomes a rather hollow sort of dignity, since it doesn’t respond to any real needs or desires.

            But anyway, I don’t mind if Bob works without producing much, if that’s truly all he’s capable of. I’m the one who proposed we give Bob direct aid to help him out. If we did that instead of imposing minimum wage laws, chances would be less that he’d get fired.

          • SurfSmurf

            LWA (aka Reason),

            The point of economic efficiency is to optimize the baking of the pie necessary for us to survive and thrive. When I mow the lawn I don’t do so to optimize meaning in life, it is to make the lawn look better.

            Economic prosperity has always been the necessary foundation for those pursuing higher values and meaning. Indeed, economic freedom creates the foundation that progressives use to actively undermine the foundation they depend upon.

            Roger (aka surf)

  • matt b

    Jason,

    I wonder what you make of the argument that since Wal Mart is in a far better position to help that it has a greater burden to do so. Of course it goes against basic econ to think that it should do so by paying workers more than they are worth but what of the case for taxing the owners of Wal Mart and other successful companies at a higher rate (progressive taxation) since they are far better positioned to assist those in need than, say, a family taking home 80 ground a year?

    • Theresa Klein

      Walmart isn’t going to pay any workers more than they are worth. It is just going to fire them.

      • matt b

        True which is why I oppose minimum wage legislation and think that, to the extent that redistribution is morally permissible (and I’m sure we have different views on that), it should be done through the tax code/ and or social insurance programs.

    • CT

      So you would have a progressive rate on capital gains and interest income? That would cause much more poverty in the long run than it could ever cure.

      • matt b

        We had a higher cap gains tax in the 1990s and we had less poverty than today and during the Bush years. I’m actually for abolishing the cap gains and interest income taxes (I like the idea of a national sales tax) but I think libertarians need to stop overstating taxes as the be all and end all. I was referring to measures like the EITC, not any sort of punitive soak the rich measures which I do oppose.

        • CT

          Sorry, too many American acronyms for this Canadian to understand ;)

          I agree with you on taxes but I doubt you’d agree with why I think the lower 2 income quartiles are getting poorer (hint: ever hear of Cantillon effects?)

          • matt b

            Haha I’m sorry. EITC stands for earned income tax credit and it’s supported by folks I would call libertarian welfare state reformists, rather than welfare state abolitionists.
            I’ve heard that term but what is the theory behind it?

          • CT

            Richard Cantillon (before Adam Smith) theorized that when new money entered the system, although real incomes remain the same in aggregate, those who received the money first benefitted while those who received it last (or not at all suffered). So the more you inflate, the more a small group of financially and politically well connected people benefit while everyone else loses. I personally believe the data fits quite well with this theory.

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  • Thomas J. Webb

    I’ve made the subsidy argument before, though I never thought that employers were uniquely morally obliged to help people who just so happened to be their employees.

    Since there is so much rent-seeking by companies, because there are barriers to entry (real and artificial), companies don’t really compete for workers as much as they should. So do minimum wages break our legs or are they a crutch? I think it may well be both..

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  • McGrupp

    I would like to make three critiques:

    1) If McBurger were in a perfectly competitive market, I could check the spot price of burgers on my iPhone and the many outlets around town where I could pick one of these identical and perfectly substitutable product goods. Both the firm and me (the consumer) would be price takers. Personally, I don’t know of many perfectly competitive burger markets. Instead, I walk into McDonald’s and McDonald’s gives me the McDonald’s price for a Big Mac. Even if a firm isn’t a pure monopoly, if it has some monopoly power it will price its goods above marginal cost. By the same logic, it’s not producing at the perfectly competitive quantity, doesn’t need to hire so many workers, and will be able to attract the quantity it does need with wages below their marginal product. Check out chapter 4 of Jordi Gali’s text book on monetary policy.

    2) Your papers hints at what economists like to call monopsony power in the labor market – when there are only a few firms buying peoples labor rather than a spectrum of perfectly competitive firms. Firms (or any consumer) with monopsony power will consume less and demand a lower price for what they buy. The logic is a mirror of the very familiar analysis of monopolies producing less and charging more. Counter-intuitive to the traditional perfectly competitive analysis, putting a floor on wages for industries which have monopsonistic labor power would increase the number of people a firm employs. I don’t know much about Walmart, but I recommend Card and Krueger’s 1994 article in the AER for a very good empirical study on the fast food market that shows New Jersey’s implementation of a minimum wage had no discernible negative effect, and arguably a mild positive one.

    3) Perfectly competitive markets are good for developing intuition and work as a first-approximation of the economy, but actual individual wages are set by bargaining between the firm and the potential employee. In the bargaining models, two sides will both try to exert influence and power to capture as much of the surplus created by their cooperation as they can. Now, I would not say historically labor is purely innocent of never using coercive strategies when negotiating with firms. But I would be hard pressed to believe that potential employees today know fully what their marginal product is and are not under some duress to take a job as quickly as they can find one, both of which would increase the bargaining position of a firm like McBurger when setting a wage.

    • Theresa Klein

      The Card and Kreuger study is on fast-food joints, which surely do not enjoy monopsony power in their respective labor markets. Thus Card and Keugers results lack a theoretical explanation.

      • McGrupp

        Truth in part. Card and Krueger keep to the empirics and leave it up to the reader to fill in the blank on why the numbers came out so. I don’t find it unreasonable that fast food restaurants may act as a cartel monopsony. I would argue many of the workers come from the least mobile bit of the local labor market and that someone who owns one fast food restaurant often owns several more. However, the are alternative theories about why the minimum wage did not lead to higher employment.

        Perhaps the state forced an efficiency the private market had not realized, and higher wages allowed firms to attract better workers, increase profits, and expand. Perhaps the redistribution of income but money in the hands of people who were more likely to spend money at local fast food restaurants, boosting demand in that sector. Or one of the other explanations I proposed above for firms paying wages less than workers’ their marginal product applies, so when the wage was imposed labor just reclaimed their allocatively efficient share of income without much changing overall employment.

        And because I think the assumption of perfectly competitive markets for both labor and firm-specific products is really, really, really bad, I would like to make one mor note regarding my original post. If those any of those three conditions do apply (any one is sufficient ), then you expect high unemployment and high corporate profits. This is a rather strange phenomenon in the Econ 100 expectations of the world, but matches what we’ve experienced in America over the past five years fairly well.

        • Les Kyle Nearhood

          First, I have never seen a case in which minimum wages were raised a lot higher than the prevailing minimum basic wage. So their effects will not be much. Let us see an entity raise it by several dollars an hour all at once and we can observe the results. Second. since each and every fast food place faced the same rise in labor costs they could then all just pass it on in the form of higher prices. Since this pushed all prices (and many wages) up all along the line then the marginal gains by workers were mostly illusory.

          • McGrupp

            I’ll give you the figures from the paper and you should decide for yourself if that interpretation holds. Before the increase, the average NJ starting wage in the sample was $4.61 and 30% of employees earned the initial minimum wage of $4.25. The new minimum wage was set at $5.05 and was binding for 85% of employees. Average number of employees (taking zero as the number of employees at restaurants that closed) was 20.4 before the min. wage increase and 21 after. The average price of a “meal” (drink, fries, and entre) increased six cents. Neither the increase in employment nor prices was statistically significant from zero. Dr. Card has posted the paper on his website should you be interested: http://davidcard.berkeley.edu/papers/njmin-aer.pdf.

          • McGrupp

            And a note on methodology. The minimum wage did increase for each and every restaurant in NJ, but did not affect other states. The sample included restaurants from eastern PA and southern NJ. The analysis uses essentially the same techniques as differences in health outcomes between treatment and control groups in a medical trial. This requires the assumption that had NJ not had the min. wage, its restaurants would have followed the same trends as those in PA.

          • Sean II

            “The analysis uses essentially the same techniques as differences in health outcomes between treatment and control groups in a medical trial.”

            Oh no it doesn’t. Medical trials are repeated.

          • McGrupp

            That would be more along the lines of experimental design rather than the statistical interpretation of results. Granted, the appropriateness of the latter much depends on the former. But even econometric “experiments” are subject to scarcity. I don’t think we’ll be having randomized trials increasing the minimum wage in some states any time soon.

          • Sean II

            Perhaps my quip didn’t land properly.

            There are a very large number of cases where supply and demand work pretty much as described.

            There are a few cases, a very few cases, where without repetition and with no attempt to hold other things equal, this particular form of supply and demand doesn’t seem to hold.

            What I’m saying is…who cares? The result you’re talking about has the same validity as a cluster of people who visited Lourdes and came back with remission.

            That result does no violence to the vast body of medical science which stands against it. This one does none to basic economics. The fact that some people strongly prefer the result means nothing.

