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Why would wages track productivity?

dylancatlow
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12/29/2015 10:14:55 PM
Posted: 11 months ago
I don't understand why we should expect wages to track productivity. The fact that wages have stagnated while worker productivity has continued to rise is often regarded as some kind of "conspiracy", a wholly unnatural state of affairs driven not by fair market forces but by a concerted effort on the part of companies to "rip off" their employees. To illustrate why I find this view implausible I'll use a theoretical society as an example.

Bob and Dave are both members of a society. Bob works as a low-skilled farmer picking strawberries and earns a meager wage, say 500 dollars annually where the average wage in the society is 1000. In a typical year Bob is able to pick 10,000 dollars worth of strawberries for his employer. On the other hand, Dave is a journeyman watchmaker making 1500 a year. In a typical year he is able to turn 10,000 dollars worth of watch parts into 15,000 dollars worth of watches, thus profiting his employer 3500 dollars. It's clear why Dave earns more than Bob - he's more skilled and thus harder to replace. It only makes sense that he should make more money.

Now fast forward ten years. Nothing in the society has changed except that farming has gone through a major transformation. Everything about it has become mechanized: hand picking has been replaced with advanced farming equipment - tractors, etc. Where before Bob's employer needed to hire one hundred workers to harvest all of his crops, now he only needs one. Luckily for Bob, he's chosen to stay while all of his coworkers are let go. Now Bob is able to harvest 1,000,000 dollars worth of strawberries all by himself, a one hundred fold increase (let's ignore the fact that the price of strawberries would plummet once they flooded the market). Bob's productivity has gone through the roof! He goes to his employer demanding that his pay be increased to match the additional value he now provides - after all, he's making more money for his boss than he ever did before. He asks for his pay to be increased to 50,000 dollars, since he represents 100 hand picking workers who before were earning 500 dollars each. Unfortunately for Bob, operating the new farming equipment is extremely easy - even easier than picking by hand. Bob's salary request is soon undercut by one of Bob's old coworkers, offering to do the same job for 40,000 dollars a year (he also doesn't understand economics very well). The story continues until someone offers to do the job for 500 dollars, in effect reclaiming the job they had lost. Bob's dreams of high living have been crushed. But were those dreams realistic? Of course they weren't. Bob could not reasonably expect to make fifty times the average wage for doing next to nothing.

This example shows that the salary one can expect to receive for a given job has nothing to do with the actual value of the position one is performing. Consider, for example, someone working in a car factory. Their job is to press a button every so often to move production along. If they stop doing their job everything comes to a halt and the company can't make any money. So without them, the company couldn't exist. So the value they provide is equal to the entire company! In one sense it is. But that doesn't mean they can expect to receive a salary of billions of dollars. This isn't to say that I think wages shouldn't reflect one's productivity to some degree, just that ensuring that they do would require massive state intervention and won't happen automatically.
bballcrook21
Posts: 4,468
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12/30/2015 12:06:51 AM
Posted: 11 months ago
At 12/29/2015 10:14:55 PM, dylancatlow wrote:
I don't understand why we should expect wages to track productivity. The fact that wages have stagnated while worker productivity has continued to rise is often regarded as some kind of "conspiracy", a wholly unnatural state of affairs driven not by fair market forces but by a concerted effort on the part of companies to "rip off" their employees. To illustrate why I find this view implausible I'll use a theoretical society as an example.

Bob and Dave are both members of a society. Bob works as a low-skilled farmer picking strawberries and earns a meager wage, say 500 dollars annually where the average wage in the society is 1000. In a typical year Bob is able to pick 10,000 dollars worth of strawberries for his employer. On the other hand, Dave is a journeyman watchmaker making 1500 a year. In a typical year he is able to turn 10,000 dollars worth of watch parts into 15,000 dollars worth of watches, thus profiting his employer 3500 dollars. It's clear why Dave earns more than Bob - he's more skilled and thus harder to replace. It only makes sense that he should make more money.

