“No one deserves their pay”

April 25, 2009

by Sandy Ikeda

Megan McArdle, blogging about the issue of “fair pay” on Wall Street, in the context of the recent bailouts, makes the following provocative statement:

No one deserves their pay, so I can hardly be angry at the folks on Wall Street for taking what they could get… Trying to make as much money as an employer will legally give you, and making mistakes, are neither legal nor moral offenses. Why isn’t it enough to say, no, thank you, I’d rather not pay you that much money? Why is it also necessary to hate them?

Right. (And I think many people who “hate them” are objecting not to high salaries and bonuses so much as the use of forced redistribution to pay for them.)

One of the commenters, however, says:

Interestingly, after arriving at this same conclusion a few years ago, I ceased being a libertarian and began having a lot more sympathy for the welfare state.

Understandable, since incomes in an unhampered market are indeed arbitrary in the sense that even if you work really, really hard and always play by the rules, there’s still no guarantee that anyone will buy your product. We can choose what we do, but we can’t make people like it.

However, if this really bothers you, as it did the commenter, the welfare state is not the answer. Hayek in The Road to Serfdom addresses this issue:

Inequality is undoubtedly more readily borne, and affects the dignity of the person much less, if it is determined by impersonal forces than when it is due to design. In a competitive society it is no slight to a person, no offense to his dignity, to be told by any particular firm that it has no need for his services or that it cannot offer him a job…. However bitter the experience, it would be very much worse in a planned society…[where] his position in life must be assigned to him by somebody else” (U. of Chicago Press, 1972:106).

9 Responses to ““No one deserves their pay””

  1. spencer Says:

    The firm that hires or fires an individual is determining an individuals future just as the theoretical central planner would do in Hayeks theory.

    I completely fail to see the difference in being fired by a private firm in a free market system and in a centrally planned system.

  2. Mario Rizzo Says:

    I feel that using the concept “deserved” is a bit like a parent saying that his child does or does not deserve dessert. If the child was good and obeyed the parent then he gets dessert. If not, then nothing. In the market there is no parent. When we are dealing with interventionism and government is the “parent” it will give us dessert if we obey. This is as nature intended.

  3. Nick Says:

    Fair pay in a free market is zero, when the management screws up and the company goes bankrupt.

    And I think it’s perfectly natural for people to be upset when they see managers of failed companies paying themselves billions of dollars in bonuses at taxpayer expense.

    This is not pay. This looting, pure and simple.

  4. Sandy Ikeda Says:

    Spencer,

    The difference is that in an unhampered market you are hired/fired based on whether profit-seeking entrepreneurs expect consumers to value the product of your work more than your wage, not on whether you are a “deserving person.” Because under collectivist central planning there are no profit-seeking entrepreneurs, you are hired/fired based on whether you “deserve” to be — you choose the standard.

    This is what happens under effective rent controls, which lower the costs to landlords of using non-profit-seeking criteria (including ethnic bias) to pick and choose among a diverse and artificially large queue of potential renters.

    Applying Hayek’s argument in a different context, it’s like watching your house burn down because of a lightening strike versus because someone who didn’t think you deserved it set a torch to it. In both cases the result is the same, but most would find the latter much harder to bear.

    (I realize that to the extent that real markets are mixed (as in Wall Street) you will be hired/fired based on a combination of impersonal economic and personal noneconomic considerations. So, in that sense perhaps Megan was overstating her case a bit.)


  5. I think Megan’s statement is a little loose, though understandably so. The tricky point is that no one deserves their relative position in the pattern of incomes. But people do deserve their pay in the obvious sense that they have agreed to a contract involving a certain level of pay. If BizCorp says it will pay me $X for performing certain services, and I perform them, then I deserve $X from BizCorp. And there is a pretty clear sense in which I deserve more than a coworker if what I do is more valuable to BizCorp. But there is no intelligible sense according to which an accountant at BizCorp deserves to make more or less than self-employed plumber.

  6. Sandy Ikeda Says:

    Will — agreed.


  7. “I work 60 to 80 hour weeks doing something I love. They’ve been working 30-50 hours a week more than that…”

    Wow! That’s 16 hours a day, 7 days a week! I bet just about no one on Wall St. works that much.


  8. It strikes me that people like Megan are grasping, trying to make the work theory of value be true, but never explicitly saying it.


  9. @Will Wilkinson
    100% correct. You deserve the pay that you agree to in your contract, if that contract does not state any reductions for bad/wrong work then you deserve that level of pay irrespective of how good/bad your work is and how your work impacts the company.

    Now if you ask if a person is worth x amount of $ then that is a different debate and one that would possibly draw more comments than this post


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: