Some workers are paid much more than others. In the United States, many white-collar professionals make several hundred thousand dollars per year, post-tax. That is on the order of ten times what fast food workers, janitors, and home health aides make. Global labor inequality is worse. A product manager at Apple might make thirty times the pay of someone mining lithium for batteries in Zimbabwe, even after adjusting for purchasing power. If, in a fit of communism, you expropriated all of the capital income in the global economy and spread it among the bottom half of the global labor force, you would not close the gap with the top half.
Most people, however, do not seem particularly exercised by these inequalities in labor income, not when compared with the anger directed at billionaires. Why? For some people, it’s because they believe in an old idea: that workers are entitled to the fruits of their labor, that they should be paid the value of their productive contribution. In terms that AOC recently used, they believe that it is possible to “earn” hundreds of thousands of dollars in labor income in a way that it is not possible to “earn” a billion dollars in accumulated capital.
To my mind, this idea—sometimes called the Contribution Principle—is the Right’s best hope for vindicating the fairness, as opposed to the mere expediency, of dramatic income inequality. And so it is among the most serious challenges to those of us on the egalitarian Left.
Part of what makes the challenge serious is the principle’s left-wing history. It was the core of early (“Ricardian”) socialism, and it animated Marxist charges of exploitation into the twentieth century (even if Marx himself did not exactly endorse the principle). It also remains a central tenet of labor organizing. As I write this, I’ve received an email from my academic union with the subject line, “Let’s Get Paid What We’re Worth.”
How, then, should the Left respond to income inequality? What do you say to the person who defends their enormous salary by claiming that they’re paid the value of their labor?
A common reflex is to deny that their labor really is that valuable. That might work with an executive at a sports gambling company, but it’s not going to work with everyone. If you believe in even the most minimal version of the claim that markets allocate factor inputs to efficient uses, then you are committed to the idea that well-functioning labor markets at least tend to pay workers according to the value of their labor, on one recognizable conception of “value.” As Robert Nozick observed more than fifty years ago: if you deny that workers are paid the value of their labor, how can you explain the cogency of the claim that we need to permit some inequalities to incentivize people to do the jobs we want them to do—a claim with which leftists have been reckoning for more than two hundred years?
In a recent paper, “Desert and Economic Interdependence,” I propose a different response to the person who defends their enormous salary by claiming that they’re paid the value of their labor, one that concedes for the sake of argument that their labor is as valuable as they and the market say it is. (In what follows, I understand the “value” of a worker’s labor as its “marginal revenue product”: roughly, the difference in the market value of a firm’s output with and without that worker, where they aren’t replaced. This doesn’t really matter, though; the argument generalizes.)
This response focuses on the idea that, in complex economies, the value of an individual worker’s labor depends on other workers, and what they only together do; the size of any worker’s productive contribution is less about that worker than about the collective labor of other workers. For this reason, I argue, the market assigns the individual worker more credit for the value of their own labor than they can legitimately claim.
To illustrate, a thought experiment:
One hundred workers come together to construct a house. The house is special, and this is why they build it: it will, when finished, multiply whatever is placed inside. The house is made of mud and thatch. Each worker brings a bit of one or the other. Without any given bit, the house still would have gotten built; no individual makes a difference to its construction. Having finished, each worker brings to it the wheat they could produce on their own. All but one of the workers are equally productive, each able to produce one bushel. The last is more productive, able to produce ten. The house multiplies their offering a hundred times over, leaving them with nearly 11,000 bushels.
Reward according to marginal revenue product says that the last worker deserves the value of one thousand bushels (= 10 x 100), while the rest each deserve the value of one hundred (= 1 x 100).
This verdict seems to me untenable. While the last worker does make a difference of one thousand bushels, the difference is a function of two things: the number of bushels that the worker produces on her own, and the multiplicative effect of the house. But she did not create the house herself. The other workers are in this sense co-authors of the difference that this last worker makes. But the Contribution Principle is blind to this co-authorship: the construction of the house is something that the workers do only together; their contributions to its construction do not show up in their individual marginal revenue products. This is why the principle generates a counterintuitive verdict.
Real economies, I argue in the paper, are relevantly analogous to this stylized case: individual workers are made enormously more productive by essentially collective labor.