Now fast forward ten years. Nothing in the society has changed except that farming has gone through a major transformation. Everything about it has become mechanized: hand picking has been replaced with advanced farming equipment - tractors, etc. Where before Bob's employer needed to hire one hundred workers to harvest all of his crops, now he only needs one. Luckily for Bob, he's chosen to stay while all of his coworkers are let go. Now Bob is able to harvest 1,000,000 dollars worth of strawberries all by himself, a one hundred fold increase (let's ignore the fact that the price of strawberries would plummet once they flooded the market). Bob's productivity has gone through the roof! He goes to his employer demanding that his pay be increased to match the additional value he now provides - after all, he's making more money for his boss than he ever did before. He asks for his pay to be increased to 50,000 dollars, since he represents 100 hand picking workers who before were earning 500 dollars each. Unfortunately for Bob, operating the new farming equipment is extremely easy - even easier than picking by hand. Bob's salary request is soon undercut by one of Bob's old coworkers, offering to do the same job for 40,000 dollars a year (he also doesn't understand economics very well). The story continues until someone offers to do the job for 500 dollars, in effect reclaiming the job they had lost. Bob's dreams of high living have been crushed. But were those dreams realistic? Of course they weren't. Bob could not reasonably expect to make fifty times the average wage for doing next to nothing.

This example shows that the salary one can expect to receive for a given job has nothing to do with the actual value of the position one is performing. Consider, for example, someone working in a car factory. Their job is to press a button every so often to move production along. If they stop doing their job everything comes to a halt and the company can't make any money. So without them, the company couldn't exist. So the value they provide is equal to the entire company! In one sense it is. But that doesn't mean they can expect to receive a salary of billions of dollars. This isn't to say that I think wages shouldn't reflect one's productivity to some degree, just that ensuring that they do would require massive state intervention and won't happen automatically.

I understand the point, but logically, you wouldn't place value on the individual, but the skill needed to do the work. In any society, there are always more people than there are jobs, and this will continue to rise as population grows. On the other hand, an individual who is easy to replace will most likely also be the individual who is doing a very low-skilled job (in current society, at least).

For example, a farmer who picks oranges by hand is doing labor that requires little to no skill and training, and experience in doing this doesn't necessarily equate to productivity. In this man's case, then, the company can easily replace him, if he decides to barter for more money. It is up to the company though, if they would like to pay more or not. As technology evolves, and it's easier to replace individuals, society will move onto occupations that are entirely reliant on knowledge and skill, rather than experience and a lack of skill.

Min. Wage jobs will still exist for years and years to come, but they will decrease, so long as technology advances. Machinery is much cheaper to make and much easier to handle and maintain than a worthless human being with no skills or intelligence.
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
dylancatlow
Posts: 12,242
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12/30/2015 2:31:20 AM
Posted: 11 months ago
At 12/30/2015 12:06:51 AM, bballcrook21 wrote:
At 12/29/2015 10:14:55 PM, dylancatlow wrote:
I don't understand why we should expect wages to track productivity. The fact that wages have stagnated while worker productivity has continued to rise is often regarded as some kind of "conspiracy", a wholly unnatural state of affairs driven not by fair market forces but by a concerted effort on the part of companies to "rip off" their employees. To illustrate why I find this view implausible I'll use a theoretical society as an example.

Bob and Dave are both members of a society. Bob works as a low-skilled farmer picking strawberries and earns a meager wage, say 500 dollars annually where the average wage in the society is 1000. In a typical year Bob is able to pick 10,000 dollars worth of strawberries for his employer. On the other hand, Dave is a journeyman watchmaker making 1500 a year. In a typical year he is able to turn 10,000 dollars worth of watch parts into 15,000 dollars worth of watches, thus profiting his employer 3500 dollars. It's clear why Dave earns more than Bob - he's more skilled and thus harder to replace. It only makes sense that he should make more money.

Now fast forward ten years. Nothing in the society has changed except that farming has gone through a major transformation. Everything about it has become mechanized: hand picking has been replaced with advanced farming equipment - tractors, etc. Where before Bob's employer needed to hire one hundred workers to harvest all of his crops, now he only needs one. Luckily for Bob, he's chosen to stay while all of his coworkers are let go. Now Bob is able to harvest 1,000,000 dollars worth of strawberries all by himself, a one hundred fold increase (let's ignore the fact that the price of strawberries would plummet once they flooded the market). Bob's productivity has gone through the roof! He goes to his employer demanding that his pay be increased to match the additional value he now provides - after all, he's making more money for his boss than he ever did before. He asks for his pay to be increased to 50,000 dollars, since he represents 100 hand picking workers who before were earning 500 dollars each. Unfortunately for Bob, operating the new farming equipment is extremely easy - even easier than picking by hand. Bob's salary request is soon undercut by one of Bob's old coworkers, offering to do the same job for 40,000 dollars a year (he also doesn't understand economics very well). The story continues until someone offers to do the job for 500 dollars, in effect reclaiming the job they had lost. Bob's dreams of high living have been crushed. But were those dreams realistic? Of course they weren't. Bob could not reasonably expect to make fifty times the average wage for doing next to nothing.