          • McGrupp

            If this one result was peculiar, I would agree. I pointed it out as a watershed paper that provided the first strong empirical evidence challenging the assumption that an increase in minimum wages increases unemployment. If the methodology had not been top notch, it likely would not have made it into the AER, and if the results had not been replicated by other researchers, it would probably been written off as a fluke and forgotten. In fact there is a large literature of research undertaken since the 1994 appearance that supports Card and Krueger’s findings. Here is a recent lit review http://www.cepr.net/documents/publications/min-wage-2013-02.pdf.

          • Les Kyle Nearhood

            Again, I no of no case which the Min wage was increased by a significant amount at one time. The fact that employers can compensate for marginal labor cost increases while they are used to dealing with other small increases in costs does not invalidate Minimum wage Theory. The important question is this, since you think that unemployment will not increase due to an increase in minimum wages would you then agree that we could just raise the minimum wage by $10 and hour and eliminate all poverty?

          • McGrupp

            I believe what the best data we have indicates: that small to moderate increases in the minimum wage have small to no effect on employment levels. For larger increases, anything above $3-4 dollars an hour for a back of the envelope figure, I think you would get a result more like what traditional theory would have you expect.

            I suppose you could throw me in the camp of people who don’t believe employers pay workers the full value of their marginal product – at least not as common practice. Moderate minimum wage increases may be used to correct for those types of deviations from perfect competition, but I think it’s a pretty blunt tool. The same could be said for unions.

            As it is, I do consider myself a libertarian, but I don’t believe that the actual economy is nearly as free of imperfections as we sometimes wish it were. In that tradition of thinking, I would advocate for more transparent labor markets. New websites like Glassdoor are helping fill that niche by allowing people to make anonymous posts about what they earned with various employers. I also think that Congress should make it illegal for any firm to fire a current employee for revealing his/her wages.

          • Les Kyle Nearhood

            I certainly do not think that markets are perfect either, My main objection to even modest increases in minimum wages is that it is used by lying pandering politicians to get poorer folk to think they care about them. They use private funds so to speak, to buy votes. And poor people are not really much better off because it casues a lagging wage based inflation.

          • Sean II

            You have missed the point of my Lourdes analogy, thus forcing me into an awkward spell-out. It’s like this:

            We know that cancer doesn’t cure itself. We have a lot of good deductive reasons to believe this, and a lot of good empirical reasons. The idea that cancer doesn’t cure itself is about as well established in medicine as the law of supply and demand is established in economics.

            But guess what? Sometimes, some people, with some cancers, forget to follow the rules. They have cancer, and they get better for no apparent reason. Just like sometimes people forget to obey the law of supply and demand.

            Now, if you ask the people at Lourdes, they’ll say “it’s no coincidence, have faith, whatever…”. And if you ask the people at a progressive think tank, they’ll say the same thing…with a good deal more academic pretension, but…also with the help of an unshakable, a priori faith.

            The “literature” to which you point me is worth so many prayers.

          • McGrupp

            With that type of reasoning, we should just pick a date to say we reached the pinnacle of scientific understanding, and for any phenomenon which occurs thereafter and contradicts our notion of the world, we should just chalk it up to “You know, stuff happens.” I, and thankfully the scientific community, would prefer to investigate those phenomenon in an effort to understand why they occurred. To counter with another medical analogy, what if Alexander Fleming had noticed the absence of bacteria around a culture contaminated with fungi and said “Huh, that’s weird,” and simply thrown it away?

            I would like for the quality of the articles to stand for themselves rather than appeal to authority, but I’ve provided you with demonstrable, empirical results from individuals with doctorates in economics from Princeton, Harvard, and the LSE. You’ve dismissed this with no actual reference to why you don’t believe them substantive. I’m curious, where do you draw your empirical evidence to counter these works? Without providing more concrete evidence yourself, I hope you’ll understand that I find it ironic you are accusing others of holding steadfast to a certain view “with the help of an unshakable, a priori faith.”

        • Theresa Klein

          You don’t find it unreasonable that fast-food restaurants could be a monopsony? Seriously?

          You’re saying that every single McDonalds, Burger King, Wendys, KFC, Taco Bell, Jack In The Box, Arby, Subway, Chick-Fil-A, and Panda Express in New Jersey are owned by a single person or small group of people who are actively colluding to suppress wages.
          Right ….

          • McGrupp

            I definitely did not say all fast food restaurants in the state are owned by one person or small group of people. I said that competition for labor is not perfect in the industry. I think the effective geographic unit of a fast food restaurant’s labor market is much smaller than the state; municipal or county level would be more appropriate. At least where I’m from, the franchisees of any given fast food joint usually own others. There’s a considerable economy of scale in business knowledge since what works on one side of town works on the other. Within those considerations in mind, I don’t think it unlikely the owners would form a sort of “Cournot oligopsony.”

