Is the Market Really The Most Democratic Way to Determine Wages?

When it comes to just compensation for labor, people disagree on how wages should be determined.

Some say that wages should be allocated according to the value of the work itself, and that this value is based on how beneficial the work is to society. For example, a nurse or a doctor saving lives should be paid much more than a financial speculator or a star athlete. In that sense, pay rates in the US and indeed, almost everywhere, are often grossly unjust.

Others say that people who work the hardest deserve the most pay. This is perhaps an even more popular view here the the US, where a strong work ethic is a traditional, highly prized virtue. Yet it’s easy to find countless examples of people who work equally hard yet earn vastly different salaries (a day laborer versus a high-powered attorney, for example), so even on this view, too many people’s wages are unjust.

And many others say that the market is the fairest mechanism. This is an especially popular view in the liberty-loving US. After after all, it’s people’s free choices that determine prices, since a price is simply how much people are willing to pay for a thing; and where the prices are high, the wages for its creators are high too. So, for example, if lots of people decide to pay high ticket prices to see a live sports event, then people are voting with their dollars and therefore, it’s democratic and fair that star athletes earn sky-high wages. And if people are only willing to pay a little money for a cheaply made product, well, then it’s fair that people who make it should earn less, at least per unit made. An unfettered market, then, is the most democratic, fair way to determine wages.

For the most part, I think that people tend to hold some kind of combination of these views, even as they lean a little more towards one, and they will consider each job and the justness of the wages it pays on a case-by-case basis. And there are related considerations as well, such as whether the job indirectly creates
societal benefits, whether it’s innovative, whether it’s aesthetically valuable, and so on.

But I’d like to challenge one of these views because it’s based on a false assumption. Can you guess what it is, before you scroll down?………………………………………………………..

………………………………… If you think it’s the assumption that since wages are based on prices, and prices are based on free choices, therefore the market is a democratic way to allocate wages, you’re right. So now why do you think I think this assumption is false?………………………………………………………..

………………………………… So here’s why I think it’s false. I don’t think prices actually reflect people’s democratic choice regarding what people should be paid for their work; prices reflect what people are willing to pay for a particular good or service, and that’s it. When people pay a certain price for a sports game ticket, for example, they’re just indicating how much they’re willing to pay to see the game itself. It’s anybody’s guess what they would vote to pay an athlete if they could write the figure on a piece of paper and slip it in a ballot box. Same goes for a grocery shopper voting on the pay of crop pickers. Do you really think that, just because a person happily pays only $.80 a pound for oranges on special, that they think the people who picked those crops should make very little money? I’m willing to bet that just about anyone, when they think about how hard the labor of the average crop picker is, how invaluable their labor is for sustaining life, and how much a living wage is, just about anyone would write down at least that figure on the slip of paper. In fact, I bet they’d vote for quite a comfortable salary. And I bet they’d lower the wage for most athletes substantially, especially if that meant the money saved there could go to someone doing a more ‘important’ or ‘worthy’ job, whatever we think that is.

I’m not sure myself exactly how we should determine wages, I’m sure I’m like most people and think there should be some sort of multifaceted approach. When I think of a more ideal world, I’d like to see wages have more to do with social utility when it comes to providing necessary goods and services (food production, the medical field, infrastructure), education, law enforcement, public arts, and so on. The market could have more to do with determining wages and prices for ordinary luxury goods and entertainment, within limits, of course.

Anyway, when we debate  wages and wealth distribution, don’t let’s kid ourselves that wages are set by a process that’s at all democratic. If that were the case, ultra wealthy financiers and many CEOs wouldn’t enjoy such vast wages even though they enjoy abysmal approval ratings, and it wouldn’t be so hard to get the minimum wage raised even though most Americans poll in favor of it.

Now in fact, most wages, most of the time, are actually based on how hard it is to replace the worker, more than on any other consideration. Crop pickers, though they do valuable work to society, are easy to replace; brain surgeons are not. So in this way, we see that the market does set the wages, but we also see there’s nothing choice-driven, nothing democratic about it. It all has to do with what it takes to do the job: brute facts abut the world. Some tasks are, by nature, complicated and take incredible skill and learning to perform. Others do not. All, however, are necessary, and all suit people of different personalities and capabilities. So given that this is how wages end up being what they are, do we think that this is how wages should be set?

What do you think?

—————————————-

Inspiration for this little essay is drawn most immediately from ‘Should a Banker Be Paid More Than a Nurse?’, episode 3, from Michael Sandel’s ‘The Public Philosopher’ discussion and debate series, though it’s also based on many other things I’ve read, such as Joseph Heath’s Economics Without Illusions, talks I’ve heard, and many other discussions I’ve engaged in

One thought on “Is the Market Really The Most Democratic Way to Determine Wages?

  1. When are the majority of Americans satisfied with the decisions their government makes, hardly ever, but yet it is a democratically elected system. My point being that you don’t usually get what you want even for things you had voted for. You must propose an alternative idea otherwise your just preaching to the choir about the world being unfair.

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