How Do We Calculate a Just Wage?

[cynic]

This will really shock the closet socialists out there, but markets are just.
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And how exactly are they just? Are indians sewing clothes sold in the west for a couple cents an hour being paid justly? If just is whatever an unregulated market happens to deliver, then it’s meaningless to use the word.

They are not charitable and they can never be sufficient for human happiness, but they are just. The “Robin Hood” economy pushed by socialists is neither just nor charitable. Voting to give away the money unjustly taken from others is not charity at all.
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It’s not presented as charity. Most people understand that it’s redistribution.

If unequal outcomes are unjust, then God is unjust for allowing both heaven and hell to exist.

This analogy is distasteful.

 

[Texas_Roofer]

It is more about context of the statement. If the market principles are intact the statements are correct however my experience is those who preach free market actually work to prevent the free market! For example do they support:

All substitutes are equal
Free flow of goods and services
Perfect knowledge
No barriers to enter
No barriers to exit

ie Just wage would require all salaries are published so you know which jobs to seek, no license for doctors, lawyers, etc (certification if customer desires), publish employee cost, employee revenue etc.

Another example is the new mechanic told the car dealer will employ you as: you get $40k, +$10k benefits, the shop costs are $20k, parts are $75k so total cost is ~145k. The dealer will charge $200k-250k for the work you do, or is most of that information hidden?

 

[Trader]

It is more about context of the statement. If the market principles are intact the statements are correct however my experience is those who preach free market actually work to prevent the free market! For example do they support:

All substitutes are equal
Free flow of goods and services
Perfect knowledge
No barriers to enter
No barriers to exit

ie Just wage would require all salaries are published so you know which jobs to seek, no license for doctors, lawyers, etc (certification if customer desires), publish employee cost, employee revenue etc.

Another example is the new mechanic told the car dealer will employ you as: you get $40k, +$10k benefits, the shop costs are $20k, parts are $75k so total cost is ~145k. The dealer will charge $200k-250k for the work you do, or is most of that information hidden?

I agree with most of this, but not perfect knowledge. That is impossible. Prices fluctuate in a market partly because facts are not equally known, and partly because two people with the same knowledge make different judgements from the same set of facts. Prices also change when the facts change. Markets adjust to change much faster than governments. The purpose of a market is to discover the equilibrium price where supply and demand meet.

As for the car dealer, he does not have to disclose his costs. To have a valid contract with his customer he has to disclose his price, terms, and what work will be performed. To have a valid contract with his employee he needs to establish work rules and compensation. Then he needs the consent of the other party. If the parties cannot agree there is no contract and we don’t know the correct price.

 

[Trader]

And how exactly are they just? Are indians sewing clothes sold in the west for a couple cents an hour being paid justly? If just is whatever an unregulated market happens to deliver, then it’s meaningless to use the word.

The wages are just if they are set by the free consent of both contracting parties. If you were to hire me to sew clothes by hand, my labor would only be worth a few cents per hour. I don’t know how to sew, and the results would be very difficult to sell.

If I became skilled at sewing, or one of us invested in technology to make me more productive, my labor would be more valuable. If I learned to design clothes, improve the manufacturing process, or manage the work of myself and others, I would be even more valuable to you. If I took the risk to start my own business, I would have both greater potential and the possibility of loss.

If we cannot agree on the terms of employment I will not work for you and I may be your biggest competitor some day. I could also decide to pursue a line of work that I am better qualified for. Do you think I could pitch for the Chicago Cubs at age 60? I would gladly settle for the MLB minimum salary, and they probably won’t win the World Series this year with or without me.

 

[Texas_Roofer]

I agree with most of this, but not perfect knowledge. That is impossible.

Because perfect knowledge cannot exist the market will never be perfectly free, however a high degree of knowledge equals a high degree of freedom in the market, and the same in reverse

Prices fluctuate in a market partly because facts are not equally known, and partly because two people with the same knowledge make different judgments from the same set of facts. Prices also change when the facts change. Markets adjust to change much faster than governments. The purpose of a market is to discover the equilibrium price where supply and demand meet.

Economist look at this in two parts, the part you described which is the free market trade, and the “friction” which is the non free market part like impaired knowledge, government regulation, or natural barriers to enter (as cost or skill)

As for the car dealer, he does not have to disclose his costs. To have a valid contract with his customer he has to disclose his price, terms, and what work will be performed. To have a valid contract with his employee he needs to establish work rules and compensation. Then he needs the consent of the other party. If the parties cannot agree there is no contract and we don’t know the correct price.