            With Cournot competition between several large firms that comprise the market, output and prices are both between what you would expect in markets with either perfect competition or a single monopoly power. The same math could easily be used for monopsonies.

          • Theresa Klein

            You’re neglecting my addendum. In order for an oligopsony to exist, it would have to control all possible sources of employment for the laborers in that market, not just fast food. A fast food worker can go work at Walmart or Target or a local grocery or convenience story easily enough. A monoposony exists only if there is only ONE buyer for labor. Even if the entire fast-food industry was cartelized, it still wouldn’t exercise monopsony power unless it also control all retail outlets and restauraunts.

          • McGrupp

            I did not neglect it intentionally. However, if you expand the conaideration to all firms paying at or near the minimum wage in service industries, I would be unsurprised if you fell short of a fully perfect market. Correct me if I’m wrong, but you seem to hold the position that either a) perfect competition exists, b) there is a pure monopoly, or c) there is a small group of individuals who cooperate to the effect of creating a monopoly though the cartels are inherently unstable and likely to break free towards perfect competitor at any moment. This is essentially Bertand’s model of competition among a small number of firms. While it has its merits, it would be silly and extreme to believe it holds for all industries at all times.

            Now speaking of neglecting pieces of the argument, were you previously aware of or did you google Cournot competition before your reply? All you have to do is say yes but you fervently believe in Bertrand would be more appropriate here. I might not agree with you, but I would acknowledge the merits of one interpretation over the other for this discussion would be beyond establishing objectively, and point to one of the other explanations I have provided to explain wages below worker’s marginal product and hope to find some common ground.

  • Theresa Klein

    Ahh, but Jason, you’re forgetting that Bob actually DOES produce more than $40 worth of value, it’s just that Walmart is extracting his surplus labor value to turn a profit.

    • Anonymous

      If you’re implying the problem is monopsonies, then you should be arguing to break them up, not tolerate them but with additional responsibilities. Wal-Mart can think of new ways to exploit faster than we can legislate them away.

  • adrianratnapala

    “…simply because governments ghettoize them to poor countries…”

    So someone who lives in the country they were born in is Ghettoized?

    WTF? Now I am a great fan – beneficiary of immigration, but lets be clear: people are not being shipped off to Cambodia in their millions. And even if we had open borders, most Cambodians would stay put, because in their (well informed) view, it’s a nice place to be.

  • Shawn P. Wilbur

    I’m finding a lot of the pieces of the argument here pretty unconvincing. Under what circumstances could Bob’s labor never be worth more than $1/hour to any potential employer? If it is true that Bob’s labor cannot command more than $1/hour in a give labor market, why would we assume that this will always be the case? The critic of Walmart might have an answer for this, involving the deformation of the labor market by centralization of capital. I’m uncertain what other explanation makes sense, but presumably this can’t be your argument.

    I’m also wondering how much you know about what it actually means to work for Walmart, or in other low-paying retail jobs. References to “unproductive” employees strike me as being more than a bit out of touch with the sorts of increased productivity and availability demands being made on workers. On the one hand, retailers very commonly demand nearly full-time availability, while guaranteeing little or nothing in the way of actual work. Periods of unproductive time are actually demanded by employers in the current labor market, but they certainly don’t provide compensation for those demands. Were these demands not met by other means, then either workers would suffer starvation, homelessness, etc., or the conditions that have created a labor market in which Bob can’t command more than $1/hour for his labor would disappear. Since at present the slack that is picked up is picked up by the social safety net, that actually looks like a fairly direct subsidy. At the same time, “Bob’s labor” is no longer a fixed set of tasks, about which he can come to some contractual agreement beforehand, having engaged in some haggling in the labor market. The job description is largely a thing of the past for workers in environments like Walmart. The minimum-wage, non-union worker currently has to be pretty much “up for anything,” if they want to be employed, and in particular they have to be ready to shoulder productivity demands that have skyrocketed. Talk about employed, unproductive labor just doesn’t seem to make much sense, given those productivity demands, flat or declining wages, increases in executive compensation, etc. Heck, why stop at talk about public subsidies? Why isn’t every strong-armed concession on availability and productivity a direct subsidy from the workers to those who reap the profits?

  • Andrew Leonard

    This is precisely why we should have a basic minimum income.

  • ThaomasH

    This takes the “Living Wage” argument too seriously. I think that some DC politicians think that other politicians did not squeeze as much out of Walmart as they could have and a firm-specific minimum wage was seen as a way of “renegotiating” the terms of the deal to transfer more of Walmart’s rent to city residents..

    • Sean II

      What happened to your magnanimously granted assumptions of good will? I can recall more than a few times when I stood where you are standing now, but with you in opposition.

      Is it too much to hope……you’ve given up your quest to believe (or at least to pretend rhetorically) that the haters of the market are all just innocently mistaken dupes?

      • ThaomasH

        I don’t see that their is any ill will implied by wanting to use a firm specific minimum wage as a way of squeezing more revenue out of Walmart.  I agree that doing so with a minimum wage is not as efficient as a firm specific property tax and in any case I oppose the measure and have made my views known to my local representatives.  (My councilman voted against the measure and it’s likely to be vetoed.)  But you could be correct that the proponents might just be more naive about economics than I was giving them credit for.

  • j_m_h

    I really found this post disappointing. The use of the econ 101 stuff simply confuses the issue.

    As I understand the post it’s about a) if some obligation by all in society to provide a living income to those incapable of generating one in the market and b) if providing that subsidy to these people even if they work does or does not produce a subsidy to the employer who highers them at the below living wage income.

    a) is a moral issue and b) is an empirical question and I don’t see how the two are that closely related.

  • reason60

    I question this assertion that we should view work as simply a transaction.
    What moral vision supports this view?
    I would argue that work itself has a value, both to the individual and the society, far above simply the efficient transaction between economic partners. Widening the pool of workers, even if the transaction is not the most efficient price, has multiple benefits to society from a political and cultural standpoint.

  • Greg Liggett

    Hi Jason,

    I might be making a basic error because I don’t know much about economics, but what if Wal-Mart takes into consideration the amount of money their workers will get from the government in the form of welfare when management determines how much they will offer to pay their employees? Wouldn’t *that* be a form of subsidization?
    So, for instance, let’s say:

    1. Wal-Mart is willing to pay each low-skilled worker market value, which is 10/hour. For both Wal-Mart and the worker, 10/hour would
    be a mutually beneficial arrangement. Coincidentally, this income just barely meets the threshold of sufficiency.

    2. However, Wal-Mart knows that if they cut pay to 8/hour, the government
    will provide enough welfare to equal 2/hour for each hour of work.

    3. Wal-Mart therefore decides to pay their workers 8/hour—2/hour less than what they would have been willing to pay were it not for the helping hand of governmental assistance.

    4. Indeed, the worker cannot live on 8/hour so the government pays the rest.
    Wal-Mart’s prediction was correct–the government will actually pay their workers what they, Wal-Mart, otherwise would have. Wal-Mart games the system.

    Thanks in advance.

    –Greg

    • Theresa Klein

      The problem with this that you assume Walmart calculates workers pay based on how much the workers need to live on. In reality Walmart calculates how much to pay workers based on their marginal productivity. If the extra worker can deliver $1 of extra profit to Walmart, they will get hired. If not, they won’t. Walmart isn’t going to raise workers pay if they are not getting social assistance, it is just going to not hire them.

      • greg liggett

        Hi Theresa,

        I didn’t make the assumption that W-M calculates pay based on how much the workers need to live on. Check out point #1.

      • http://fb.me/MrMikeDavis Mike Davis

        I disagree. Walmart, like all employers, calculates worker compensation based on how little can they pay per man hour and still keep qualified staff.

        “Marginal productivity” is a economics class term. You won’t find it on P&Ls, cost of labor spreadsheets, or in the heads of the line managers who make hiring decisions and write the weekly schedules. There, the only thing that matters is dollars per manhour and labor cost as percent of revenue.

        All other things being equal, as long as Wal-Mart can find people willing to work for the wages they offer, if someone applies who won’t take that amount, they won’t hire them.

  • Mick Price

    The “living wage” is different from the “minimum wage” (neither are honest descriptors). The “minimum wage” is “the lowest we will allow employees to be paid if not on commission/piece work”. The “living wage” is “the lowest we will allow employees of people we don’t like to be paid if not on commission/piece work”. If it was really about saving people from poverty then why aren’t ALL employers covered.

  • artrod

    Implement LVT, Pay out the citizens dividend, then get back to me with the rest of this nonsense!

  • jesseschalken

    What’s the point even writing this article when the people who need to read it aren’t capable of rational thinking in the first place?

  • Chris Andrew

    What are your thoughts on the Breaking Bad episode where protagonist Walter White tells his chemistry students that the inventor of cubic zirconium made billions for the company he worked for and didn’t get much more than an employee-of-the-month award? Clearly the point of that was to say businesses generally pay scientists less than their worth and that one needed to “break bad” to get one’s just desserts.

