Justice Everywhere

a blog about justice in public affairs

Category: Economics (Page 1 of 6)

Is the Market Wage the Just Wage? (Just Wages Series)

Peter BoettkeRosolino Candela, and Kaitlyn Woltz‘s post is the second in our four-part series on “Just Wages.” It offers a reassessment of factor pricing and distributive justice. 

Does the market generate just wages? This question has plagued the minds of those concerned with justice for centuries (Aquinas, 1485). In his recent (open-access) article, “On the Very Idea of a Just Wage,” Joseph Heath argues that the market does not generate just wages. Instead, he argues that factor pricing is irrelevant to normative issues like distributive justice. Heath argues that market forces will produce efficient wages, but not just wages.

We challenge Heath’s argument, arguing that his conclusion, while not invalid, is misplaced. His critique is of a model of the market and not the market itself. In particular, his critique is of equilibrium models of the market.

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Talents and Wages (Just Wages Series)

Andrew Lister‘s post is the first in our four-part series on “Just Wages,” which will be running this month. 

Gregory Mankiw argues that those who are more productive should get a higher income not only as an incentive, but because this income is rightfully theirs (295). In a competitive market, factors of production are paid the value of their marginal product (32), which is the change in output associated with adding an extra unit of that input. Firms hire workers of a given type up to point at which the revenue the firm gains from hiring an additional worker is equal to the cost of that worker. Thus, in competitive equilibrium “each person’s income reflects the value of what he contributed to society’s production of goods and services.”  In this way, the theory of “just deserts” gives “a new normative interpretation” to the economic theory of competitive equilibrium (295).

Joe Heath responds that wages in a competitive market aren’t intrinsically fair. Wage-setting is not a unidirectional process from unequal skill and effort to unequal contribution to unequal wages. Where workers of a given skill-level are more abundant, they will be cheaper, and so hired for lower-value tasks, and so less productive even if equally skilled and diligent. The rationale for pricing labour according to supply and demand is that it directs people’s talents to where they can best be used, generating prosperity that can benefit everyone. As Heath says, “[t]he market has one job to do, and it does that job very well [allocating resources efficiently]. Producing ‘just’ wages, however, is not that job” (31).

This critique of the just deserts rationale for capitalism has a long history among proponents of private property and free markets. Frank Knight, Friedrich Hayek, and Milton Friedman all emphasized the importance of limited information and luck in the operation of markets, generating inequalities that don’t reflect differences of merit or desert. Heath  consciously drops one of the main forms of luck they identified, however: the genetic lottery. Here’s Milton Friedman, from Capitalism and Freedom:

Most differences in status or position can be regarded as the product of chance at a far enough remove. The man who is hard working and thrifty is to be regarded as ‘deserving’; yet these qualities owe much to the genes he was fortunate (or unfortunate?) enough to inherit (165-66).

On this point, Friedman followed Hayek and Knight. The inheritance of human capital is just as arbitrary a basis for distributing the social product as is the inheritance of physical capital. Robert Solow took this line against Mankiw.

You do not “deserve” that part of your income that comes from your parents’ wealth or connections or, for that matter, their DNA. You may be born just plain gorgeous or smart or tall, and those characteristics add to the market value of your marginal product, but not to your just deserts.

This rationale for redistribution poses a threat to self-respect, however, if interpreted as compensation for inferiority. Elizabeth Anderson argues that it would be stigmatizing for people to think that lack of talent is the ground upon which citizens can claim assistance (306). A better strategy, she suggests, is to “question the very idea that inferior native endowments have much to do with observed income inequalities in capitalist economies” (325). Heath adopts the same approach. Symphony musicians are obviously talented, but they don’t earn a lot (20). Inter-industry wage differentials within the same occupational category can’t be explained by differences in innate ability (3). Superstars like Lionel Messi obviously do earn high wages, but that’s in part because they have market power (18), so the markets for their talents aren’t truly competitive. Heath concludes that the question of innate ability is largely “orthogonal” to the debate over just wages.

I have doubts about the evidence Heath offers for his orthogonality thesis. And I worry that the avoidance strategy will undermine egalitarian conceptions of social justice, such as that of John Rawls.

The example of symphony musicians shows that markets reward scarce ability to produce goods and services people with money want to purchase, not ability in general. Productive potential is not equally distributed however. Developed productive ability could be more equally distributed if conditions of development in childhood were more equal. But it would still take special talents to become a brain surgeon, raising a question about the fairness of higher rewards for such roles, beyond what would be justified by heavier burdens.

The evidence on wage-differentials across industries shows that secretaries and managers in high-wage industries aren’t systematically better than secretaries and managers in low-wage industries. The explanation for wage differences within occupational groups must lie elsewhere, e.g. in norms of fairness or reciprocity within firms (as discussed in Peter Dietsch’s contribution). Those with greater talents will tend to earn more within a given occupation, however, and will be attracted to occupations with higher ratios of rewards to burdens.

My broader worry about Heath’s avoidance strategy is that it obscures the basis of egalitarianism. Knight, Hayek and Friedman were of course not egalitarians. In fact, they used the moral arbitrariness of the distribution of natural talent to accuse egalitarians of inconsistency. If the inheritance of ordinary capital is so unfair, why don’t you object to the inheritance of human capital too? As Ben Jackson explains, however, many on the left did object, not to the inheritance of ability as such, but to the fact that in a market economy, those born with scarce talents are able to command higher wages even without greater effort or diligence. Knight, Hayek and Friedman took it for granted that allowing income to be distributed according to one’s inheritance of property or talent was justified all things considered, since it contributed to aggregate prosperity (by incentivizing saving and the development of ability). Rawls argued that wasn’t enough. Morally arbitrary inequalities in shares of the products of collective labour are justified only if they benefit the worse off.

