Unions, Value, and Your Paycheck 1

America's half-century-long experiment with public-sector unionism appears to be nearing its end, as massive budget deficits and a stalled economy collide with lavish union pensions and benefits in full view of an angry public.  Wisconsin Gov. Scott Walker is on the front lines of this final battle; similar conflicts are being waged in Indiana, New Jersey, and elsewhere.

Which makes it a good time to attack the false premise behind unionism in general: that workers, or for that matter anyone, "deserves" any given level of pay for anything at all.

Who Determines Your Pay?

This is a very hard principle to explain or even to contemplate; nobody likes to think of themselves as being worthless, and most people don't really like to think of anyone else as being truly worthless either.  In moral terms, that's correct: even the drunken, drug-addled bum in the gutter is a human being and should never be thought of as "worthless" in the sense that the Nazis defied "worthless" as an excuse to murder him.

Let's be perfectly clear: by talking about what people are worth, we are not addressing their worth as human beings, in which we are all equal including those still gestating in the womb. We're talking only about the economic worth of their labor.

In purely economic terms, though, every person's labor has a worth, and they are all different.  That value is based on their contribution to society.

The street bum contributes nothing whatsoever to his fellow-man; Bill Gates has contributed an enormous amount, both by driving innovation to the betterment of everyone and also by creating hundreds of thousands of good, well-paying jobs for lesser mortals.  Most Americans would agree that Bill Gates has earned, by his own efforts and by the benefits provided to society, a more luxurious life than the bum.

It is extremely hard to calculate anyone's contribution.  The retired grandma who watches her grandchildren makes a contribution; teachers do indeed contribute by educating the next generation.  How do you place a dollar value on those?

Unfortunately, there are only two ways to do it, one somewhat flawed and erratic, and the other totally so.

The flawed way is by the invisible hand of the market - that is, you are worth exactly what you can convince someone else to pay you, no more and no less.

We all know the problems with leaving worth-valuations to the market.  It's insane that Snooki makes ten times as much money as America's Teacher of the Year.  However, countless millions of individuals have voted with their time and wallets in favor of Snooki.  Who knows?  Maybe the pleasure they derive from Snooki is indeed worth more than we recognize.

Communism: Not worth it just to get rid of her. (Tough call though.)

There is another way to determine value.  Instead of trusting to the uncertainties of the market, why don't we set our greatest minds in charge of determining what's important and what's not and paying people accordingly?  That way teachers and scientists would be highly-respected and well-paid, whereas reality TV stars - well, we wouldn't even have reality TV then, would we?

Indeed, the Soviet Union did not have reality TV.  Teachers and scientists were well cared for, whereas Russians hardly had TV at all much less a Snookiski.

However, by definition, a Communist dictatorship is not free; you did what you were told and got what your betters thought you should have.  This is a very high price to pay for getting rid of overpaid starlet-sluts.

What's more, it didn't even work.  The Soviet Union's best and brightest were totally incapable of accurately determining the worth of every conceivable position in a modern economy, so the country was constantly plagued with shortages of this and surpluses of that.  Since people did not have the freedom to work and earn to their potential, there also wasn't much innovation outside of government-run military labs.

Nobody, not even the Russians, wants to live under a command-and-control economy.  Unfortunately, the only other alternative, as flawed as it is, is the invisible hand of market capitalism.

You Don't Deserve Squat

What does the market think you're worth?  You already know: look at your paystubs.  If you think you are worth more, unlike the masses under Communism, you have every right and ability to go out and persuade someone, or many someones, to give you more.

The problem is that it's very difficult to figure out what most jobs are worth, much less work out what each individual worker is.  What is the grocery-bagger worth?  Obviously something, as he's performing a useful service; but since that's a job almost anyone can do with no education or particular preparation, it's probably not worth very much.

That's why minimum-wage laws always lead to unemployment for the least-educated and most vulnerable members of society.  It is probably worth $1/hour to pay someone to bag groceries.  It is probably not worth $10/hour; so, in areas where that's the minimum wage, you won't see many baggers.  Instead, customers will have to bag their own groceries using self-checkouts, or the checkout clerk does the bagging as well for the same wage as before.

Democratic politicians in large, expensive cities often talk about a "living wage."  This is the idea that, based on the cost of living, a person has to earn a certain amount in order to have a reasonable life.

This is true, but when a "living wage" is required by law, the only result is that people get fired because they aren't worth the living wage.  Instead of hiring an illiterate dishwasher, it's cheaper for a restaurateur to invest in more sophisticated cleaning equipment so that one employee can do the work previously done by five.

With the aid of the costly equipment, that one employee is actually producing more than the five did before.  That means there's more money to pay him more, and wages can go up.  This is why, throughout most of the 20th century, factory jobs paid quite well: the massive capital invested in the factory allowed each worker to generate far more revenue than they earned in wages.

Unfortunately, because American wage rates are so vastly higher than in, say, China, it takes an enormous amount of capital to create one American "living wage" job.  Where 100 years ago a decent job could be created by handing an Irish laborer a $2 shovel, now it takes a $100,000 backhoe and training costs besides.  Of course, the modern construction worker makes many times what the Irish paddy once did, but the economy doesn't need nearly as many of them to do the same amount of work.

What does this have to do with wages?  We'll explore the importance of productivity and its effect on the job market in the next article in this series.