  • AngryTory

    There is no such thing as society. Wallmart has a duty to is owners – its executives and shareholders – to make as much profit as possible. If it can pay 10c/hour for workers rather than $1/hr then it should. And government has absolutely no business legislating for minimum wages or living wages or anything else. As you said above:

    Bob isn’t productive enough to pay his own way in this world… the world is better without Bob than with him.

    Problem solved.

    • Andrew Leonard

      Wouldn’t you be doing society a favor by killing Bob, then? If he truly is a net drain on resources, then why waste further resources by sustaining his laziness? Why not be pro-active on maintaining a profitable environment?

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  • James Ellis

    Well I certainly agree in some ways however there I think there is an issue with being underpaid which has more to do with intentionally limiting the skills required for certain low end jobs, the production line etc

    Would it not be beneficial for a company to try to get the most out of their employees, thus justifying a living wage, as opposed to streamlining the process.

    Not to mention that putting money in the hands of lower income workers finds is rarely saved and thus circles around the economy, keeping it healthy.

    The rise of much technology has limited the potential use for a lot of people, and it is an issue which the state can’t bear on its own as you suppose, I think it will require effort from both public and private sector to try to get the value from employees.

    I suppose that in turn is an argument for the living wage, if an employer is paying it they would be more inclined to get their value back, this might not be realistic in every case but I think that the majority of people, even those working at McBurger could be productive enough to be worth a living wage when times aren’t dire.

    Oddly enough I didn’t support the living wage until I read this article. Weird how that works.

    • wade

      Smart take!

  • Tedd

    This is a classic market-theory-of-value versus labour-theory-of-value issue. If you subscribe to market-value theory then there is a subsidy only if someone pays less than the free market value of a good, either by an enforced price or by a payment that reduces their net cost. If you subscribe to labour-value theory, then a person’s work has an objective value that is independent of what anyone is willing to pay for it, and any time someone pays less than that objective value there must be a subsidy.

    There’s no point even discussing the issue with someone until you agree on which theory of value will be applied.

    What complicates even that discussion, though, is that actual free markets are extremely rare, so it’s always possible to make the argument that we can never know the market value of anything anyway, so we might as well make up values as we go along. Ironically, this is probably the strongest anti-free-market argument!

    • urstoff

      I don’t think anyone seriously holds a “market theory of value” in the sense that the value of something is it’s equilibrium price; even economists don’t adopt that. Rather, the subjective theory of value is typically assumed (in the context of transaction only) where value is set by an individual’s preferences, and a transaction occurs only if the seller values the good less than the price sold and the buyer values it more.

      And I can’t imagine any serious thinker actually holding a labor theory of value these days. It’s just magical thinking.

  • EllieMurasaki

    Isn’t it more plausible to think that if there’s some enforceable
    positive duty to provide Bob with enough stuff to lead a life, that all of us, together share this burdensome duty, rather than just Bob’s employer?

    I’m down with a citizen’s benefit such that employers can pay as much or little as they please and the government makes sure everyone has enough to live on. However, I suspect this of not being a libertarian idea. If someone’s going to insist that everyone has to work for a living, then they must also insist that every employer pay every employee enough to live on and that everyone who wants to be employed is employed, else they are an asshole.

  • Neverfox

    “At anything over $1/hr, employers would be losing money every hour Bob worked for them.”

    If part of question is just income distribution in the firm, viz. which money is rightfully Bob’s and which money is rightfully the employer’s, calling it “losing” as we consider various alternative distributions begs the question because it presupposes the money is the employer’s.

  • Joshua Preiss

    This is an interesting discussion, Jason, but I think you are wise to stipulate that it is not about Wal-Mart per se. I could be wrong, but I think that when most people see the message above, they don’t think the economy, basic structure, whatever is working as it should, except that Wal-Mart and other companies are failing to meet their moral obligations. Instead, they are claiming that something is wrong with a society, the wealthiest in the world, where so many full-time jobs fail to provide a wage and benefits that allow citizens to live a decent life.

    Wal-Mart stands as the most prominent and powerful exemplar of this social problem. Also, I think most people think that the owners and managers of Wal-Mart played a role in shaping this political economy, probably don’t support (and may use resources to oppose) the kind of basic income or a sufficiently robust negative income tax that many in the BHL crowd support. It is not a theory of the moral obligations of employers but a political statement that denies that the status quo, an economy increasingly dominated by Wal-Mart, is as it should be, that everyone can support themselves if they are willing to work for it, and so on.

