Tuesday, May 17, 2016

Confronting the Parasite Economy

Confronting the Parasite Economy: "Of course, some will argue that the question is moot—that the labor market efficiently determines wages, not well-meaning CEOs or self-serving policymakers (or meddling know-it-alls like me), and that if a Sam’s Club cashier is worth $15 an hour, then that is what the labor market would force Sam’s Club to pay. “Supply and demand,” and all that.

That is nonsense. Take it from someone who has created dozens of businesses—people don’t get paid what they are “worth.” They get paid what they negotiate. We can all point to examples of CEOs who negotiated far more than they are worth, but there are many, many more people in our country who are worth far more than they negotiated.

That’s because more than any other market, the labor market is distorted by a profound imbalance of power between buyers and sellers; in fact, other than the small share of workers who have a collective-bargaining agreement, the vast majority of workers enjoy little bargaining power at all. Most workers have limited resources and immediate needs—to eat, to pay rent, to provide for their children—while most employers could leave any particular position unfilled indefinitely without suffering any personal hardship at all. As Adam Smith noted in The Wealth of Nations: “In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.”"

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