Posted on 01/08/2002 4:54:09 PM PST by parsifal
A Freeper Primer in Fair Wages
Many Freepers seem to have difficulty with the concept of "fair" wages. Not with arguing whether or not government should attempt to "legislate" fair wage laws. No, there the average Freeper seems quite adept in logically addressing the pros and cons of given legislation. And not with the economics of "fair" wages. Again, the average Freeper seems quite well-informed of the mechanics of supply and demand.
But when it comes to the very basic concepts, like differentiating between a "fair" wage and the "actual" wage, or how "wages" are established in the first place, then, IMHO, the Freeper "supply" of confusion, illogic, and contradiction far outstrips the "demand". It is to that end this primer is presented.
Consider first the formal definition of "fair." Chambers English Dictionary defines "fair" as "just, equitable, reasonable, good, and impartial". This isn't much help. Look up these words and you'll find "fair" in their definitions. Black's Law Dictionary does a better job: "Having the qualities of impartiality and honesty; free from prejudice, favoritism, and self-interest. Just; equitable; even-handed; equal as between conflicting interests.
Even though this leaves a definition you could drive a Mack truck through, we have a framework to begin describing a "fair" wage. It is a wage that is reasonable and even-handed for the work performed. Not too high and not too low. It is an equitable bargain between the Employer and the Employee. It is an arms-length deal on a level playing field. But it is still an undetermined variable amount. So let us treat it as a variable and name it "Y".
This brings us to another term: the "actual" wage. This is easier to quantify because it is the actual paycheck. But it varies from Employer to Employer, Employee to Employee, and job to job, and area to area. That makes it a variable, and we can name it "X".
With these two simple variables behind us, we are able to begin philosophically analyzing "fair" wages. In a perfect world, X would equal Y. Now some Freepers (Laisse-Faire Purist Freepers, LFPFs)will argue that in a free society, X does equal Y. They will maintain that if an Employee voluntarily signs on for a paycheck, then the actual wage is automatically fair. For them, two variables collapse into one variable, and thus endeth the analysis.
But these same Freepers do not apply that same logic to the tax rate. There, even though we elect our representatives, and they set the tax rates, a 70% marginal rate is "unfair" and 15% marginal rate is "more" fair. (For some, any tax rate, including .01%, is unfair.) Ayn Rand would probably not approve of their analysis, considering it an "anti-concept", but neither of these answers directly confronts the issue. The LFPFs deserve an answer, and if the first five paragraphs do not persuade them, then maybe this one will: X would equal Y ONLY in a perfect world. Our world is not completely economically free, therefore it is not perfect, thus X can not equal Y. If nothing else, coerced taxes would create a difference between X and Y.
Whether that satisfies the LFPFs or not, who can say, but the bulk of Freepers will probably agree that actual wages often do not equal fair wages. It would also follow that the closer we as a society move toward X=Y, the more fair and equitable a society we will be. There should not be a lot of disagreement on this point. This is about like saying healthiness is better than sickness. This is still very theoretical. We might desire a thing and still realize that the thing is not obtainable. We may prefer health while realizing that a cure may be worse than a sickness.
Now that we have established (1) -- that X does not equal Y, and (2) -- that X=Y is a good, desirable thing, the fireworks can start. Here reasonable people can disagree. Some might think that if the government tries to force an X=Y situation, chaos is a likely result. Surprisingly to many, I happen to agree in large part with that position. Others might think government intervention is "immoral" and an unwarranted use of coercion. I agree with that in small part. Communists, socialists, and left-wing extremists would probably disagree with both of those positions. The heck with them! Let us travel down the "chaos" and/or immorality path.
If we agree that government intervention to produce "fair" wages could result in economic chaos, does that mean we should do nothing? Or, are there certain actions that government can take relatively safely. It is my position that there are many things government can do "interstitially" and "around the edges." Take, for example, minimum wages. While Minwage cannot move X closer to Y, Minwage might keep X from moving away from Y in the wrong direction.
Is this "cure" worse than the "sickness"? It's debatable and it is not the purpose of this primer to resolve this issue. The purpose here is to put the argument into a proper logical framework. Minwage is a legitimate concern. It can be viewed in an economically rational perspective. It is not necessarily a call to the banner of the Hammer and the Sickle.