If markets don’t reward talent, then it may seem that all justice requires is protection of basic liberties and equality of opportunity, without any need for inequalities to benefit the worse off. However, even if we had eliminated unequal conditions of development during childhood, and even if we had perfected achievement-based selection to positions, it would still be unjust for positions with equal burdens to be rewarded unequally, unless such inequalities benefit the worse off. Fair equality of opportunity is sufficient for distributive justice only where there is no significant variation in the innate bases of productive ability. Denying the existence of such differences risks camouflaging the fact that inequalities between positions need to benefit the worse off, and would still need to do so even if conditions of development in childhood and adolescence were more equal.


Andrew Lister is an Associate Professor in the Department of Political Studies at Queen’s University in Kingston, Ontario. Before coming to Queen’s he was an FQRSC postdoctoral fellow at the Centre de recherche en éthique de l’Université de Montréal. He works on topics related to democracy and distributive justice, such as public reason, and more recently reciprocity.

On the Very Idea of a Just Wage (Just Wage Series Introduction)

In this post, Huub Brouwer and Thomas Mulligan introduce a four-part Justice Everywhere series on the question: What is a just wage? Over coming weeks, this will feature posts by Andrew Lister, Peter J. Boettke et al., Peter Dietsch, and Joseph Heath. 

In the aftermath of the 2008 financial crisis, smoldering questions about what just wages are, and whether markets are providing them, have erupted again. Some charge that unprecedented inequalities in income and wealth threaten national comity and are injustices in themselves. For others, regulation and egalitarian transfer policies are the real culprits, hampering efficiency and treading on property rights. Still others would like a world where people get what they deserve, and income and wealth come not through inheritance or social connections but effort and skill.

These are debates in the public sphere, but, of course, philosophers have discussed the nature and the possibility of a just wage for millennia. Plato, Aristotle, Thomas Aquinas, and Adam Smith—among many others—all grappled with the issue. But despite this timelessness, it seems to have new relevance now.

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Technological Justice

Relaxed senior adult wearing eyeglasses works on a laptop computer at home.

At least in the developed world, technology pervades all aspects of human life, and its influence is growing constantly. Major technological challenges include automation, digitalisation, 3 D printing, and Artificial Intelligence. Does this pose a need for a concept of “technological justice”? If we think about what “technological justice” could mean, we see that the concept is closely connected to other concepts of justice. Whether we are talking about social justice, environmental justice, global justice, intergenerational justice, or gender justice – at some point we will always refer to technology. It looks as if a concept of technological justice could be useful to draw special attention to technology’s massive impact on human lives, although the respective problems of justice can also be captured by more familiar concepts.

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Why central banks must change before the next crisis hits

Our recent book Do Central Banks Serve the People? sheds a critical light on the actions of central banks in the wake of the 2007 financial crisis. Using the US Federal Reserve, the European Central Bank, and the Bank of England as examples, we show how they have stretched their mandate beyond their traditional tasks of price stability and financial stability. This short introduction to the book summarizes the argument that the expanded role of central banks has three serious drawbacks.

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From the Vault: Good Reads in Left-Wing Politics

While Justice Everywhere takes a break over the summer, we recall from our archives some of our memorable posts from 2017-2018.

Here are three good reads on issues commonly associated with left-wing politics that you may have missed or be interested to re-read:

Lisa Herzog’s interview with Isabelle Ferreras on ‘Workplace Democracy

Lasse Nielsen’s ‘Sufficiency on Political Inequality

Miriam Ronzoni’s ‘On Striking as a Privilege

Values in Science & Science in Normative Theorising

Last year, Kevin C. Elliott published three new books on ‘values in science’:

                        

Given that empirical research is often used by moral, social, and political philosophers in scholarship on questions of justice, we thought it would be interesting to chat to Kevin about his recent work and its implications for moral, social, and political philosophy.

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Workplace Democracy – a proposal for saving democracy

This is an interview with Isabelle Ferreras, who has just published a book on workplace democracy – to my knowledge, it’s the most detailed argument and proposal for a specific form of workplace democracy that has been provided in recent years. To get a sense of what it is all about, check out the animated trailer at www.firmsaspoliticalentities.net. We asked Isabelle to tell us more about her book, and we are very happy that she immediately agreed to do so.

Q: How did you get interested in the topic of workplace democracy?

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What, if anything, is wrong with private money in political philosophy?

Recently, there have been increasing worries about the role of private money that funds libertarian political philosophy (see e.g. here or here). The role of private money in academic research is not precisely a new problem; it has plagued other fields for decades (see e.g. here for a study of some of the more problematic forms). But it seems to be rather new for political philosophy, or at least it seems to have gone to levels it has not had in the recent past. But what exactly is wrong with it? Isn’t it simply an exercise of freedom of expression to use one’s money to sponsor scholarship one is interested in?

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Sufficiency on Political Inequality

If you consider yourself a political philosopher, it seems that you must be doing political philosophy. What does this political constraint imply? To me, it does certainly not imply that you are not allowed to used farfetched hypothetical thought-experiments, or that you take a specific stand on ideal contra non-ideal theory. Nor does it imply that it is morally impermissible for us to raise certain philosophical questions, if we foresee a reasonable chance that answering these questions could make the world worse or more unjust, as some activists claim. What it implies is that you should acknowledge the political relevance of your philosophical work, and that you have a commitment to make this relevance explicit.

For an excellent example, see Lisa Herzog’s recent post on the blog. But I wish here to briefly present an analysis of my own on the reasons for concern with political inequality (“What is Our Real Concern with Real Inequality?”, Policy Studies Journal).

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