One of the most common grievances people have with their employers is about their pay. Many lament that their employers inadequately compensate them for the work they do, and that their salaries are too low. In their opinion, the free market is to blame for salaries being too low as companies hold bargaining power while the employees simply take whatever they can take. However, this sort of argument implies that work has intrinsic value and to state that is to misunderstand the nature of work.
Value is subjective, and that applies to work too. If a financial analyst from today were to be teleported back into a hunter-gatherer society, the value of his work as a financial analyst would be nearly non-existent as there would be no demand for his work. Instead, proficiency as a hunter would be more valuable as he would be able to adequately provide food which used to be scarce back then. Conversely, while the best hunters back then may have been in the highest percentile for wealth, the members of the top percentile in today’s society do not happen to be hunters. Instead, they happen to be business owners or work high-paying jobs reflecting the change in the value of their work.
While a financial analyst could earn quite a living in today’s society, he does so because he performs work that is currently in demand. His work, therefore, has an extrinsic value rather than intrinsic value. If he were to perform the same work in a primitive society, his work would not generate as much value and he could not possibly hope to retain the same quality of life as he could in today’s conditions. The free market, by its nature, dictates the right sort of work to be done. If an employee’s labor generates a lot of value, he is likely to be paid more as the firm will want to keep him lest he go to a competitor or choose to be self-employed. By contrast, doing work which isn’t in demand will lead to not being compensated as much due to the lack of paying customers reflecting the lack of value generated by doing the wrong sort of work.
To illustrate this point, consider an example. I choose to work 8 hours per day, and I could either dig a well or create a fence. Either option would take me the same amount of time and effort, but it isn’t necessary that they would be valued the same. If my town had a scarcity of water, people would likely be more willing to pay me to dig a well since water is more urgently required. However, if my town already had a few other wells and had a sufficient amount of water, my work in building fences would likely be more valued instead. Despite an equal amount of time and effort, the value I generate from my work would depend on other variables reflecting that value is subjective. The pay is determined by the valuation and demand of others, not the labor exerted or the job completed.
Neither is it the case that companies hold all the bargaining power in a free market. In the absence of force, employment is the result of a willing employer and willing employee agreeing upon a certain salary or wage rate. The employer sets the upper limit as they are constrained by having to adequately economize their factors of production. If an employee’s labor produces fifteen dollars worth of revenue to a firm per hour, they certainly cannot pay him more than that amount. Conversely, the employee sets the lower limit in negotiations as there will be a point where the employee will refuse to work for any less. For example, if the work is physically demanding, the employee may not see it worth his while to work for any less than 10 dollars per hour. Thus, the terms of compensation for work are set between these upper and lower limits depending on how negotiations go.
In conclusion, the value of work isn’t objective so there cannot be an objective standard which dictates what a “fair wage” is or isn’t. Any attempt to create such a standard would be arbitrary. In a free market, a fair wage is what an employer is willing to pay and what an employee is willing to accept. If either party disagrees, they are free to seek alternatives. Employers can choose to hire other people willing to work for less while employees who feel underpaid can choose to work for a higher paying competitor or opt to become self-employed.