  • jacks

    So, all I’m asking is how do we, people who care about other people, keep people out of poverty?

    A living wage is the amount of money a person needs for shelter, (child care if necessary), nutritious food, health care, transportation, taxes
    It includes clothing, shoes, office supplies, nonprescription medicines, cleaning products, household items, personal hygiene items, telephone service and other utilities.
    It does not allow for recreation, entertainment, savings, or debt repayment.

    A living wage is not a set number. It is based on the cost of living in that person’s community

    It is wage that a person needs to stay out of poverty and a wage that sustains a person so they don’t need government assistance.

    A better way for people to get a living wage is to increase a worker’s power to negotiate for their own wage.

    That can only come through training and education.
    I would rather it if workers quit accepting poor wages and create their own businesses.
    Businesses that are owned and operated by workers who get to enjoy the fruits of their labor instead of giving it to someone else for their profit and capital gain.

    My first solution is better and more diverse education. I would like to put more emphasis on jobs that allow a person to be self-employed.
    Change our education system so that people are trained in jobs that cannot be outsourced.

    High schools and colleges should reevaluate their counseling programs. Encourage children to volunteer in the fields they are interested in. To gain experience. To build a resume.
    Teach children basic business skills. Encourage apprenticeships and trade schools.
    If people have to go the route of working for others, Encourage children to make semiannual visits to the HR departments of companies they are interested in. These visits should give the students an idea of what the company is looking for in an employee. Show them what curriculum to take in order to make themselves more desirable.

    I’m not that old but I remember a time where the low paying jobs were called ‘entry-level’ jobs. People came in at the ground floor, expecting, worked hard and learned the inner-workings of the business, they would make their way up in the company, thus raising their wage.
    No one assumed they would stay in a low paying job. No one assumed that they would remain unskilled.
    Getting a job was the best way to gain skills, therefore, gaining a better wage.
    What happened to on the job training?
    What happened to that expectation of moving up?

    Here’s the deal with capitalism. An employer has no moral obligation to their consumer or employee but to honor the contract they presented. Their items should cost what they say they cost. Their items should contain what they say they contain. Their items should work how they say they work.
    They have no obligation to their employees except to not put them in unnecessary danger (provide for their safety while they are on the job. and we had to fight for that). Pay them the wage they agreed to (Even though there is this thing as duress).

    The problem is, how are you defining productivity? How do you decide what percentage of profits Bob should receive.
    If Bob was so unproductive, then why would they hire him in the first place? Whatever Bob is doing is aiding in creating profit.

    You said that Bob is a net drain on society, then you said that his community should be the one’s providing for his cost of living.
    I don’t think you are being very realistic.

    Here’s why I don’t shop at walmart. They can pay their workers better, but they don’t. I do have a big problem with a person who has a job yet doesn’t make enough to cover living expenses. I do have a problem with a person spending a big chunk of their lives laboring for someone else and still not being able to afford to take care of themselves.
    I do have a problem with an employer who Makes Average Worker’s Annual Salary in an hour.
    Why toil for hours for someone else when you aren’t getting enough to support yourself? Why should I give you my time and labor if it is not enough to support myself?

    What happened to the Reagan quote, “The best social program is a job”?
    Are you saying that using other people’s taxes to provide for a person’s living expenses is better than them supporting themselves through work?

    I’ll give you this. If government assistance was overhauled and turned into a community service program. I’d be all for it.
    I think people should receive housing, food, transportation, health care, and child care assistance if they provided at least 20 hours of community service.
    I have no problem providing for people who work for it.

    We has a community, or rather me as a humanitarian, have an obligation to help people meet the cost of living in their area, however I can.
    I wish other people recognized this obligation.
    Or rather, I wish people realized that poverty harms all of us.

    I also realize that it would behoove us all to create more productive citizens.

  • Bob Smitley

    Wow, so your saying human beings are Commodities. Then I guess the same could be said for the stock holders of McBurgers. They contribute NOTHING to the profitability of the company so their dividends should be nothing. Or the executives and middle managers who are exorbitantly overpaid for the little that they contribute to the profitability of the company so they should also be paid, say $1.00/Hr

  • urstoff

    Even these arguments aside, I still don’t understand arguments for a living wage or even a minimum wage. Let’s assume that the only priority is to help the poor and that no other considerations matter. Given that the evidence on the effects of minimum wages laws is muddy at best (and that’s being charitable), then minimum wages laws are probably not very good ways to actually help the poor. If they don’t actively hurt them (which they might), the laws at the very least are very inefficient and redistributional within the poor population itself. Given that, why does anyone go to the mat for them intellectually? Direct subsidies to individuals like a negative income tax (which was, remember, promoted by that arch-progressive Milton Friedman) are much more efficient and transparent in their costs and benefits. Plus, there are no possible redistributional effects within the poor population as there is with the minimum wage (i.e., raising the wages of some and causing others to become unemployed).