Ah, but is he seeking a contract based on hidden knowledge or a free market contract in which knowledge is already provided? In a free market he cannot have hidden knowledge so does he hide knowledge by inflating shop or labor cost? or does he list an expected risk cost?

here is an example Shop A) I’ll put starter on that car for $150, Shop B) For a factory starter it is $210, for a new after market brand $160, or if you’ll take a rebuilt starter it is $110. Is shop A better on price of an after market brand or higher for a rebuilt? Now if we find A is pricing an after market brand and we ask Shop B to match by dropping $10 in price, he may well say " No, I gave you my prices and you are free to shop around" Which in economist speak is to say he thinks the risk premium is correct at $160, and the risk premium is to low at $150. Yet more important to me is Shop B supports free market principles!

The wages are just if they are set by the free consent of both contracting parties. If you were to hire me to sew clothes by hand, my labor would only be worth a few cents per hour. I don’t know how to sew, and the results would be very difficult to sell.

This is the hardest issue for most students. IS IT YOUR BEST OPTION? Thus if you have good knowledge and it is your best option do it. If you have better options do not do it. And wow to the man who tricks you or withholds knowledge to get you to do this work

If I became skilled at sewing, or one of us invested in technology to make me more productive, my labor would be more valuable. If I learned to design clothes, improve the manufacturing process, or manage the work of myself and others, I would be even more valuable to you. If I took the risk to start my own business, **I would have both greater potential **and the possibility of loss.

Again it is based on knowledge, only if you have knowledge of the market and gain knowledge of the skill is this possible.

If we cannot agree on the terms of employment I will not work for you and I may be your biggest competitor some day. I could also decide to pursue a line of work that I am better qualified for. Do you think I could pitch for the Chicago Cubs at age 60? I would gladly settle for the MLB minimum salary, and they probably won’t win the World Series this year with or without me.

Isn’t it good you know what a major league minimum wage is? Imagine a major leaguer who thinks if I leave baseball my earnings may drop by 50%( eer, that is 90%) btw- you cannot pitch in the majors because of a natural barrier ie the ability to throw better than 99.999% of other people

hope that helps

 

[Trader]

Texas Roofer wrote:

Ah, but is he seeking a contract based on hidden knowledge or a free market contract in which knowledge is already provided? In a free market he cannot have hidden knowledge so does he hide knowledge by inflating shop or labor cost? or does he list an expected risk cost?

But it works both ways. The dealer cannot have perfect knowledge of what the customer is willing to pay. At some point the customer will buy the part and install it himself, or let his nephew do it. He may even decide to buy a new vehicle if the expected cost of repair is too high. The whole point of markets is to discover a price where neither party can have perfect knowledge. There is a collective knowledge in markets that is always greater than the knowledge of any one participant.

If one of the parties knowlingly provides false information to a contracting party, he subverts markets and may void the contract. He may also gain free housing at the Graybar Hotel where he can trade cigarettes with Big Bubba in return for protection from a beating.

 

[cynic]

The wages are just if they are set by the free consent of both contracting parties.
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You miss the point. Just implies concerns outside of economics.

If you were to hire me to sew clothes by hand, my labor would only be worth a few cents per hour. I don’t know how to sew, and the results would be very difficult to sell.

If I became skilled at sewing, or one of us invested in technology to make me more productive, my labor would be more valuable. .

They use sewing machines and have the same skills as workers in the west . They reason they are paid so little is because of the availability of labour ; it’s either work in a factory or go back to subsistence farming.

 

[Texas_Roofer]

Texas Roofer wrote:

Ah, but is he seeking a contract based on hidden knowledge or a free market contract in which knowledge is already provided? In a free market he cannot have hidden knowledge so does he hide knowledge by inflating shop or labor cost? or does he list an expected risk cost?

But it works both ways. The dealer cannot have perfect knowledge of what the customer is willing to pay. At some point the customer will buy the part and install it himself, or let his nephew do it. He may even decide to buy a new vehicle if the expected cost of repair is too high.

Yes and agian you list how more knowledge allows more options which is the whole reason all knowledge is desired

The whole point of markets is to discover a price where neither party can have perfect knowledge. There is a collective knowledge in markets that is always greater than the knowledge of any one participant.

some markets have nearly perfect knowledge like commidities, other markets as medical treatments are evolving and often no party has a great knowledge base. However the issue at hand is: Is either party trying to hide knowledge. Look back at the car shops “B” told everthing up front, “A” did not. As a result the buyer made decisions based on “B” marketing even if he purchased from “A” he did that from knowledged gained from “B”. So again “B” operated as a free market supporter.

hope that helps explain my original comment

 

[Texas_Roofer]

…They use sewing machines and have the same skills as workers in the west . They reason they are paid so little is because of the availability of labour ; it’s either work in a factory or go back to subsistence farming.

