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In this post, Joseph Heath responds to three critical engagements with his paper, which have been published over the previous three weeks on Justice Everywhere (and in full in this EJPE symposium).

My central objective in writing this paper (“On the Very Idea of a Just Wage”) was to respond to the reappearance of what Paul Krugman has referred to, somewhat abusively, as a “cockroach idea.” The thing about cockroaches is that, no matter how many times you kill them, they keep coming back. Similarly, there are some ideas that, no matter how many times they may be refuted, nevertheless keep reappearing, or get “rediscovered” by people who consider them fresh insights.

The idea that the marginal productivity of labour represents the “contribution” that an individual worker makes to production is a cockroach idea in this sense. It is something that many people would like to believe, because it implies that the natural tendency of markets will be to set wages at a level that corresponds to an intuitively plausible principle of distributive justice (i.e. “to each according to his or her contribution”). It was, however, intensively debated in the early 20^th century and rather decisively rejected. (more…)

Peter Dietsch’s post is the third in our four-part series on “Just Wages.” 

There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition. […] But it is not necessary for the stimulation of these activities […] that the game should be played for such high stakes as at present. Much lower stakes will serve the purpose equally well, as soon as the players are accustomed to them. (John Maynard Keynes, The General Theory of Employment, Interest, and Money, New York: Harcourt, 1953 [1936], 374)

This quote from John Maynard Keynes suggests that while a capitalist economy requires incentives to function, the magnitude of these incentives is variable. This suggestion puts Keynes at odds with the conventional wisdom in economics today. The latter includes the idea, eloquently presented by Joe Heath in his EJPE article, that there exists a rigid trade-off between economic efficiency and equity: If, as a society, we try to make wages more just, we will necessarily thereby undermine the efficiency of the market.

I shall argue that this conventional wisdom suffers from an important blind spot, which can explain why it overestimates the rigidity of the equity-efficiency trade-off. This blind spot lies in the fact that economists take as given the labour supply preferences of economic agents, rather than treating them as a variable of their analysis. To see why this matters, we need to introduce two concepts: reservation wages and economic rent. (more…)

Peter Boettke, Rosolino 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. (more…)

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). (more…)

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. (more…)