The Range

We talk about wages as though they were facts of the same hard kind as weights and distances. There is, we feel, a rate for the job — the going rate — and the only real questions are whether a given employer pays it, beats it, or falls short. The wage, on this picture, is a reading taken off the work itself: the labour has a worth, and the wage reports it, faithfully or not. Nearly everything in this plate is an argument that the picture is false — that there is no single number written on the back of the work, waiting to be read, and that the search for ‘what the work is really worth’ is a search for a thing that was never there.

This is not to say that wages are arbitrary, or that anything at all can be paid. They are penned within limits, and the limits are real. But the limits are wide, and what happens between them is not measurement; it is a contest. To see this, one need only find the two walls of the pen — the lowest wage that is possible and the highest — and notice how much room lies between them.¹1That the terms of a bargain between two parties are not fixed by the goods alone but left indeterminate within a range, to be settled by bargaining, is an old result — F. Y. Edgeworth’s ‘indeterminacy of contract’ (Mathematical Psychics, 1881).

The lower wall is subsistence. There is a wage beneath which a worker simply cannot be had — not as a matter of fairness but of fact: paid too little to live, or to live near the work, or to keep returning to it, he is not hired at that price, because at that price he does not exist. The classical economists hardened this floor into a law. Ricardo named subsistence the ‘natural price’ of labour; Lassalle called it the ‘iron law of wages,’ the grim doctrine that pay must always sink back to the bare cost of keeping a worker alive and breeding his replacement. They were wrong that it was a law — across the last two centuries real wages climbed far above subsistence and stayed there — but they were right that it was a floor.²2The subsistence floor: David Ricardo’s ‘natural price’ of labour (Principles, 1817) and Ferdinand Lassalle’s ‘iron law of wages.’ The doctrine that wages must stay at subsistence was falsified by the long rise of real wages; the floor, however, is real enough. Below it, no labour.

The upper wall is the worker’s product. There is a wage above which an employer will not go — again as fact, not generosity: pay a man more than the value his labour adds to what is sold, and he is kept at a loss, and not kept long. The most that can be paid is, at the very limit, the whole of what the worker’s labour brings in; past that the bargain ruins the one who makes it. Between this ceiling and that floor lies the entire range of possible wages — and it is not a narrow space. The value a worker’s labour adds may be several times what it costs to keep him alive. Somewhere in that wide gap the actual wage sits; and nothing in the work itself says where.

There is no number on the back of the work. There is a floor, a ceiling, and a contest between.

What decides the place within the gap was named, once and for all, by Adam Smith. The wage, he saw, is settled by a ‘dispute’ between two parties whose strength is wildly unequal. The masters are fewer, and combine the more easily; the law, in his day, allowed their combinations and forbade the workmen’s; and, above all, the masters can wait. ‘In all such disputes,’ he wrote in 1776, ‘the masters can hold out much longer’ — a landlord or manufacturer might live a year or two upon the stock he had already laid by, though he hired no one, while few workmen could subsist a month, and scarce any a year, without their wages.³3Adam Smith, The Wealth of Nations (1776), Bk I, ch. 8: the masters fewer and combining more easily, the law on their side, and able to ‘hold out much longer’; and their ‘tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate.’ In the long run the two may need each other equally; but the worker’s need is immediate, and the master’s is not. Hunger keeps poor time, and the side that can afford to wait names the price.

This is the quiet engine beneath the ‘market wage.’ We seldom hear of the masters combining, Smith observed, only because their combination is the silent and settled state of things — ‘a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate’ — whereas the workers’ combinations, being loud and desperate, are the ones the world notices and the law strikes down. The wage that results is called the rate of the market, as though no one had set it. But it has been set — by the steadier nerve and the fuller larder of the stronger side.

If the wage is fixed by who can hold out, then the worker’s one hope of moving it is to win the power to hold out too — and that is what the combination is for. A union is, at bottom, a machine for waiting: a strike fund lets workers refuse the offered wage for a week or a month, as the master can; and a pledge among them not to undercut one another denies him the cheaper hand he would otherwise hire in their place. Combination is the attempt to make the two larders equal. The law grasped this at once, and for a long age forbade it: the Combination Acts of 1799 and 1800 made it a crime for workmen to band together to raise their wages or shorten their hours — while the parallel ban on the masters’ combinations, exactly as Smith would have foretold, was in no recorded case ever enforced.⁴4The Combination Acts 1799–1800 criminalised workers’ combinations (the matching prohibition on masters’ combinations went unenforced); repealed in 1824 through the campaign of Francis Place and Joseph Hume, re-restricted in 1825 after a wave of strikes. Unions remained in contested legal territory until the Trade Union Act 1871. Repealed in 1824, re-restricted the very next year after a wave of strikes, the right to combine spent the whole nineteenth century in contested legal ground before the union was at last wholly lawful.

