To disambiguate the question: here I do not discuss the questions that surround price gouging, partial or total volunteering, or slavery as the prevailing market labor rate when royalty rules. The question relates to a specific need for labor in a specific task, demanded by a payer but not necessarily available in the market at the expected price relative to economic inputs, and to what extent the wage increases required to acquire the necessary labor, could be considered above an auction-type or other market-clearing mechanism.
As perspective, consider first the matter of a fashion designer. Clearly, the premium their goods carry is far above customary profit; conventionally, the forces driving this monetary allocation are identified as scarcity (therefore status-seeking/signaling), aesthetics, etc. In that regard, there is some intrinsic about this specific designer’s choices, or about the way in which they market their goods and services to fulfill non-sartorial functions, that the market participants indicate is worthy of their additional expenditure. Particularly in the manner of non-sartorial function, this value could be expressed in economic terms, and hence the “books would balance”/ the economic situation would be rational, even though the immediate accounting would suggest the designer is being bailed out by their patrons.
The reminder of the term “patron” recalls the matter that this value fundamentally is not economic in reference to a production baseline, but relates to the end user or their social network. It is similar to the marriage and/or prostitution markets, in which sometimes you see that looks are the primary driver of expenditure/choices. In these markets, sometimes the economic value even is negative, but the individual’s aesthetic value overcomes this hurdle. In summary, it is the entertainment valuation that is common to the aesthetic economy, in which the value quite readily is confirmed by affirmative and economically significant choices, but the specific driver of that value is not related to productive activity.
Hence we are reminded that “market rate” not only relates to the current production situation, how well the market functions/clears, and to various regulatory or other supply/demand anticipation variables, but it also incorporates the aesthetics of the participants and what they deem worthwhile, even if it is the debauchery of the senses. In that regard, some element of “market rate” may be arbitrary, as the aesthetics that may be involved may also be essentially arbitrary.
If we chose to leave the matter at that, we would not have any means to identify sinecures or other obviously corrupt mechanisms; you could consider the sinecured individual to have sexual or other value to the payer, the same way you keep hot secretaries on your payroll, and hence their above-commodity payments are merited. The refutation for the industrial/productive economy, or for a policing/regulatory bureaucracy, is straightforward: since you have the baselines of economic output and cost of inputs, you therefore have commodity labor that can be graded according to their contributions to the efficient size and operation of the organization. However, any end-user/marketing type situation, in which aesthetics and imperfect information play a role, does not submit to this metric for the previously stated reasons. Moreover, no situation in which public goods (e.g. the rule of law) or other diffuse benefits apply, submits to this metric, because while clear evidence of the overall benefits exists, the specific contribution of an individual becomes difficult accurately to audit.
Consider the matter of the fundraiser for elder care. The charity fundraiser is an attractive female, and therefore you either could be paying her based on:
- Her looks
- Winning her hand in marriage / seduction / prostitution as a “free gift”
- Your recognition of her importance in keeping the organization functioning generally, even if you cannot attribute donations specifically to her efforts
- Your recognition of her actual work, in reference to some attempt at estimating her fundraising effectiveness as if she were a robot
- Social pressure to give to the organization
- The cause of wanting to care for the elderly as enlightened self-interest/recognizing that abandoned elders lead to selfish behavior that ultimately hurts everyone
- The cause of wanting to care for the elderly as love for other human beings
Just as charity and corruption fundamentally are indistinguishable via the actions (because they are the same), so too, the similar actions could accord to multiple objectives, which may or may not accord to the ordinary, or even enhanced, concept of “market rate”. Hence the possibility is undeniable, but there is no obvious proof.
At the same time, if you want a charity fundraiser to work for your interests, you have to pay them. Is any female disqualified from this work, because the donors are old white men? Can you even discount that if you hire a male (because some donors are gay), that you can avoid the sexual possibilities? If the only proven effective charity fundraisers already are employed with other organizations, do you have any choice but to poach one of them with e.g. higher salary? If the only ones that are willing to work for your desired wages are women in certain social circles, do you have any choice but to accept their service? And, given that these factors exist in many jobs, should the attractive females stay away from this work, if they’re good at it and enjoy it?
So with this exposition, we return to the fundamental question of what it means to have a labor market rate in conditions of scarcity. As one related example: as people bid up the cost of labor in an inflationary situation, even if a fundamental production upper bound exists that caps wages, until that basis of economic production is close to nullification by the loss of marginal profit, that market rate moves in accordance to the immediate supply and demand, and not to the underlying cost of the inputs (in the same way that scarcity of finished goods means their price increases, though the underlying costs or even quantity produced may not have changed). We also recognize the importance of the price signal in expanding the labor force allocated into the area of scarcity; the market rate has to go higher not on the basis of the current individuals’ qualifications and willingness to work, but on the basis of the prospective individuals’ qualifications and willingness to work.
