Before the wage is determined it is disputed. The plate that follows this one will draw the serene picture — the wage pinned by competition to the value of the last hour worked, as though by a law of nature — and that picture is not wrong, exactly, but it is drawn over something older and more stubborn, which this plate means to recover. The wage is, before it is anything else, the outcome of a bargain. It is agreed between two parties whose interests run opposite — the one to give as little as he can, the other to get as much — and the question of where, between the most the employer would pay and the least the worker would take, the wage finally comes to rest is not settled by any diagram. It is settled by power. That the man who first set this down was Adam Smith, remembered ever since as the apostle of the self-regulating market, is the first of this volume's many ironies, and by no means the smallest.
In the eighth chapter of the first book of the Wealth of Nations, Smith turned to the wages of labour and looked, with a candour his admirers have often preferred to forget, at the bargain that fixes them. The two parties to it, he saw, were not equals, and he gave the reasons plainly. The masters were the fewer, and could combine far more easily, and far more quietly, than the multitude of workmen. The law of his day was not even-handed between them: it tolerated the masters' combinations, or looked the other way, while it forbade and punished the workmen's. And beneath both of these lay the deepest inequality of all — the inequality of staying power. A master of stock could hold out a year, or two, employing no one, living on what he had already laid by; a workman could rarely last a week without wages, and many could not last a month. The hunger was nearly all on one side of the table. In the long run, Smith allowed, the workman is as necessary to his master as the master is to the workman — but the necessity is not so immediate. The wage is struck, then, between parties who can afford to wait for grossly unequal lengths of time, and it records that inequality of patience as faithfully as it records the value of the work. This is Smith's asymmetry, and it is the seed of everything that grows in this plate.
The wage is struck between parties who can afford to wait for grossly unequal lengths of time — and it records that inequality as faithfully as it records the work.
Set the insight in its barest form. There is a wage beneath which the worker will not, or cannot, agree to labour — a floor set by his needs and by whatever alternatives lie open to him. There is a wage above which the employer will not agree to hire — a ceiling set by what the work adds to the value of his product. Between floor and ceiling lies a range, often a wide one; and within that range the wage is, by the bare forces of supply and demand, indeterminate. Francis Edgeworth saw this with unusual clarity as early as 1881: an exchange between two parties does not converge upon a single point but traces out a whole curve of possible bargains, every one of them better for both than no bargain at all, and which point upon that curve is actually reached is decided not by arithmetic but by the relative strength and patience of the bargainers. The marginal-productivity theory of the next plate will claim to collapse this range to a point — competition, it will say, leaves the employer no choice but to pay the full value of the last hour. The bargaining tradition, older than that theory and forever outliving its announcements of victory, holds instead that the range is real, that the wage lives somewhere within it, and that where within is the question that matters: a question of numbers, of law, of organisation, and, above all, of who can afford to wait.
The deepest source of the employer's patience is not the stock in his own vault but the existence of others, just beyond the door, who would take the place if it were offered to them. The unemployed are not merely idle resources awaiting their recall; they are a presence at the bargaining table they never attend, and their silent competition sets a ceiling on what those inside may ask.
The unemployed are a presence at the bargaining table they never attend.
Karl Marx gave this pool its hard name — the industrial reserve army — and argued that the very rhythm of accumulation works to keep it filled, casting workers out of employment with one hand while it draws them in with the other, so that the wages of the employed are forever bargained in the shadow of the unemployed. The mechanism outlived the system of thought that named it. Michał Kalecki, writing in 1943, drew the political conclusion: a genuine and lasting full employment would so strengthen the hand of labour at the table that it would be resisted, on political grounds, long before it was reached on economic ones — that a margin of unemployment is, to the buyer of labour, less a malfunction of the machine than a convenience of it. One need not take on the whole of either man's system to credit the mechanism, for it surfaces in every downturn: whatever deepens the shadow of the jobless — a recession, a trade that carries the work abroad, a machine that stands ready to do it cheaper — weakens, by precisely that much, the worker's side of the bargain.
