Here’s an open letter to the mysterious Aaron the Aaron:
Dear Mr. the Aaron:
Thanks for e-mailing. Wondering why I am “blinded to corporations like Wal-Mart paying workers below the amount of their marginal product,” you boast that you would never be “fooled by any theory into any of that kind of rejection of plain facts.” You add that the theory of monopsony “shows” you that “plenty of workers consistently are underpaid.”
I don’t believe you. In fact, I’m rather certain that you do share my belief that the typical worker is not a victim of monopsony and, therefore, is paid an amount quite close to the marginal value of what he or she produces while on the job. If you did not share my belief about this matter, you would be busy now creating new businesses to employ these underpaid workers.
If you care as much as you proclaim about the welfare of low-wage workers, and if you also truly believe that they are typically paid less than the value of what they produce for their current employers, you have a golden opportunity to do well by doing good. Underpaid resources are a goldmine for entrepreneurial visionaries such as you. Seeing that legions of workers are producing $12.50 per hour of value but being paid only $7.25 per hour, your new business – by offering hourly wages closer to $12.50 – will easily hire a slew of workers away from their current oppressive employers. You’ll then make a handsome profit employing these workers and in the process help the very workers for whom you so earnestly express your admiration and sympathy.
So, my friend, put your money where your mouth is. If your stated beliefs are correct, the pickins’ will be easy – and you’ll disprove what your current (in)action indicates, namely, that you in fact do share my belief that most workers are paid according to their productivities.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030