Trahison Des Clercs

Homogeneity is not necessarily the frilly page boy for the orthodox understanding of the labour market. It does actually have a purpose as it ensures simplicity in modelling, making the willing PhD wannabe task simply scrummy. However, given it ignores the variegated vicissitude in our varied view, it does impose costs for our appreciation of actual labour markets. Here, I’m not getting all kiss-kiss midnight cowboys over the popularity of our prissy population. I am just taking a moment to celebrate my superiority over my hamstringed neighbour and his inability to string a sentence together. This isn’t aggro arrogance, nor is it ‘no one loves me but my jiving mother’ reactionary rant. Whilst that neighbour of mine is as much use as a Conservative comic, it is merely an appreciation that the variance in our abilities is significant. A wage distribution, assuming compensation reflects standard supply and demand criteria, will be the standard result. We can expect inequality to be generated by the wonders of economic efficiency. Thus, we can refer to two features that ensure scrumptious wages differentials. First, we have to consider human capital. This is defined as any angelic aspect that promotes our precious productivity. Whilst we’ll normally celebrate the gracious work of the “I can’t do” teacher trade, we can also refer to the work of any fellow that makes us more useful: from the mad doctor that stops us from Arthur Fowler shaking to the self-help author that promotes testosterone alternatives that increase our war-face fighting spirit. Second, we can refer to the nature of job characteristics. Jobs aren’t all about counting buttons. They vary in their nature and, assuming some have dirtier and dodgier negative non-pecuniary characteristics, potential workers may have to be compensated via higher monetary benefits. Wage distributions will therefore all reflect the notion of compensating differentials. So far we’ve stuck to the neoclassical bible. But can we argue that wage differentials only reflect human capital and compensating differentials? Could capitalism also be reliant on inefficient forms of inequality? Could profit maximisation be the bogeyman?

The notion that wage dispersion will exist, even in the extreme case of homogeneity in worker quality, is well understood in labour economics. For example, the empirical literature goes back to the likes of Lester (1946, Wage Diversity and Its Theoretical Implications, Review of Economic Statistics, Vol. 28, pp152–159) and Slichter (1950, Notes on the Structure of Wages, Review of Economics and Statistics, Vol. 32, pp 80–91). We therefore have to adapt our theoretical understanding to understand the phenomena. A possibility is the inclusion of monopsony where the individual firm will experience an upward sloping labour curve and therefore have wage-making power. For example, see Bhasker et al. (2002, Oligopsony and Monopsonistic Competition in Labor Markets, Journal of Economic Perspectives, Vol 16, pp 155-174). However, whilst this sweet stuff is sensational for specific sense such as minimum wages, we also have to appreciate the weapon of choice in that wage making behaviour. A key aspect that the employer has to consider is the cost imposed by labour conflict as uppity employees attempt to grab greater goodies. Organisation therefore no longer reflects a simple ‘division of labour’ attempt to maximise the workforce’s productivity. The firm is not merely a means to ensure all mutually beneficial trade are exhausted. It also becomes a hierarchical mechanism required to manage conflict and therefore maintain profiteering. Orthodox theory actually celebrates this position. For example, we have the analysis into internal labour markets. Here, simple supply and demand whimpering is essentially replaced. Workers do not face efficient discrimination, but face an employer attempting to maximise compliancy and minimise the share of economic rents accruing to its employees. Wage norms, rather than supply and demand, are a crucial aspect of this process. Given the need to whack off greater profit, wage differentials are delivered through artificial human resource management techniques.

But what about more visible obvious inefficient wage differentials generated by discrimination? Be it racial, gender, sexual or about a dislike of “I’m more likely to suffer disease” six-fingered first cousin Neanderthal. Will profit maximisation eliminate it? If we follow Becker’s “taste for discrimination” we must respond with an affirmative and a haughty hallelujah. The theory suggests that discriminating employers will be prepared to give up profits in order to maximise their utility and avoid those they deem as undesirables. To have discrimination in the long term we’d have to assume that all employers are homogenous bigots. Despite any upper lip curl we may have over the exploiters, that is clearly an assumption too far. I’ve even been known to buy an employer a “girl’s drink”. As soon as you assume the non-bigot exists (i.e. the employer only interested in profit maximisation), market forces should then drive out the inefficient bigotry. However, that doesn’t occur. We might want to argue that is because of the existence of supernormal profits generated by monopoly power. Inefficient discrimination is allowed to continue as market forces aren’t sufficiently powerful to force that admirably appropriate action. However, we have a possible alternative explanation. In crass simple terms, discrimination becomes a means to stratify the workers and therefore reduce their bargaining power over available economic rents. Via inefficient discrimination, profits are increased. Market forces will not eliminate the inefficiency as we again have profit maximisation dependent on enforcing inefficient labour market practices.

In conclusion, it is reasonable to argue that inefficient wage differentials will naturally develop via capitalism’s profit maximisation peddling. One should never forget that the consequences from this market failure can be harmful. We do have a reduction in economic efficiency. As an example, take the health sector labour market in Balmy Britain. British doctors have done particularly well. Their combination of arrogance and uselessness has not discouraged significantly sizeable earnings elevation. They’ve been given extra funds to buy their Eton eggs, Tim and Tom, a Saab each. And lower down the human capital hierarchy? The likes of the cleaners, encouraged by contracting out that forces competition, have done particularly badly. The end result has not been splendid, super or spiffing. We have hospitals fighting infection due to reductions in the quality of cleanliness. The incentives generated by the wage distribution have led to severe inefficiencies; inefficiencies that are rather visible when you’re a victim of a flesh eating bacteria.