Nor has the bargain ever been conducted in a state of nature; it has always been governed by rules, and the rules have seldom been neutral between the parties. In Smith's own Britain, within a generation of his writing, the Combination Acts made it a crime for workmen to band together to raise their wages, while the masters' standing and tacit combination to hold those wages down drew no penalty whatever. The law of master and servant, which governed the contract of employment well into the nineteenth century, treated a worker who broke his engagement as a criminal, to be pursued and gaoled, and a master who broke the very same engagement as merely a defendant in a civil suit, to be sued for money — the identical broken promise sorted into a prison cell or a courtroom according to which side had done the breaking. The slow and bitterly contested admission of the workmen's combination to legitimacy — the union, whose own plate comes later in this volume — was precisely the slow admission of the weaker party to a table the law had long set for one. To picture the wage as a price quietly delivered up by nature is, then, to forget that the contest which produces it has always had a referee, and that the referee has had a history, and a side.
The forms have changed; the asymmetry of patience has not. The modern employer reshapes the bargain by instruments Smith never saw but would have recognised in an instant. By fissuring the workplace, in David Weil's phrase — pressing the work outward, to subcontractors and franchisees and staffing agencies and platforms, so that the great firm whose name the worker wears upon his shirt is, in law, not his employer at all, and his bargain is struck instead with some smaller contractor already squeezed to the bone. By the simple stroke of classifying the worker not as an employee but as an independent contractor, and so setting him outside the entire apparatus of protection that employment quietly carries with it. By the non-compete clause and the no-poach treaty that a later plate of this volume anatomises under the name of monopsony — for monopsony, looked at squarely, is nothing other than Smith's asymmetry fitted out with a diagram and a measure. The line runs unbroken from the eighth chapter of 1776 to the labour economics of the present decade: the wage is a bargain between unequal parties, and the history of how wages come to be set is, in great part, the history of the devices by which the stronger party has preserved its advantage, and the weaker has contested it.
And yet the bargain must not be asked to carry more than it can bear. It accounts for a range, and for the forces that press the wage up and down within it; it is far weaker as a way of fixing a precise figure, and left to itself it slides easily toward a comfortable error — that wages are simply whatever power decrees, cut loose altogether from what the work produces. They are not cut loose. Productivity binds the bargain from above: no employer pays, for long, more than the work is worth to him, and so the ceiling of the range is no fiction. More than that — across whole economies, and across the long sweep of decades, wages and productivity have risen so nearly together that the correlation is among the most durable in all of economics; and the recent loosening of that ancient tie, the subject of this volume's final plate, is treated as news precisely because the tie had held so long and so well. The honest position is not that the margin is a myth and the bargain the whole of the truth. It is that the two operate at different scales. The marginal product sets the ceiling of the room, and the long upward slope of its floor; the bargain decides where, within that rising room, and in whose favour, the wage actually comes to stand. The plate that follows makes the case for the ceiling. This one makes the case that a ceiling is not a place to rest, and that what happens in the space beneath it is decided, every time, by a contest.
Return, then, to the question this volume was built to ask, and will ask in twelve different keys: is the wage the measure of the worker's worth, or of the employer's power? The bargain gives the first answer — the one the plates that follow will refine, qualify, and complicate, but never quite repeal: the wage is, before all else, the settlement of a negotiation, and a negotiation between parties who can hold out for unequal lengths of time. To christen its outcome the worth of the work is to mistake the score of a contest for the reading of a scale. Smith, whom a long tradition has flattened into the man who promised that self-interest would harmonise of its own accord, was wholly unillusioned about this one corner of the field: he opened the study of the wage not with the calm of equilibrium but with the asymmetry of the table — the masters fewer, their purses deeper, the law ready to their hand, and the hunger more immediate on the other side. That this is the first plate of the volume, and the first of the table, is no accident of arrangement. Everything that comes after it — the margin and the subsistence, the monopsony and the union and the share — is in some measure a return to the bargain, and to the question Smith put before any other: not what the work is worth, but who, at the table where its price is set, can afford to wait.