What the union does — where it works — is not to discover the true worth of the labour, which has no single worth to discover, but to shift the wage within the range, toward the ceiling and away from the floor, by lending the workers’ side the one thing it lacked: the power to wait. Its critics reply that it can shift other things too — that by raising its own members’ pay it may raise prices, or shut out the workers it does not speak for, the young and the outside, who would gladly have taken the lower wage. The objection is real, and unsettled. But it too is an argument about who shall win the contest, and on what terms — not about a number inscribed in the nature of the work.

Economics has never quite agreed with itself about any of this, and the disagreement is old. The theory that has ruled the last century says the gap is an illusion — that in a properly competitive market the wage is driven, precisely, to the worker’s marginal product, the value added by the last worker hired, so that the indeterminacy closes and the wage becomes a determinate, measurable thing after all. Its founder, John Bates Clark, went further and called the outcome just: the distribution of income, he wrote in 1899, is governed by ‘a natural law’ that gives to every agent of production ‘the amount of wealth which that agent creates.’ If true, it is a kind of consolation — you are paid exactly what you make — and it is the picture in most of the textbooks.⁵5John Bates Clark, The Distribution of Wealth (1899): in competition the wage equals labour’s marginal product, which Clark cast as a ‘natural law’ rewarding each with what it creates. Later economists (e.g. George Stigler) faulted this ‘productivity ethics’: the theory explains the demand for labour, not what anyone deserves.

But it holds only if the market is the frictionless, many-buyered thing the model assumes, and real labour markets are not. Where employers are few, or workers tied down, or knowledge poor, the employer commands a power the model denies him — the power of the only, or the largest, buyer, which Joan Robinson named monopsony in 1933 — and can pay beneath what the worker adds without losing him, because the worker has nowhere better to go. The plainest sign came in 1994, when David Card and Alan Krueger found that a rise in New Jersey’s minimum wage had not destroyed the fast-food jobs the competitive theory said it must — impossible, if wages already sat at the worker’s product; entirely expected, if employers had been paying less.⁶6Joan Robinson coined ‘monopsony’ — a single dominant buyer — in The Economics of Imperfect Competition (1933). Card and Krueger’s New Jersey minimum-wage study (1994) found no resulting job loss, consistent with employer wage-setting power; the result was, and remains, contested (Neumark and Wascher, 2000). See also Alan Manning, Monopsony in Motion (2003). The finding was fought over, and is still; but it reopened the older view, in which the wage is not read off the work but won or lost in the gap. Which theory holds is not settled, and likely differs from one market to the next. What is hardly in doubt is that the determinate wage — the one with a single right value — is the special case, not the rule.

You are paid what you make, says one theory; you are paid what you can get, says the other. Only the second has ever explained why the same work pays two prices.

If this is right, the wage is not a fact but a settlement: the point, within a wide and indeterminate range, at which the contest between the two parties has for the moment come to rest — and it moves the instant their relative power moves. The same work, of identical worth, pays more in a tight labour market than a slack one, more where the union is strong than where it is broken, more where a minimum wage shores up the floor than where none does, more where a worker can leave than where one company owns the only mill in the valley. Not one of these alters what the labour is ‘worth,’ because worth was never the variable. They alter who can hold out — and so they alter the wage.

Here the folio’s first question returns, transformed. Plate i asked whether a wage could be just, and followed the long effort to say what justice in a price might mean. The answer this plate gives is harder than the schoolmen hoped: there may be no single just wage to find, because there is no single wage the work requires — only a range, within which ‘just’ is one of the things being fought over, and within which power, left to itself, will keep the wage near the floor. The minimum wage, the union, the law of combination are not discoveries of the true rate; they are thumbs laid on the scale, attempts to settle the contest a little above where power alone would settle it. A wage measures the value of work, we began by saying; it measures its hours; it is the trust the work is staked upon; it is the thing we are compelled to seek. And it is, this plate adds, the prize in a contest — so that the truest measure of a labour market is not whether it pays the worth of the work, for no such worth exists, but how nearly equal it has made the two who bargain over the wage.