This example shows that the salary one can expect to receive for a given job has nothing to do with the actual value of the position one is performing. Consider, for example, someone working in a car factory. Their job is to press a button every so often to move production along. If they stop doing their job everything comes to a halt and the company can't make any money. So without them, the company couldn't exist. So the value they provide is equal to the entire company! In one sense it is. But that doesn't mean they can expect to receive a salary of billions of dollars. This isn't to say that I think wages shouldn't reflect one's productivity to some degree, just that ensuring that they do would require massive state intervention and won't happen automatically.

I understand the point, but logically, you wouldn't place value on the individual, but the skill needed to do the work. In any society, there are always more people than there are jobs, and this will continue to rise as population grows. On the other hand, an individual who is easy to replace will most likely also be the individual who is doing a very low-skilled job (in current society, at least).


How is that at odds with the OP?
bballcrook21
Posts: 4,468
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12/30/2015 2:32:22 AM
Posted: 11 months ago
At 12/30/2015 2:31:20 AM, dylancatlow wrote:
At 12/30/2015 12:06:51 AM, bballcrook21 wrote:
At 12/29/2015 10:14:55 PM, dylancatlow wrote:
I don't understand why we should expect wages to track productivity. The fact that wages have stagnated while worker productivity has continued to rise is often regarded as some kind of "conspiracy", a wholly unnatural state of affairs driven not by fair market forces but by a concerted effort on the part of companies to "rip off" their employees. To illustrate why I find this view implausible I'll use a theoretical society as an example.

Bob and Dave are both members of a society. Bob works as a low-skilled farmer picking strawberries and earns a meager wage, say 500 dollars annually where the average wage in the society is 1000. In a typical year Bob is able to pick 10,000 dollars worth of strawberries for his employer. On the other hand, Dave is a journeyman watchmaker making 1500 a year. In a typical year he is able to turn 10,000 dollars worth of watch parts into 15,000 dollars worth of watches, thus profiting his employer 3500 dollars. It's clear why Dave earns more than Bob - he's more skilled and thus harder to replace. It only makes sense that he should make more money.

Now fast forward ten years. Nothing in the society has changed except that farming has gone through a major transformation. Everything about it has become mechanized: hand picking has been replaced with advanced farming equipment - tractors, etc. Where before Bob's employer needed to hire one hundred workers to harvest all of his crops, now he only needs one. Luckily for Bob, he's chosen to stay while all of his coworkers are let go. Now Bob is able to harvest 1,000,000 dollars worth of strawberries all by himself, a one hundred fold increase (let's ignore the fact that the price of strawberries would plummet once they flooded the market). Bob's productivity has gone through the roof! He goes to his employer demanding that his pay be increased to match the additional value he now provides - after all, he's making more money for his boss than he ever did before. He asks for his pay to be increased to 50,000 dollars, since he represents 100 hand picking workers who before were earning 500 dollars each. Unfortunately for Bob, operating the new farming equipment is extremely easy - even easier than picking by hand. Bob's salary request is soon undercut by one of Bob's old coworkers, offering to do the same job for 40,000 dollars a year (he also doesn't understand economics very well). The story continues until someone offers to do the job for 500 dollars, in effect reclaiming the job they had lost. Bob's dreams of high living have been crushed. But were those dreams realistic? Of course they weren't. Bob could not reasonably expect to make fifty times the average wage for doing next to nothing.

This example shows that the salary one can expect to receive for a given job has nothing to do with the actual value of the position one is performing. Consider, for example, someone working in a car factory. Their job is to press a button every so often to move production along. If they stop doing their job everything comes to a halt and the company can't make any money. So without them, the company couldn't exist. So the value they provide is equal to the entire company! In one sense it is. But that doesn't mean they can expect to receive a salary of billions of dollars. This isn't to say that I think wages shouldn't reflect one's productivity to some degree, just that ensuring that they do would require massive state intervention and won't happen automatically.