Is Minwage immoral? Is it an unwarranted, forcible intrusion into the Employer-Employee contract? Maybe. I don't think so. If a "fair" wage is an even-handed arrangement, does any person voluntarily enter into an agreement which will not allow them to eat and pay rent? Maybe. But it can be viewed in an economically rational perspective. Contract law recognizes that not all contracts are fair or equitable. That does not necessarily make them un-enforceable. The degree of unfairness can be judged, and sometimes, if the unfairness reaches a level of "unconscionability", a contract can be reformed or voided. But again, the point here is not to resolve the point, but to put the issue into a more arguable framework.
I hope this primer will make future battles more productive of light, than heat. I wrote this as a result of several threads wherein logically inconsistent arguments were thrown about like kindling. Some examples:
Argument: We should have fair wages!
Response: Life ain't fair!
Analysis: The fact that life ain't fair didn't keep up from trying to impeach Clinton. Or arguing when it didn't happen.
Argument: Some people don't get fair wages.
Response: It is fair. If they don't like it, they can leave!,
Analysis: The ability to leave the old job don't make the Old X=Y.
Argument: Some employers screw their employees out of wages.
Response: That can't happen because X always equals Y.
Analysis: There isn't a level playing field between a rich employer and a poor job applicant? One is going to have the upper hand.
With sincerity, parsy.
We don't put price controls on food so grocery stores suffer to feed the hungry, everyone else ponies up with food stamps.
Actually, this is what happens. The taxpayers subsidize certain businesses that do not pay their employees enough to live. For example, how do you figure the minwage employee at Wal Mart who works 30 hours a week pays his rent? And feeds his family? And goes to the doctor? Welfare and food stamps.
True. That's because I am not one to go around stirring up trouble. IMHO, most wages paid are unfair. The person doing the paying has every incentive to cut into the employee's pay as much as possible.
I disagree. A person in that position can share an apartment with 2 other people in that position, and get along just fine. I know a few newcomers to this country who do that.
What, a person should expect to have four kids with his/her own home? Then it's not wages that are being subsidized, but stupidity.
If I have a family I'm sure as He!! not going to work just 30 hours a week and I wouldn't settle for a minimum wage job.
Hey you horny kids out there.
If you can't support a family,"keep it in your pants" until you can!
How about a little personal responsibility.
Only you can answer that question. If you decide that your wage isn't fair, you have two options.
1. Go to your boss and discuss it.
2. Quit your job and go work for someone who agrees with you.
If a "fair" wage is an even-handed arrangement, does any person voluntarily enter into an agreement which will not allow them to eat and pay rent?I'm confused, man. Does "fair" mean a just wage for a given investment of labor, as in a fair trade? Or does fair mean that a wage payer is somehow responsible for whether you can pay rent or buy groceries, which you imply above.
/john
A living wage is determined by taking the cost of living in a geographical area and determining the cost of a comfortable lifestyle. The living wage is then that hourly amount which provides the objective lifestyle. In effect this transfers the cost of welfare from the public to the private sector. A side effect is less motivation for people to improve themselves.
The Sacramento (Socialist) Bee recently gave us an example of a "poor soul" who needed a living wage. This was some healthy young guy who dropped out of high school, made two babies, did not have the responsibility to marry the girl, but lives with her at his mothers house. He feels he does not make enough money flipping burgers. However, he is also not going to school to improve his lot in life.
We should pay this guy a living wage? No! I say he needs motivation to get his act together!
... would leave this country for one with a lower tax rate ...Or vote Republican. Or libertarian. Oppose tax hikes, favor tax reform, that sort of thing.
So, the question then becomes, who monitors that inequity? Do we also need a maximum wage cap? Do we need a government bureaucrat to provide minimum wage exemptions?
The answer is clearly no. The market may not be perfect because perfect information is not available. However, I will trust the market over a bureaucrat every time.
Another business in this same line pays its employees about $125,000 each for this same kind of work with about the same (or lower GP level). The only factor in the difference in pay is the greed level of the owners. Owner 2 is a multimillionaire and makes a lot of money each year and has a great ROI even though he treats his employees like humans and pays them livable wages. Owner 1 is an unhappy person and actually makes less than owner 2 even though he is far stingier. This is a true story.
