All Commentary
Wednesday, September 1, 1965

Every Employee is Entitled to a Fair Wage

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

Being “fair” in the determina­tion of wages is an axiom of good management, a “demand” of union leaders. But at the risk of appear­ing to be “unfair,” let us examine the notion that “every employee is entitled 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 highly skilled 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 two dollars an hour is a fair wage for the man using hand tools, it is clear that each cup must sell for no less than one dollar—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 25 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 and tools, 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, to turn away from free­dom and to accept Marxian philos­ophy. That would be saying in effect that need, and not produc­tivity or consumers’ choice, 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. No one can have a right to such an arbitrary “fair wage,” unless someone else is compelled to pay it.

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—assuming consumers’ choice of this product—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.”

Reprints, 2 cents each.