All Commentary
Tuesday, May 1, 1956

A Fair Wage

Mr. anderson is Manager of the Employers’ Association of Milwaukee.

We must recognize that every employee is entitled to a fair wage.” So concluded the speaker, a respected manufacturer and civic leader, elaborating on the development of industrial statesmanship at a typical gathering of American businessmen. Audience reaction indicated full approval of this, the voice of “enlightened” management!

While applauding the urge for more statesman-like industrial management, let us examine the implications of this particular declaration: a right to a fair wage.

Suppose, for instance, that a man is employed to produce ordinary aluminum measuring cups. Working with only such hand tools as a hammer and cutting shears, he is able to cut and form two cups an hour—16 in an 8-hour day; and these hardly the streamlined models which grace a modern kitchen.

A block away, a man using a press, dies, and other mass production equipment turns out high quality aluminum measuring cups at a rate of 320 a day. What is a “fair wage” in each of these plants? Is it the same for the man who forms cups with hand tools as for the man who mass produces them at twenty times the first man’s rate?

If the advocate of “fair wages” begins with the assumption that a dollar an hour is a fair wage for the man using hand tools, it is clear that each cup must sell for no less than 50 cents—just to cover labor costs. But charging any such price for handmade cups obviously is out of the question if superior cups from the nearby competing plant are offered, shall we say, at 15 cents each.

If the consumers’ choice is to be a determinant of the price of cups, then it appears that this hand craftsman—for the job he is doing—may not be able to earn more than a few cents an hour. Were he to insist on more from his employer, he’d obviously price himself out of that job. This, of course, would leave him the alternative of seeking employment elsewhere; possibly at the more highly mechanized plant in the next block.

Within an economy of open competition, it seems reasonable that any person should be free to choose from among various available employment opportunities. But if all interested parties—including employers and consumers—are to be equally free to choose, then it is clear that the employee may not arbitrarily set his own “fair wage,” and demand a job at that rate. Nor can an employer arbitrarily maintain for an appreciable time a “fair wage” that is much higher or lower than is indicated by the competitive situation. If he tries to pay more than is justified by the productivity of his men, he must face bankruptcy. And if he pays much below the prevailing level in that area, his workmen will quit.

If freedom of choice is to be respected, then the only fair wage is one determined by the purely voluntary process of competitive bargaining in a free market.

One may deplore the plight of the poor fellow in the unmechanized plant: how will he use his skills? Indeed, it is unfortunate if he lacks the modern equipment to make his efforts most productive. But to suggest that he should receive more than is reflected in the price consumers will voluntarily pay for cups is to reject the ideal of competitive private enterprise, and to accept Marxian philosophy. That would be saying in effect that need, and not productivity, determines wages; and that once a person starts work at a certain job, he has a vested interest in that job and a right to receive more than he can earn in it. We may decry the decisions of consumers in the market place if they reject the high-priced product of the hand-skilled employee, but the only substitute arrangement is to deny the consumer’s right of choice by law, forcing him or some other taxpayer to subsidize the particular craftsman.

So a “fair wage” is not something static which anyone can pick out of the air or arbitrarily define. It is not a fixed amount for every employee, but a figure that varies with each person and situation. The physical strength and technical skill of the employee may be highly important factors; but from this simple illustration it is clear that neither these, nor the man’s needs, can be the sole determinants of wages. The most important single factor is productivity which proceeds from investment in tools. When this truth is recognized, it wholly displaces the fallacious idea of a right to a “fair wage.”

Understanding of this economic fact would be an important step in the development of industrial statesmanship.