If that is truly the case they should sew for bad wages, however I would suggest they find a better economic service to provide. One way may be to invite sick people to fly in for treatment at prices well below US levels, or manufacture medical drugs below US prices. Or train the young to be exported as nurses and house cleaners. Simply picking between the two poor choices of sewing verses subsistence farming is the classic lose, lose scenario

 

[royal_archer]

And how exactly are they just? Are indians sewing clothes sold in the west for a couple cents an hour being paid justly? If just is whatever an unregulated market happens to deliver, then it’s meaningless to use the word.

The justice is that they have that option and they have others if they choose to take advantage of them. They also have the right to choose other options such as putting a lifestyle ahead of the attainment of wealth.

 

[royal_archer]

Do you think I could pitch for the Chicago Cubs at age 60? I would gladly settle for the MLB minimum salary, and they probably won’t win the World Series this year with or without me.

I’ve seen innings where they bring in a reliever to face one batter and then ask that pitcher to do an intentional walk. I could even do that.

 

[royal_archer]

You miss the point. Just implies concerns outside of economics.

They use sewing machines and have the same skills as workers in the west . They reason they are paid so little is because of the availability of labour ; it’s either work in a factory or go back to subsistence farming.

Or move or start a business or learn a new trade or etc. etc. etc.

 

[cynic]

The justice is that they have that option and they have others if they choose to take advantage of them. They also have the right to choose other options such as putting a lifestyle ahead of the attainment of wealth.

it’s precisely because they don’t have the kind of options we do that their labour is deemed to be worth so little. If they did then there wouldn’t be much reason to relocate manufacturing to the third world.

Or move or start a business or learn a new trade or etc. etc. etc.

Yeah right in the poverty stricken parts of India, with a non-existent loan…

 

[royal_archer]

it’s precisely because they don’t have the kind of options we do that their labour is deemed to be worth so little. If they did then there wouldn’t be much reason to relocate manufacturing to the third world.

Yeah right in the poverty stricken parts of India, with a non-existent loan…

India Indians or American Indians? Obviously American Indians?

Obviously American Indians have much more opportunity but plenty of people move from India to the US and other contries an find success. Those who choose to live in the poverty sticken areas can also find a variety of other forms of success. remember there are sometimes more important things to life than getting rich.

 

[cynic]

er, no, workers in India. They manufacture cheap high street fashion sold in the U.K while gettting paid very little (for example)

 

[royal_archer]

er, no, workers in India. They manufacture cheap high street fashion sold in the U.K while gettting paid very little (for example)

Can’t be blamed for that I don’t buy fashion and don’t buy imports if I can avoid it.

 

[Texas_Roofer]

er, no, workers in India. They manufacture cheap high street fashion sold in the U.K while gettting paid very little (for example)

Yes but is it their best option? and is it a means to an improved life style ?

Can’t be blamed for that I don’t buy fashion and don’t buy imports if I can avoid it.

If you are removing their best option, you hurt those trying to improve themselves! The assumption of if nobody buys then these people will work for high wages makes no sense, why are they not working for high wages now?

 

[Trader]

If you are removing their best option, you hurt those trying to improve themselves! The assumption of if nobody buys then these people will work for high wages makes no sense, why are they not working for high wages now?

Of course it makes no sense. If more people buy the product of their labor, the increased demand will cause a rise in their wages over time. Their rising wages will enable them to buy more high value western products, including airplanes, computer software, and financial services.

Over the past decade or two close to a billion people in third world countries have moved out of poverty because of free (or at least free-er) markets. China is not politically free yet, but there is a good chance that the same markets that provide economic freedom will enhance their political freedom also.

 

[royal_archer]

If you are removing their best option, you hurt those trying to improve themselves! The assumption of if nobody buys then these people will work for high wages makes no sense, why are they not working for high wages now?

Working for pennies an hour is not their best option. Why would you not believe those humans are capable of the same things the rest of us are?

Besides, as much as I am reducing the demand for cheep imports I am increasing the demand for American semi skilled labor.

 

[royal_archer]

Of course it makes no sense. If more people buy the product of their labor, the increased demand will cause a rise in their wages over time. Their rising wages will enable them to buy more high value western products, including airplanes, computer software, and financial services.

Over the past decade or two close to a billion people in third world countries have moved out of poverty because of free (or at least free-er) markets. China is not politically free yet, but there is a good chance that the same markets that provide economic freedom will enhance their political freedom also.

And it has also caused a plummet of wages in first world countries and the loss of freedom here in the States.