Misunderstanding High Wages

by James E. Miller
Mar. 28, 2013

Private business unceasingly gets a bum rap in major print. No matter the rise in living standards or technological advances brought about through market forces, there will always be some wiry, neurotic journalist bemoaning over social justice and demanding that capitalism kills. Socialism has proven itself to be impoverishing and murderous. Even Sweden, every liberal's favorite exemplar of successful welfarism, had to concede to free enterprise reforms in the 1990s to avoid economic catastrophe. Still, the forces who find offense in disparate impact of race stay dedicated to tearing down enterprise.

So imagine the ecstatic squeal many a leftist exhale when they encounter a business which pays a high-wage for a seemingly low-skilled position. They proceed to use the example to bludgeon market advocates as an exception to the rule that minor skill translate to minor pay.

Trader Joe's, the eccentric but homely chain of grocery stores, satisfies the criteria for launching a liberal shame fest. Along with the convenience store chain QuickTrip, Trader Joe's is redefining what it means to earn a profit while treating employees "right" according to Sophie Quinton of The Atlantic. Currently, these relatively small businesses pay their clerks almost $40,000 a year plus benefits. By paying cashiers and clerks higher-than-average wages, it appears that the decidedly progressive store chains are slapping competitors in the face with a better business model.

Unfortunately for progressives, not everything is as clear as it may seem when it comes to the dismal science of economics. The market process is an infinitely complex series of actions and intertemporal calculations. For every good produced, the material was once harvested from some point on the Earth. How it arrived at the marketplace was dependent on numerous manufacturers, wholesalers, and retailers coordinating their dealings over time and space. No amount of government force can abolish this dynamism for something more efficient. Economic laws are universal in application – they cannot submit to state edict. So when someone who fancies themselves as a new-age thinker in economics heralds companies that pay well, it's likely they misunderstand real factors behind success.

Everywhere, at all times, wages are determined one's marginal productivity. That is, employees are paid by how much value, or income, they are able to add to a company's profit margin. If this were not so, then the worker in question would be a money loser. And because businesses don't exist as charities, the employed either adds to the bottom line or finds work elsewhere. Cries of disenfranchisement or profiting on the back of the meek do nothing but stir up emotion.

For nearly a century, liberals have used Henry Ford's business acumen to disgrace modern management. It is said that the CEO of Ford Motor Company was foresighted enough to pay his workers a wage high enough to buy back the products they churned forth from the assembly line. This "living wage" remains a leftist talking point in spite of its misattributed causation. Ford was no altruist when it came to making cars. He was as self-interested as any man, with entrepreneurial instincts that outwitted his closest competitors for over a decade. What afforded him the capability to offer high wages was the capital investment in machinery that increased productivity as well as the incentive to hire the most able-bodied workers. As essayist Garet Garrett remarked at the time,
That the buying power of the Ford wage earner alone was increased had in itself no social meaning--not then, not until a high-wage policy began to make itself felt as an example throughout American industry. But the immediate effect upon the individual was electric, and this was an effect produced not by five dollars a day in his pocket but by the contrast between the Ford wage and a wage anywhere else
The very same concept applies to employers such as Trader Joe's and QuickTrip. The reason these businesses pay high wages is to attract a hard-working staff. In doing so, employees provide better customer service and increase sales. This is no spark of innovation on the part of these irregular companies; just a sound practice. Elevated wages ultimately come from competency in satisfying patrons. Exceptions to the rule never last long enough to become a viable enterprise.

When progressives attack the low wages paid for menial work, there is a brash assumption that they, being the superior intellectuals, know how to flip a profit like the flick of a light switch. The painfully obvious question is why business owners haven't thought of such a practice sooner. The left holds nothing back when it declares the soul of capitalism dead or aloof to life's misfortunes. So why then are big retailers not following suit and pursuing the easy buck by paying high wages? Firms tend to operate at level believed to maximize profits. If, say, the CEO of Walmart thought that paying higher wages would result in increased productivity from low-skilled laborers, why is he not jumping at the bit at this opportunity?

Those infused with the anti-capitalist mentality can find one million reasons why markets are exploitive and immoral, but are unable to come to terms with the truth that business owners are not endowed with a limitless pool of wealth. The left prides itself on putting rationality before creationism. Yet their mystic belief in government of the good and plenty leads to synapses of thought not pertaining to reality.

In the non-stop quest for crushing what's left of capitalism, great progressive minds never allow a minute to sneak by without bringing up the injustice of low wages. Businesses which offer a comparatively high number of dollars per hour are extolled for the compassion management has for the low class's plight. Anything less is a deliberate scheme to perpetuate destitution.

It's true that chain stores like Trader Joe's should be commended for a profitable business model. However, the high wages paid out to the lowest rung of the ladder are not a gift of commiseration. An above-average pay is a signal of high productivity. No member of management would pay an employee's wages at a rate that guarantees bankruptcy. Common sense dictates as much – which never fails to deter the rhetoricians of sciences they pretend to understand.
James E. Miller is editor-in-chief of the Ludwig von Mises Institute of Canada. Send him mail

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