We can make the same point in another, less fanciful way, by comparing two radically simple economies, which differ in only one respect.
The first economy has just two workers. One worker makes a contribution equal to all of output. And this contribution depends on the second worker: without the second worker, the first worker’s labor wouldn’t make a contribution at all. Reward according to marginal revenue product registers this dependence; making a difference to the difference that the first worker makes to output is itself to make a difference to output. Thus, reward according to marginal revenue product has them split output equally.
But now imagine that the first worker depends not on one other worker but on a group of workers, on what they only together do: without the group’s labor, the first worker’s labor wouldn’t make any contribution, but no individual member of the group makes much of a difference at all. Their collective enabling of the first worker is, because collective, not captured by adding up the differences that they each make at the margin. Reward according to marginal revenue product says the other workers get only the scraps that accord with their individual difference-making; almost everything goes to the first worker. I don’t claim that the workers are equally deserving. But it doesn’t make sense that the first worker should get almost everything, that what these other workers together accomplish enriches not them but the one who depends on them. (For economists tempted to dismiss the foregoing as an unproblematic consequence of the fact that wages are set by marginal and not total or average products, note: the marginal productivity of the first worker is itself partly “set” by the total product—of the other workers.)
Real economies, I suggest, are relevantly analogous to the second economy, and not the first.
This is meant to capture an insight of early twentieth-century British liberals and leftists, including the Fabian socialists, who claimed that the Contribution Principle is undermined by the fact that individuals’ contributions aren’t really “individual.” In my view their arguments for this claim do not work, in part because it’s not enough to point out that the value of each worker’s labor depends on other workers’ labor. This fact alone does not undermine the Contribution Principle, so long as other workers are rewarded in a way that reflects this dependence, as in the first of the two economies above.
But it is precisely when individuals depend on the collective labor of others that these others are not rewarded in a way that reflects this dependence—not, at least, in a free market for labor that pays them one by one.
Given the audience of this blog, it is worth asking how far the above argument extends. It is, after all, common to observe that individual contributions depend on the public maintenance of a regime of property rights, and more generally on people’s conforming to the rule of law. Why isn’t this by itself enough to undermine the Contribution Principle?
There are, in my view, two difficulties with this extension. First, everything that anyone has ever done is enabled by their society’s institutions, in the sense that you could prevent them from doing it by changing those institutions. But we don’t want to say that no one is responsible for (the consequences of) anything they do. The appeal to the rule of law threatens to overgeneralize. (Compare the first sentence of the 1875 Gotha Program, the subject of Marx’s famous “Critique”: “as useful work in general is possible only through society, so to society … the entire product belongs.” This is not an inference that we accept in other domains of life.) Second, every worker’s contribution is enabled by the rule of law. So it is not clear why reward according to contribution generates a distribution that is unfair between them.
This second point can be made more concrete with a desert island case. We wash up on the island and agree to live by certain rules, for all our sakes, and then engage in cooperative production. You contribute much more than me, and so you get more of what we make. I object: You couldn’t make your contribution if I (we) didn’t play by the rules. But so what? Our playing by the rules is the enabling condition for each of us; and now, against that shared background, some of us accomplish more than others.
Of course there are ways to respond to these points, but they are enough to give me pause.
Perhaps what you need to show is that some aspects of the law possess an unjustifiable asymmetry—that is, they unfairly benefit some workers at the expense others, where that means something beyond the mere fact that they benefit some more than others. Sean Aas, in his aptly named paper “You Didn’t Built That,” takes this approach.
Asymmetry is likewise what does the work in my argument. Any group of workers together producing a necessary input at the beginning of some complex “value chain” will typically make a bigger difference to the marginal revenue products of other workers—at the end of the chain—than to their own, simply because those other marginal revenue products are much larger. Put another way, “value-added” is concentrated at the end of the chain, whereas difference-making tends to be spread more equally, since every necessary input makes all the difference to the final good or service. Ceteris paribus, no lithium means no batteries, and so no electronic devices, and so no value to the labor of Apple product managers. (That “ceteris paribus” is important; readers who are interested can check out the sequel to the paper I’m summarizing here.) But the miners are not paid in a way that reflects this necessity, because what is necessary is their collective labor, and they are paid one by one. This is a source of profound unfairness in even perfectly functioning labor markets.
