Wednesday, June 1, 2016

Who Holds “Market Power”? Who Sets Wages?

Suppose you work for an employer who pays you roughly the market wage for your labor, and there are several other employers who would have you for a roughly comparable compensation. Can your employer harm you in this scenario? Not really. If your employer tries to pull some shenanigans whereby they capture more of the value that you create for them, say by cutting your pay or benefits, you can simply go work for another employer. Even if they flat-out fire you, you’ll be back on your feet soon enough. When you’re earning close to the market wage for your labor, it’s very hard to exploit you, and it’s implausible that *as a class* people like you are being systematically exploited.

Now suppose your current employer is far and away your best option. Suppose they pay you 50% to 100% more than the next best option available to you. If your employer suddenly disappeared, you would find work again, but the transition would hurt. Can such an employer exploit you? Once again, I’d say “Not really.” Sure, it’s within their power to make your life less comfortable than it is right now, but that’s only because they are currently paying you so much more than your next best option. Whatever they are extracting from you via “exploitation,” they are paying pretty dearly for it. Exploitation is a poor description of this arrangement; it would be a more accurate and fairer description to say that the employer has paid you a compensating differential for whatever unpleasantness you have to put up with.

A third possibility is that you are being compensated at significantly *less* than your best option, but if that’s true it’s hardly the fault of your employer. If you’re accepting lower pay to work for them, it must be because that job offers you non-wage perks that are, in you valuation, worth at least as much as the forgone pay. Such an employer only has the power to *offer* you a salary lower than your best option; it can’t compel you to accept it.

I don’t know which of these scenarios people have in mind when they talk about exploited workers, but none of these possibilities is consistent with an exploitation narrative. I describe the cases where your pay is more than, equal to, and less than the market wage, so this short list is actually exhaustive of all logical possibilities. One can tell a “monopsony” (single buyer) story in which the sole employer of labor can call all the shots, but that is not really descriptive of most labor markets. Even most small towns have several restaurants and chain stores, so there are multiple buyers of low-wage labor. And there’s plenty of demand for mid-level office workers. If we think of exploitation as meaning there is only one feasible employer, who thus can call the shots without the threat of the employee leaving, the most exploited workers are probably superstar athletes and CEOs. But these examples hardly fit anyone’s notion of exploitation. This entire concept is philosophically bankrupt and needs to be rethought, or dropped altogether.

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