Which wage is more "fair."?
If all Minwages were only 50% of what they are now, how long would it be before the price of home or a new car reflect that reality? Conversely, if all Minwages are set at 110% of where they are now, how long before that increase is reflected in prices of food and housing? Looking at a fair wage based on a preconceived notion of what goods or services everyone "should" be able to buy starts to drift very close to the old credo "from each according to his abilities, to each according to his needs." The problem being - who gets to decide?
An interesting primer, but for me, it simply opens up more questions than it settles.
It is a safety net, not for them, but for us; to keep them out of our garbage cans, keep their hands off of our families and property, and otherwise allow us to leave our houses without an armed escort.
Rightly so. It was twaddle then and is twaddle now.
Notions of a "fair" wage other than one freely bargained for between employer and employee are meaningless in economic terms. To the extent they have any place in economic dialog at all, they depend on the thoroughly discredited labor theory of value, so dear to the Marxists and their fellow travellers. "Fair" wages are an ethical question which requires making moral judgements about the worth of particular work and particular individuals, somehow different fro the market's judgement, something the market cannot do. Only ethicists, theologins or politicians interfering with the market can make those judgements.
Talk of "fair wages" and "living wages" ususally comes from either Marxists or ultramontagne Catholics who never reconciled themselves with capitalism to begin with. Someone church, philosoper king or commissar has to decide what is fair. Who will guard the guardians and guard us from the guardians? The perennial question in dealing with the rule of experts, be they religious, philosophical, technical, fascist or marxist. It is a slippery slope into the slough of tyranny.
Which wage is more "fair."?Fair in what sense, effendi? And what do you gain by placing the term fair in scare quotes?
Also, your numbers for the first company do not make sense. Typically the expenses for an employee's benefits, associated taxes, workspace, etc. can equal their salary of $30,000. Now add on other business expenses and you convert "gross margin" (or "gross profit") to margin and profit i.e. much smaller numbers.
/john
Contract law recognizes that not all contracts are fair or equitable.I'm confused again, effendi. Certainly you can enter contracts that favor you over someone else, or that favor someone else over you. (We sometimes call it profit.) And certainly we cannot expect every party to a contract to have the best interests of the other party at heart. So what do you mean by fairness or equity as applied to contracts?
Put in different nouns and your statements are revealed to be a framework of non-thought economic bunk. Please start your own buisness and implement your notions and write a book.
Close but you missed it towards the end. Yes, maybe you sell your house. Yes maybe you move out of town. But you could simply move to the location of your brand new job. Buy a newer and bigger house using the higher wages you get in your new job.
Another alternative is to take the opportunity to make a lifestyle change and quit working as a wage-earning or salaried employee. Start your own business. Own your own factories. Move your own production to Mexico to increase your ROI from 10% to 12%.
Why must you presume that none of this is a possibility? I've seen and patronized too many successful businesses owned by first and second generation immigrants to believe the dream is dead. The difference, I fear, resides in the drive and motivation to accept long hours of hard work, a minimum living standard to allow profits to grow the business, and the taking risks.
If you always do what you've always done, you'll always get what you've always got.
/john
I suspect, but do not know, that "fair" might be confused with "egalitarian".Oh, I sense great confusion, effendi. As well as equivocation and conflation. But I thought it might be amusing to bait our interlocutor into attempting to clarify his terms. Then we could all watch together as his argument unraveled. But our would-be Socrates sensed danger and scurried back beneath the baseboards.
What we can say is that regardless of the wage, in all cases, the employer and employee are giving up something they value less for something they value more. Such an exchange can only benefit both participants.
What we can say is that regardless of the wage, in all cases, the employer and employee are giving up something they value less for something they value more. Such an exchange can only benefit both participants.Well articulated, effendi.
YOu can start the fireworks if you want --- it's a free country --- but, I am sorry to say, you have not established (1) at all.
As you pointed out, fairness must be determined by an observer and the impartial one does not exist. The only measurable pertinent quantity is the market price; X=Y.
I have no idea what this have to do with taxes. Of course people want something for nothing --- defense and roads without paying for that. Just like they want infinite wages for their work.
