Market Wage vs. Fair Wage
Revised January 30, 2013


Without unions and collective bargaining, workers will be paid the market wage, which is the lowest wage an employer can pay to attract and keep the kind of employees he needs. He can pay more than the market wage, but he can't pay less, because if he pays less, he won't have enough employees. For the worker, the market wage is the highest wage offered by any of the employers he's willing to consider. He can work for less, but it would make no sense to do so unless there are offsetting benefits, like a shorter drive to work.

When we abandon the market wage and go to a “bargained” wage, things get more complicated. The two sides have to agree, and that's impossible, because no employer is willingly going to pay more than the market wage. The only thing that's going to make him do so is fear - fear of a strike, or government intervention - so it is not really negotiation, it's extortion.

The problem is, there is no such thing as a "fair" wage, just as there is no such thing as a "fair" price for a gallon of gas. A fair wage cannot be determined by human beings. Some economists think it should be based on the value the worker adds to the product, which means that when productivity increases, wages should also increase. But increases in productivity are likely due to improvements in technology rather than any extra contribution from the employee. Even if the employees do deserve the credit, there remains the problem of distributing the reward. Did they all contribute equally to the increase in productivity? Were they all equally “hardworking”? And shouldn't some of the gain be passed on to the customer?

Both Henry Ford and Walter Reuther thought that wages should be enough to enable workers to buy the product. Using this logic, Boeing workers should be able to buy 747s while McDonald’s workers would have to settle for Big Macs.

To Samuel Gompers of the AFL, wages were to represent “the results of our labor”, whatever that is:

We do want more, and when it becomes more, we shall still want more. And we shall never cease to demand more until we have received the results of our labor.

There is just no good alternative to the market-determined wage. George Will puts it this way (12/1/08):

When prices are arbitrary, which they must be when not set by markets, you have the essence of socialism. . . Socialism is not merely susceptible to corruption; it is corruption - the allocation of wealth and opportunity by political favoritism.

There is another problem with a "bargained" wage, or a wage set any other way than the market. How do you arrive at it? How do you come up with the proper amount? It can only be someone's opinion as to what is "fair", and that can change from person to person, day to day. The market wage, on the other hand, is not a matter of opinion. It is a certain amount:  the lowest wage that attracts the number of qualified workers needed.

I guess you could call the market wage a "fair" wage, but that is just confusing. Let's just call it the market wage.


Unions are Killing Michigan
The Wagner Act
What Economists Think
Why the Market Wage is Better
The Illogic of Collective Bargaining
Market Wage vs. Fair Wage
Imagining a Free Labor Market
Rights and Freedom
Destruction of the Middle Class
Employee Free Choice Act (EFCA)
Job Security
Collective Bargaining and Unemployment
Social Costs of Collective Bargaining
Ending Fringe Benefits
Democrats and Unions
Collective Bargaining in Government