What Constitutes a Fair Wage?

Posted by Jason Douglas on 10.09.2009

Challenging our perception of what we deserve...

My previous article looked at how wealth in America has been redistributed over the last twenty years, and the role federal taxes have played. The numbers show decisively that those in the top half hold a higher percentage of income than before, while the bottom half has lost ground. Wages at the lower end of the spectrum have stagnated, with many people having to work two jobs just to make ends meet. Meanwhile, expenses from medical care to utilities to groceries have skyrocketed. College tuition has risen exponentially, and with it the opportunity for those with low or even moderate incomes to improve their situation is slipping away. These are the facts.

A few comments made a statement to the effect that one group gaining ground doesn't necessarily come at the expense of the others. If, for example, GDP goes up significantly, the top 1% could see their income double while the bottom half see their paychecks increase by 30% or so. In this hypothetical situation, everyone is making more money than before, so everyone wins, right? This is where things get more philosophical. Based on the quality of comments last time, I think we can discuss the subjective side of this issue without it devolving into a shouting match. Income and taxes impact all of our daily lives, so it's an emotional subject. The problem with emotions is they can cloud our perception. Certain people have a chip on their shoulder, and are just waiting to erupt about their fiscal pet peeve. They're skimming this article as fast as possible so they can rant about welfare queens, immigration, or whatever ticks them off. I challenge such people to take a deep breath, calmly take in everything here, give it meaningful thought, and THEN offer your own view.

As I said last time, capitalism is the most successful economic model ever devised. No one even offered an argument to the contrary. The heart of capitalism is the ability to improve ones position. Those who invent, innovate, or acquire a marketable skill set gain the opportunity to make more income than those with little training who work in unskilled jobs. If janitors and lawyers made the same income, no one would go to law school. As a practical matter, there must be an incentive for people to invest time and expense in training for advanced lines of work. Also as a practical matter, personal incomes cannot exceed the revenues they generate for an employer. These practical realities rule out a system where we can decide in a vacuum what a certain job is worth. A nurse who catches a mistake on a chart in time to save a patients life contributes more to society than a guy with a great curve ball, but she doesn't generate the ad revenue needed to pay her $15 million a year. On the surface, this seems to represent a fundamental flaw in the system. Shouldn't those who contribute the most to society while working the hardest have lives that reflect their contributions?

This brings us back to the suggestion that as long as paychecks generally go up, it's okay for the distribution of total wealth to keep skewing toward those who are already well off. My problem with this situation is that jobs have not fundamentally changed to justify the change in income sharing. That nurse has seen her benefits deteriorate and her wages rise slowly while doing the same job. Given that we have a shortage of health care workers, this is just the opposite of what we should expect. She can't simply go to a hospital that pays better, because this is happening across the board. Meanwhile, our $15 million pitcher belongs to a players association which battles with ownership over revenue sharing. The players in essence tell ownership that there would be no league without them, so they deserve a bigger cut of the money being made from their labor. This brings up a critical principle in our discussion.

Our economy is not merely the sum of its individual companies, each operating for its own benefit. If GM and Ford had closed, factories that make parts would also close. The restaurants surrounding those factories would close, etc. There is a ripple effect which can't be ignored. Workers are the same way. Just because someone is in a field or income level different from yours, it is short-sighted to believe that what affects them doesn't affect you. This morning, I turned on my bathroom light, turned on the shower, used numerous hygiene products, put on clothes I didn't make, ate food I didn't have to gather or hunt for, got on a bus I neither built nor drove, road on streets I didn't pave, to reach an office I didn't build and do a job I didn't create. Think about how many people it took to make the first two hours of my day possible. Modern conveniences make it far too easy to take these things for granted. You couldn't do your job if countless others didn't do theirs, and those others are people of all backgrounds and abilities.

Those who invest time and great effort to develop themselves professionally deserve a bigger share of the wealth than those who don't. Nothing I've written should be taken to suggest otherwise. But there's an odd quirk to human thinking. If your tax rate was 25%, and was gradually lowered to 20%, you would of course be fine with it. If a few years later someone wanted to raise your rate to 22%, you would be outraged. But the outrage has nothing to do with the number, just the fact that it's an increase. Be honest, when a tax hike is suggested, do you reach for a calculator to see what it would cost you, or do you just start shouting? When both the Bush and Obama tax cuts were proposed, I performed a simple exercise. I figured out roughly what I would get, asked myself whether that amount would meaningfully change my ability to get by, and compared it to what would be cut to cover the lost revenue. My net income is easily enough to both get by and reward me for having gone to college, so I don't need a tax cut. Reduced funding to student loan programs so I could have a few extra bucks seemed like a terrible trade-off. The less a person makes, the less relief they get, so those who most need help making ends meet don't really get it. That made no sense to me, so I opposed both cuts. You might carry out the same thought process and reach a different conclusion based on your own situation. But at least think about it rather than having a knee-jerk reaction.

These observations lead me to a few conclusions. Since no one has a superior alternative to capitalism, it should remain our economic system. That means we must forgo attempts to externally set salaries and wage levels. It also means tax rates should not be used to manipulate how much money someone ends up with. We can't set a hard cap on income and effectively take away anything over that through taxation, because it would hinder innovation. None of these conclusions, however, prevent us from putting measures in place to control living expenses for those having the hardest time getting by. I hear a lot of resentment over any government intervention expressed with the idea "I work hard for my income, why should I have to pay for things for others?" The answer is because their hard work contributes to the life you enjoy just as much as your own work does. Look around at home and tally up what you've spent on things you wouldn't even miss if they weren't there. Before you say low wage earners don't deserve help because one of them had the audacity to buy shoes nicer than yours, think about how many of them it took to make your trip to work possible. If the apocalypse came and you were the only person left, your quality of life would plunge no matter how hard you worked. This is true because the life you live today is not the sum of your individual efforts, but the benefit of being part of a society. So much more can be accomplished when people unify behind a common goal. When it comes to our economy, why would we do the opposite?