Employees do not have a right to be employed by me. I alone determine what someone's labor is worth to me, because it comes out of my pocket. If I say job A is worth $8/hr to me to have done, but the available labor pool is such that I can only find someone qualified to do job A for $9/hr, I will pay that.
That's how a free marketplace works.
Obviously, in negotiating contracts (openly and consciously or tacitly) the bargaining power between the parties is rarely so equal that the result will be 'fair' in the sense that neither wants to make a deal more than the other. We routinely agree to contracts where we or the other party has greater leverage, making a deal less than ideal for us, but still better than the alternative of walking away. Employment contracts are no different, except that the opportunity costs of not making a given deal may be much higher for the employee (especially the low wage employee with few other resources), hence leading him or her to accept a lower wage than he or she might otherwise, given perfect information and absolute costless mobility of the labor force. Nothing illegal or unusual here, just life.
What I think Parsifal is thinking about is the legal doctrine that allows the courts to interfere in contracts because they were not freely entered into as a result of the disparity of bargaining power or ignorance of one of the parties, known as contracts of adhesion in the trade.
The classic example is the overpriced TV sold to the ghetto resident on welfare for a low weekly payment that adds up to far more than a cash price or even an 'ordinary' financed price. What voiding this contract represents is a political judgement that this is not OK. What it does not take into account is the fact that absent this deal, the resident might not get any TV since he hasn't the cash and is not creditworthy under normal criteria. The 'gouging' merchant takes the risk of operating in the ghetto (ever try to buy insurance to operate in Harlem? he self-insures), the risk of non-payment and the risk of destruction of his collateral before he can repossess in the event of default and the risk of potential harm to himself if he repossesses, not to mention the time value of money he invests to begin with. Surely these risks justify on purely economic terms rates much higher than to ordinary, creditworthy customers.
Other contracts, such as selling onself into slavery or other contracts relating to illegal acts such as gambling or other crimes, are unenforceable not because they represent unfair contracts as contracts, but because public policy forbids contracts to deal with those subject matters: a political and sometimes moral judgement that says the state will not enforce agreements to do prohibited things. This is very different from the bargaining power notions Parsifal thinks he's talking about. I highly recommend he take a Contracts course and a Law and Economics course at a reputable law school.
[if] I can only find someone qualified to do job A for $9/hr, I will pay that.But will you pay it with a clear conscience, and with perfect integrity of heart? When you sign the check will you sneer just a little? And when it snows, do you shovel your own walk? Or do you allow the neighborhood children to bid for the job? When you mow your lawn, do you whistle, do you hum, or do you wear a portable MP3 player?
Sure. And then I mark up the price of the product accordingly.
And yes, I pay the kid to shovel the sidewalk and some Mexicans to mow the lawn. :)
X "…varies from Employer to Employer, Employee to Employee, and job to job, and area to area." So what? So does Y. X and Y can both vary according to those criteria and be equal.
"…the bulk of Freepers will probably agree that actual wages often do not equal fair wages." They might agree on it, but their agreement doesn't make it so. (As an aside, what exactly do the Bulk of Freepers agree on, unless it is something they are against?)
This is very different from the bargaining power notions Parsifal thinks he's talking about. I highly recommend he take a Contracts course and a Law and Economics course at a reputable law school.What a great answer. Thank you. Thank you. Thank you.
If I need the rifle to work a ranch, the cost-benefit favors the $300 rifle. If I have a hole in my collection, and understand that the value of the rifle will only grow, maybe it is worth $1.5M. Should the government set the price? Or should I go to Southerby's?
/john
And yes, I pay the kid to shovel the sidewalk and some Mexicans to mow the lawn. :)You cruel oppressor of the masses, you. You should pay every kid in the neighborhood regardless of their contribution to the care of your yard.
There is a dictated minimum wage which if made too high causes unemployment among low skilled people and the young. It can also cut back on successes of some business to stay in business.
As far as the topic of employers being UNFAIR. Well usually they are the ones who took the risk to create the business that employs people. If just anybody could do it, everybody would do it. Most people who finally become successful in business have failed and lost money at other attempts. The risk and benefits of the business owner are higher than that of the employee.
So both employers and emplyees have hurdles to get over.
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