Being Paid What You’re Worth

Robert Reich is an economist who was Secretary of Labor in the 90s and is now a Professor of Public Policy at UC Berkeley. He’s also a blogger who knows what he’s talking about (unlike some of us). I doubt he would mind this extended quote from

“Paid-what-you’re-worth” is a dangerous myth.

Fifty years ago, when General Motors was the largest employer in America, the typical GM worker got paid $35 an hour in today’s dollars. Today, America’s largest employer is Walmart, and the typical Walmart workers earns $8.80 an hour.

Does this mean the typical GM employee a half-century ago was worth four times what today’s typical Walmart employee is worth? Not at all. Yes, that GM worker helped produce cars rather than retail sales. But he wasn’t much better educated or even that much more productive. He often hadn’t graduated from high school. And he worked on a slow-moving assembly line. Today’s Walmart worker is surrounded by digital gadgets — mobile inventory controls, instant checkout devices, retail search engines — making him or her quite productive.

The real difference is the GM worker a half-century ago had a strong union behind him that summoned the collective bargaining power of all autoworkers to get a substantial share of company revenues for its members. And because more than a third of workers across America belonged to a labor union, the bargains those unions struck with employers raised the wages and benefits of non-unionized workers as well. Non-union firms knew they’d be unionized if they didn’t come close to matching the union contracts.

Today’s Walmart workers don’t have a union to negotiate a better deal. They’re on their own. And because fewer than 7 percent of today’s private-sector workers are unionized, non-union employers across America don’t have to match union contracts. This puts unionized firms at a competitive disadvantage. The result has been a race to the bottom.

By the same token, today’s CEOs don’t rake in 300 times the pay of average workers because they’re “worth” it. They get these humongous pay packages because they appoint the compensation committees on their boards that decide executive pay. Or their boards don’t want to be seen by investors as having hired a “second-string” CEO who’s paid less than the CEOs of their major competitors. Either way, the result has been a race to the top.

Professor Reich doesn’t say anything about the effects of globalization in this post, but it’s obviously a factor. Our economic bottom isn’t in West Virginia or Mississippi anymore, it’s in Guatemala and Bangladesh. Even so, a strong labor movement would help slow down the race to the bottom and to the top.

There’s a question worth asking, however: Would it be better from an ethical point of view if workers in places like Guatemala were paid more at the cost of American workers being paid less? In other words, are we in rich countries automatically entitled to a better standard of living than people in poor countries? After all, for a worker in Guatemala, our race to the bottom is his or her race to the middle. If work can be performed just as well but more cheaply in Guatemala, why should it be performed in California?

I don’t know the answer to that question. Although it’s clear we should slow down the race to the very top (it’s gotten completely ridiculous), I’m not sure what should be done for the rest of us. Maybe the answer is to provide a reasonable minimum income for those of us in the rich countries, while doing more to improve the lives of those at the bottom. 


For example, as suggested here:  Considering a No-Strings-Attached Basic Income for All Americans

7 thoughts on “Being Paid What You’re Worth

  1. But that would upend our ingrained sense of meritocracy! (A term, which, if I’m remembering correctly, started life in the context of dystopian satire.) Living wage is a concept that has fallen out of favor for a lot of complicated and interconnected reasons, I think, and we give ourselves permission to not address it as not even a sensible but a necessary correction to the plight of the working poor, because after all, if they’re poor, they must deserve to be.

  2. I think one start would be to open borders to peaceful people who want to immigrate, or emigrate for that matter. There are other important structural barriers hindering people from starting their own business, thus pushing them into the wage labor market and lowering wages beyond what they otherwise would have been.

    Another pet peeve are some labor laws favored by big business along with entrenched unions that prohibit some of the more effective organizing techniques, by outlawing sympathy strikes, general strikes, closed shops, spontaneous wildcat strikes, slowdowns, sick-ins, and secondary boycotts. It was those type of techniques used by the more radical unions that garnered modern advances in working conditions.

  3. On guaranteed income, one idea that I read about decades ago, that was favored by many economists, is the negative income tax. The idea is that below a certain level of income, you start receiving payments in proportion to how much below a defined point you are. You always have an incentive to work since you only lose a portion of any additional income in payments.

    Examples with a %15 tax rate, a %50 negative tax rate, and $40,000 zero line.
    Income $60,000, you pay $3000 in taxes
    Income $50,000, you pay $1500 in taxes
    Income $40,000, you pay $0 in taxes
    Income $30,000, you receive $5000 in negative taxes
    Income $20,000, you receive $10,000 in negative taxes

    In practice, the amounts would be progressively bracketed in both directions.

    In addition to getting the individual incentives right, it also gets government’s and society’s incentives straight, since it’s to everyone’s benefit that as many people be working as possible.

    • Thanks for mentioning that. I remember it being proposed years ago too. In fact, I believe that Milton Friedman, one of the most important economists of the 20th century, a conservative and a Reagan adviser, was strongly in favor of it. Now it’s probably an idea that only liberals would support.

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