Consider the case where worker Fred creates $100/hr in value yet earns only $10/hr. Me, as a greedy capitalist, wants a piece of that action. I offer Fred $20 to create $100/hr for me. Bob, that capitalist swine, outbids me and offers Fred $30. Ted, the running dog capitalist pig, offers him $40.
You see where this is going. If Fred really was underpaid relative to the value he produces, why isn't he getting a better offer elsewhere? You could postulate there are lots of Freds bidding for his job, keeping wages low. But then were are the new companies being created for the simple purpose of hiring boatloads of Freds and making 10x their pay?
Being underpaid seems like an unstable state in a free market.
In reality markets are not as competitive or as simple as the model. If you want to set up another Walmart say, it is not that easy to get it funded or make it a success, not as simple as just hiring a bunch of people and putting them to work to make money, as any entrepreneur knows.
Then is it really the workers creating that value, or the people, capital, and infrastructure creating that value?
For example, suppose I have a machine that, when a lever is pulled, it manufactures a gold nugget. A worker is needed to pull that lever - but is the bulk of the value being created by the worker or the machine?
It gets down to how one does the accounting for productivity. Get it too far wrong and one is likely to go out of business.
And that's exactly the point. Entrepreneurs actually bring value to the table.
You're assuming there's a shortage of labor. Avoiding the situation you describe is why owners of capital are almost always pro-immigration.
> You see where this is going.
Bob, Ted and you convene secretly and agree you won't poach each others employees or pay them more than $15/hr? And since you're the only game in town and can afford to undercut any competition until they're run off, everyone's forced to deal with it.
It's hard to see how the secret wouldn't get out that there are employees producing 10x what they're paid, and I don't see how you could get every investor in the country to collude voluntarily.
And then Mark comes along, realizes you have some great employees, refuses to collude, and hires them for $50/hr.
Recently a large national retail chain in Australia (Dick Smith's) went into receivership and left its owners (shareholders) out of pocket. They were no doubt paying Fred $200/hr even though he was only creating $100/hr in value. I think workers in industries with a liquid labor market like retail probably are being paid about what they're worth, as evidenced by the fact that sometimes their owners lose out. It's easy to say the greedy capitalist is being greedy when he wins, but what about when he loses? That often happens and the risk of that is probably why most of us aren't capitalists ourselves - it's dangerous!
The problem is, unless you know what Fred does, it's really hard to gauge whether you have the $200 Fred or the $10 Fred. Worst still, Fred the dev usually doesn't know either, he just likes playing with technology and rewriting the same wheel with new shiney abstractions.
It's easy to say the greedy capitalist is being greedy when he wins, but what about when he loses? That often happens and the risk of that is probably why most of us aren't capitalists ourselves - it's dangerous!
Often when the greedy capitalist loses, everybody who works for him also lose. People talk about the risks capitalists take and try to compare them to workers using sheer dollar values. That valuation completely sidesteps the diminishing marginal utility of cash.
If a capitalist goes out of business and his $10 million factory ends up getting sold off for a net of $3 million after paying his debts, we can say he lost at least $7 million. His workers, on the other hand, don't lose anything but their jobs. However, those workers might have been living from paycheck to paycheck, leaving them far worse off than the capitalist who still has $3 million in his pocket.
But did the founding owners or managers take massive $1000/hr wages while this was happening? Likely so.
That's a steep and short ladder for Fred, the lucky guy. In my experience, it's usually a lot more horizontal and lengthier. I want to say it doesn't detract from your point, but there's good reason why you want a long climb "to the top" if you're at the top and trying to keep more of it for yourself. Fred shouldn't have really been paid $10/hr in the first place.
Not everyone has good information about this market. I don't get to see how much someone paid for Fred's labor. That means someone is likely to underbid for my labor if I'm in the same business, to which I must take time to convince them otherwise. I can also try to get them to overbid for my labor, to which they must convince me otherwise. And off we go to the negotiation. Why is it good that we have different people producing similar levels of output and are paid differently?
I don't know if it's good per-se, but it's preferable to the most obvious alternative, which is centrally planned and arbitrated compensation. (I'm not trying to erect a strawman, but how else would one ensure perfectly equal pay for equal output other than via some centralized mechanism?)
As a Fred, assuming you want to continue to be an employee, you should sell your labor to the employer who gives you the best overall deal for you. As an employer of Freds, you should seek to get the best mix of Freds you can for the lowest sustainable rate. Bringing in other actors to arbitrate and equalize pay doesn't add anything that the actors in the system can't already do, IMO.
(Maybe Fred1 values that his employer allows dogs, or has bike parking, or is a short walk from his house. Maybe Fred2 likes his employer's stance on social issues, or benefits package, or likes working 4-10s instead of 5-8s. How will the central pay authority value those things better than independent actors making their own choices?)
There's really no such thing as two equal employees. People are different. For example, back when I worked at Boeing, there were two cashiers in the cafeteria. One young, one old. The line for the young one was twice as long, because she rang up people twice as fast, and everyone knew that. Union rules, which presumed that time on the job determines productivity, required that the older worker got paid more, and when layoffs came, the young one got laid off.
This is exactly what the article addresses. It is about the imbalance in the US economy, in which large companies are not seeing the competition that they should, and the record profits are being sequestered by investors instead of making their way to the employees. It continues on to argue that the barriers to competition in the US are defending large companies.
Except this doesn't happen. In fact there are wide swaths of people all capable of doing this one job (in fact any job, even CEO) roughly equally well, and they are all desperate for jobs so THEY are the ones competing, racing to the bottom for any job the elite capitalists who control all of the wealth are kind enough to create for them.
Someone taking $10/hr for $100/hr creation in value in order to get the job over the guy who offered $11 is what is actually happening.