    Basically, the minimum wage can’t even be justified as an anti-poverty tool, particularly in comparison with other anti-poverty policies. So why do people defend it?

    • jacks

      because we know what the world looked like before the minimum wage.

      • urstoff

        post hoc ergo propter hoc

  • martinbrock

    If a homeless person offers to squeegee my car window in 60 seconds at a traffic light, I give him a dollar and thank him not to squeegee my car window.

  • MikeSchilling

    If we the people provide food stamps for anyone making less than $10/hr, we enable people to work for $5/hr, where otherwise they’d say “screw this job, it isn’t even enough to buy food.” This is precisely a subsidy to the Walmarts of the world.

    • Svan

      If they didn’t have the free money they are going to quit and earn zero? Yeah, that makes sense.

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  • alan2102

    “Many on the Left would say that the government thereby “subsidizes”
    McBurger, because McBurger pays Bob less than it takes to keep him
    living well, and the government pays the difference. But this
    presupposes that if you hire someone for, say, 40 hours a week, you owe
    him enough money for him to lead a decent life.
    I don’t understand where this presupposition comes from.”

    You’re making it up. You’re hearing something that is not being said.

    What is being said is that the government is subsidizing McBurger. Get it? Just stop right there. The government is subsidizing McBurger. Now, what we should do about that, if anything, is a different issue. But the government IS subsidizing McBurger. Get it now?

  • Jack7

    The lack of these problems in countries with higher wages, and when previous wage increases occured, shoots a big hole in this argument.

  • Michael

    What happens if Walmart is forced to pay $10 per hour. The higher wage will attract more productive workers. Walmart will hire more productive workers and the current Walmart employees will lose their jobs.

  • Marie Cox

    While you say Bob’s work is only worth $1/hr because he is unproductive, I think what you really mean is that you believe no one deserves to be paid more than $1/hr for the position Bob has taken. Fast food (and Walmart) employees are not hired at different wages based on their productivity. They are paid the same regardless of their productivity. Perhaps your argument includes the assumption that if someone were incredibly productive in their Walmart job, they would immediately be given a raise, promoted, and rewarded in kind. Not likely. Your argument is based on the idea that low income workers get paid less because they deserve to get paid less based on the quality of their work. And further, that there are enough decent high-earning jobs available for everyone who works hard and is productive.

    While you seem to assume that all low wage employees are lazy or stupid enough to deserve the wages they are earning, you give employers far too much credit. You acknowledge that employers have two options: 1) hire unproductive people at a financial loss, or 2) refuse to hire unproductive people. The argument that any employer hires unproductive people out of the goodness of his heart and that the low wage he pays his employees is a gift they should be thankful for because they can’t deservingly earn more is preposterous to me. Of course employers don’t hire unproductive people (and they shouldn’t!) They hire people who are willing to work for what they are willing to pay – in this case, desperate ones who are willing to work rather than remain unemployed.

  • April

    Here’s an idea, why doesn’t “McBurger” just hire Productive employees?! Why is McBurger employing unproductive employees when no one is forcing the unproductive employees onto them. This article is stupid and argues from only one situational perspective.

  • Guest

    The part that is missing here is that the marginal value of each employee is greater than the current minimum wage. We know this because Macburger continues hiring; and because their profits are high (profits come from sales, an activity undertook at the restaurant by the employees at the end of the product chain). Furthermore, regardless of wage conditions, MacBurger has always been allowed to terminate employees whose productivity is lower than their wage. The fact that so many unskilled and relative unproductive workers maintain employment is indicative of the idea that a vast majority of workers have a positive net production. Note that this is unrelated to the competitiveness of the labor market – in a fully open market, wages may even be lower, however, average worker productivity would not go down because ultimately MacBurger could still hire the same set of workers at the previous minimum wage and suffer not; although it’s likely that the competitives of the labor market would induce some of those employees – positive investments at minimum wage already – to accept an even lower wage.

    Ok, getting back to the minimum wage. The walmart report indicates that the average minimum wage employee in Wisconsin consumes an additional $1000/year in subsidies. We also know that, per aboveage employee is likely to be earning less than they are producing for their firms. In that scenario, who should be MOST responsible for that $1000?

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