Monday, January 13, 2014

Do workers get paid (something near) their marginal value product?

In the comments section of my previous post on this topic, Theinterventionistparadox asks if the competitive market process won't create at least a tendency for workers getting paid their MVP to be true. Well, understood in one way, it clearly will. But let us take a look at the sense in which that proposition is true.

In our locale, gravity creates a tendency for anything with mass to move towards the center of the earth. But other factors create other tendencies. Consider a balloon which we slowly fill with helium. At first, if the balloon is, say, sitting on a table, it will remain there. But gradually it will begin to levitate. Finally, it will float upwards until it reaches the ceiling. And if we take it outside, it will float away. The tendency for a gas lighter than the atmospheric average to rise will have overwhelmed the tendency of massive objects to fall towards the center of the earth.

And so it is with the tendency of the market process to drive wages towards the worker's MVP: other factors are at play. In particular, all the data upon which the firm's initial wage offer was based are continually changing. The demand for its products is shifting, its competitors plans have changed, the cost of other inputs has altered, and the worker himself is a different man today that he was yesterday.

So if the question is, "Will we see a tendency towards wages approaching the workers' MVPs?" then the answer has to be, "Is the market process pulling wages towards the 'ground' of equilibrium faster than changes in these other factors are tending to make them drift off into the clouds?"

I see no reason to suspect that the answer is generally "yes."

1 comment:

  1. Gotcha, this is a good point. Even according to a purely Austrian (Misesian) analysis, it seems, we would not be able to make the claim that we will see a tendency of wages toward MVPs, without further reasoning as to why one effect outweighed the other. To your knowledge, do any Austrians provide such reasoning? It seems somewhat implied by their work, especially with the emphasis they have on the efficiency of free markets.


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