You Probably Need a Raise
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This article first appeared on TruthDig.
Bon Jovi charges $1,875 for a front row seat and fan Jim Leaman bought a ticket. “I have money,” Leaman told The New York Times, “and I don’t care if it costs $100 or $1,000.” But is it his money?
Leaman apparently makes his money from a propane distribution company that he owns. Of course, Leaman does not produce propane. By himself, he most likely does not produce anything else either. Such a company no doubt employs workers who fill the propane bottles, phone operators who take orders, technicians who maintain the equipment, forklift operators who load the bottles on trucks, drivers who distribute them to customers, and a manager who coordinates these activities.
The bottling and distribution of propane is a team effort, as is the production of almost everything else. A bus driver and a bus may deliver 40 passengers, but the driver without the bus would deliver no passengers, and neither would the bus without the driver. A surgeon operates on a patient who was prepped for surgery by others; she uses tools that were sterilized and are handed to her by nurses who also operate machines without which the surgery would not have been possible. The team that produces a high-rise is bigger still.
How is the income that a team generates divided among the members? In 1776, Adam Smith explained that the factor determining how income is shared is bargaining power, and that this power consists of the ability of each side to hold out for a better deal and to harness the support of the government. On both accounts the employers are stronger: First, they are richer, and, therefore, “in all such disputes, the masters can hold out much longer.” But the government also sides with them: “The masters ... never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against [the unions] of servants, labourers, and journeymen.” A third factor that determines bargaining power is, of course, the availability of replacement workers. When several workers compete for the same job, and these workers are not protected either by a minimum wage law or a union, masters once again have the upper hand.
If the owner of a business takes for himself a large enough share of the income of the team that he can afford $1,875 concert tickets without thinking twice, isn’t it fair to ask whether the money is justly his? In the latter part of the 19th century, workers raised this very question. The government responded with violence: Workers were killed and labor leaders hanged—the Haymarket Massacre was one of those events. John Bates Clark, a Columbia University economics professor, responded by denying the validity of the question itself. Had the question been valid, Clark explained, workers would have been justified in rebelling:
The indictment that hangs over society is that of “exploiting labor.” ... If this charge were proved, every right-minded man should become a socialist. ...
But the question was not valid, Clark argued, because production is not carried out by teams, and power does not determine rates of pay.
If not by teams, how is production carried out, then? Each worker and each machine produces all by itself a small quantity of product, Clark argued. An employer adds workers one by one, each time comparing the value of the product of the additional worker to the wage. The process of adding workers stops when the value of the additional product is just the same as the additional wage that this worker will earn. Since workers are interchangeable, each worker can be regarded as the last worker hired, and hence each worker gets paid the value of what she adds to production.