Tag Archives: Markets

On Markets, Wages, and the Honey Badger

(Note: This entry was originally published on August 3, 2015.)

Recently, a long-time friend of mine gained some national attention for his take on fast food workers demanding and securing $15/hour in wages in New York City. He makes a well-written, yet concise argument in favor of workers pushing for living wages, and I encourage you to give it a read. You’ve probably seen it show up on your Facebook feed looking something like this:

Paramedic_viral

It also reminded me of something a grad school acquaintance said some years ago in a discussion about skills, experience, and earnings. He argued that if a person’s labor is only worth $2/hour in market wages, then such a person should not expect to earn more than $2/hour.

These two arguments bring into question how we determine what people should be or will be paid. On the one hand, we can argue that people deserve to earn a living wage, enough to support themselves in exchange for supplying a standard amount of labor. On the other hand, we can argue that skills and experience should be compensated based on how potential employers value those skills and experience; in other words, let the market decide.

But how exactly does a market determine a wage? Let’s take a look at a simple example.

panem et circenses

Pictured above is a photo of a worksite not far from my hometown. On any given night, a variety of people are working at this site, and being compensated for their labor. To keep it simple, let’s imagine the work that’s being done the night of an NBA game, and focus on the work of two groups of workers – the professional basketball players and the concession stand attendants selling hot dogs and beer.

The night of a basketball game, thousands of spectators pack the arena. They are there, primarily, to observe a basketball game, but during the basketball game, they will become hungry and thirsty, and will head to the concession stand. These spectators will be demanding two types of labor – the type that allows some people to play an entertaining game of basketball, and the type that cooks a hot dog and pours a beer. For both types of labor, demand will be very high.

Who supplies that labor? It turns out that while a great number of people would like to become professional basketball players, very few individuals actually possess the professional-level skills to play in the NBA. This means that there is a very limited supply of top-level basketball players. However, there are a great number of people who possess the extremely limited skill set necessary to cook a hot dog or pour a beer. Thus, there is an abundant supply of workers who could possibly fill the role of concession stand attendant.

So demand is high for both types of workers, but supply is low in case, high in the other. Using a simple model of supply and demand, we can see what the results will be with respect to what the two types of workers end up being paid.

Basketball and hot dog workers
As you can see, even though there is a great demand for both players and concession stand attendants, the difference in supply leads to two very different outcomes – basketball players receive a high market wage, while concession stand attendants receive a very low market wage.

These market dynamics are the result of the buyers and sellers of labor in these two distinct labor markets negotiating, in a sense, based on what price they (the spectators) are either willing to pay for the labor, or what price they (the players and attendants) are willing to accept. The “market” plays the role of intermediary, trying to find a balance between the two groups. It does not care about the results, so long as they are efficient in their allocation of scarce resources. The “market” is, in a sense, amoral. Or, to put it bluntly, the “market” is like the honey badger – it just don’t give a shit.

Allowing the market to set wages seems fair on the surface. After all, if a person’s wages are lower than they desire, and they would like to earn more, they are free to invest in themselves, building up their skills and experience in an effort to attract higher wages. The responsibility to earn more rests with them. Fair enough.

But how feasible is this when wages are too low? Imagine a person whose labor, as determined by the “market”, is worth only $2/hour. A standard 40-hour work week would generate a paltry $4,160 per year…well below the cost-of-living for an individual, even in the lowest-cost cities. This person would need to work far more hours just to survive. But even working 12-hour days, for 7 days a week, would only lead to an annual income of $8,760. Again, a meager living for an individual. How exactly is this person supposed to find the time, let alone physical stamina, to engage in activities outside of work that can in some way improve their skills or experience? A daunting challenge, indeed.

So what does this mean for us as a society? There’s no single method of determining someone’s pay that is inherently better than any alternative. But at the end of the day, we must ask ourselves – what is the result of our collective decisions and actions? There’s nothing inherently evil about a market – markets are, after all, amoral. But might there be something wrong with a society that leaves all of the wage-setting power to a nebulous, emotionless structure – the “market” – that cares not at all about the physical or mental well-being of people? In other words, what happens when we operate not only as a market economy, but as what Harvard philosopher Michael Sandel calls a market society?

People who work, regardless of what work they perform, deserve to earn a living wage. This doesn’t mean everyone should be guaranteed a life of luxury. But it does mean everyone who works should be capable of achieving a basic standard of living.

The market is amoral – it will set a market wage based on supply and demand, balancing what workers are willing to accept against what employers are willing to pay. And unfortunately for workers, in most cases, the balance tilts in favor of the employers.

As a society, we face a choice: accept this market outcome, or find an alternative. The market outcome itself is amoral. But for society to accept it, always and forever, is immoral.

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