Friday, July 19, 2013


One issue that is brought up by Mark's recent post but not explicitly discussed is the issue of "living wages".  It is popular to argue that wages are set but fundamental market forces and thus are deserved.  But that view isn't universal and Justin Fox claims it may be seeing some pushback:
That's because it's becoming clear that pay levels aren't entirely set by the market. They are also affected by custom, by the balance of power between workers and employers, and by government regulation. Early economists understood that wage setting was "fundamentally a social decision," Jonathan Schlefer wrote on last year, but their 20th century successors became fixated on the idea of a "natural law" that kept pay in line with productivity. And this idea that wages are set by inexorable economic forces came to dominate popular discourse as well.
One of the better pieces of evidence he brings up is the difference between the experiences of the American and German auto-workers:
In 2010, Germany produced more than 5.5 million automobiles; the U.S produced 2.7 million. At the same time, the average auto worker in Germany made $67.14 per hour in salary in benefits; the average one in the U.S. made $33.77 per hour. Yet Germany’s big three car companies—BMW, Daimler (Mercedes-Benz), and Volkswagen—are very profitable.

Now it is hard to build a theory around an anecdote.  But science demands that we look for places that the theory does not fit with the facts, and facts like this are inconvenient.  Not because I can't try and explain why there may be confounding factors, but because maintaining high wages and high market share seems paradoxical in the current world. 

But really it should be making us question the market as a law of nature as opposed to a social construct.  Because once you accept that wage decisions are socially negotiated, it makes issues like inequality of wages much more salient. 

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