I understand the point, but logically, you wouldn't place value on the individual, but the skill needed to do the work. In any society, there are always more people than there are jobs, and this will continue to rise as population grows. On the other hand, an individual who is easy to replace will most likely also be the individual who is doing a very low-skilled job (in current society, at least).


How is that at odds with the OP?

It isn't, I just wanted to say some stuff.
If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. - Friedman

Underlying most arguments against the free market is a lack of belief in freedom itself. -Friedman

Nothing is so permanent as a temporary government program. - Friedman

Society will never be free until the last Democrat is strangled with the entrails of the last Communist.
dylancatlow
Posts: 12,242
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12/30/2015 2:46:18 AM
Posted: 11 months ago
At 12/30/2015 2:32:22 AM, bballcrook21 wrote:
At 12/30/2015 2:31:20 AM, dylancatlow wrote:
At 12/30/2015 12:06:51 AM, bballcrook21 wrote:
At 12/29/2015 10:14:55 PM, dylancatlow wrote:
I don't understand why we should expect wages to track productivity. The fact that wages have stagnated while worker productivity has continued to rise is often regarded as some kind of "conspiracy", a wholly unnatural state of affairs driven not by fair market forces but by a concerted effort on the part of companies to "rip off" their employees. To illustrate why I find this view implausible I'll use a theoretical society as an example.

Bob and Dave are both members of a society. Bob works as a low-skilled farmer picking strawberries and earns a meager wage, say 500 dollars annually where the average wage in the society is 1000. In a typical year Bob is able to pick 10,000 dollars worth of strawberries for his employer. On the other hand, Dave is a journeyman watchmaker making 1500 a year. In a typical year he is able to turn 10,000 dollars worth of watch parts into 15,000 dollars worth of watches, thus profiting his employer 3500 dollars. It's clear why Dave earns more than Bob - he's more skilled and thus harder to replace. It only makes sense that he should make more money.

Now fast forward ten years. Nothing in the society has changed except that farming has gone through a major transformation. Everything about it has become mechanized: hand picking has been replaced with advanced farming equipment - tractors, etc. Where before Bob's employer needed to hire one hundred workers to harvest all of his crops, now he only needs one. Luckily for Bob, he's chosen to stay while all of his coworkers are let go. Now Bob is able to harvest 1,000,000 dollars worth of strawberries all by himself, a one hundred fold increase (let's ignore the fact that the price of strawberries would plummet once they flooded the market). Bob's productivity has gone through the roof! He goes to his employer demanding that his pay be increased to match the additional value he now provides - after all, he's making more money for his boss than he ever did before. He asks for his pay to be increased to 50,000 dollars, since he represents 100 hand picking workers who before were earning 500 dollars each. Unfortunately for Bob, operating the new farming equipment is extremely easy - even easier than picking by hand. Bob's salary request is soon undercut by one of Bob's old coworkers, offering to do the same job for 40,000 dollars a year (he also doesn't understand economics very well). The story continues until someone offers to do the job for 500 dollars, in effect reclaiming the job they had lost. Bob's dreams of high living have been crushed. But were those dreams realistic? Of course they weren't. Bob could not reasonably expect to make fifty times the average wage for doing next to nothing.

This example shows that the salary one can expect to receive for a given job has nothing to do with the actual value of the position one is performing. Consider, for example, someone working in a car factory. Their job is to press a button every so often to move production along. If they stop doing their job everything comes to a halt and the company can't make any money. So without them, the company couldn't exist. So the value they provide is equal to the entire company! In one sense it is. But that doesn't mean they can expect to receive a salary of billions of dollars. This isn't to say that I think wages shouldn't reflect one's productivity to some degree, just that ensuring that they do would require massive state intervention and won't happen automatically.

I understand the point, but logically, you wouldn't place value on the individual, but the skill needed to do the work. In any society, there are always more people than there are jobs, and this will continue to rise as population grows. On the other hand, an individual who is easy to replace will most likely also be the individual who is doing a very low-skilled job (in current society, at least).


How is that at odds with the OP?

It isn't, I just wanted to say some stuff.

lol