Consider then what a truly rational economic allocation should be, in the basis of disproportionate profits e.g. by tech company founders. They make high base salaries and hold large amounts of equity that can make them billionaires. Under this condition, no 60+ hour a week job that pays significantly less on a risk-adjusted basis, ever can be more favorable than being a founder. Therefore, any individual that possesses these skills, economically should be a founder in preference to any other activity, including, but not limited to, the practice of medicine, government, or any other societal good.
Such disproportionate profits are not only the province of big tech, investment bankers, high-powered corporate lawyers, etc. They are the fundamental driver of immigration to the developed countries; a poor person in America is fat, and a poor person in Somalia dies. Nor are disproportionate profits only a matter of finances; the supposedly rich doctors, were suffering all throughout the acute phase of COVID, while the middle-class IT professionals, accountants, etc. worked from home with far less hazard. The same applies for police officers, judges, members of the military…a wide variety of individuals who must perform their jobs for society economically to operate, and we must consider not only the number of hours they work, but also the hazards they face.
In a condition of non-scarcity, this economic irrationality can be “resolved” by ranking / class hierarchy, in which highly qualified people still are rejected and have to work in the less economically well rewarded jobs. However, in a condition of scarcity, there will be too many jobs worth doing for the labor force which can be recruited onto them. The obvious resolution would be that some jobs are left undone – but not all jobs can be left undone. The basic farming, production etc. and security force jobs must remain staffed; and as these positions remain understaffed, the larger economy contracts/fails in proportion to this understaffing.
Thus in a condition of scarcity, if we choose to maintain the use of a market mechanism (e.g. not drafting people into the police force), we face the following condition that causes chronic understaffing of these critical positions:
- The easy availability of living-wage work (for self-sufficiency)
- The availability of a wide range of higher-paying jobs with equal or superior working hours and conditions
- The unacceptable economic consequences of taking critical jobs (e.g. moving away from your social support network/high paid spouse’s work site)
- The direct hazards of critical jobs (being prosecuted for doing your job, toxic exposure, accidental death and dismemberment)
- The social stigma or harm to future prospects associated with critical jobs (outcast from society/cancelled, criminal record, being far from your family and from romantic prospects/affinity groups/activities important to you like mountain climbing)
The first three form a “preferred” class of employment that maximizes individual wages, as against the “not worth it” class of critical job employment where the job pays, just not as well as the preferred, or has mild social consequences, and both of these against the “self-harm” class of employment represented by a number of critical jobs, such as police work. The markets can solve “preferred” vs. “not worth it” via normal means, but they cannot solve the “self-harm class” because it fundamentally is irrational significantly to risk your health and happiness when sufficiently-paying, and far safer, jobs exist. Only people who are somewhat irrational, therefore can be induced to work in the “self-harm” jobs; moreover, often you also demand conflicting skill sets, like the ability to think clearly in a stressful situation. All of this means that the labor pool for “self-harm” jobs, fundamentally is severely limited in a scarce, market-based economy, and hence is insufficient to the required volume of work.
Of particular note/difficulty in the class of self-harm professions: national politician. A national politician bears extreme responsibility across a wide-ranging array of subjects, and can make few mistakes. He also has to communicate effectively. In other words, his is the job description of a high-ranking corporate executive, but with the added burden of extreme moral rectitude to deal with all the temptations of the power with which he is entrusted. At the same time, being elected and therefore not having much control over his employment status (almost regardless of his pay), he additionally risks his wealth, and therefore his family leaving him if and when he fails. He spends most of his time away from family and friends, and therefore jeopardizes his social network. He also is liable to attacks, as a celebrity and as someone responsible for making unpopular decisions. Moreover, depending on the stances he takes in campaigns, or even smears from his political rivals, he may be a pariah, even if he never holds any office and never carries out any of his promises. In short, he risks everything he has. Under such conditions, and even if you consider that he should not spend significant sums of his personal wealth in his own campaign, it is not even sufficient to pay him an executive salary and provide him personal protection, as with the CEO; he has to be indemnified from financial damage, effectively forcing you to pension him even for running for office, let alone winning it.
In such conditions, the magnitude of compensation that could be considered unethical, is truly massive. You would have to hand him the expected future value of his employment in a Fortune 500 company, just to run for office. Moreover, since such an individual, if they have a happy family and friends situation and a good life overall, would have to be tempted away from their existing work – and how much value would you put on seeing your kids grow up? If the supply is insufficient, you have to pull him off his other job with an according inducement.
Even the case of the police officer now is difficult in the 48 states. The police officer now has to make at least $100K, plus the gold-plated health and retirement package, and even that won’t assure sufficiently aggressive enforcement without a systematic monitoring and sting operation program. But that won’t attract any also intelligent person to the force – because people willing to work night shifts, take on difficult challenges, and have high intelligence, easily can make $200K. So, any intelligent police officers you happen to recruit, are your good fortune, and hence it’s likely that in any medium to large city, that you aren’t going to have enough of them. That in turn pulls you towards that $200K number, and now we reach points that cause people to retire after 20 years in the force, simply because the amount of money they have made is so massive that there is no reason for them to take any more risks, which then reduces the size of the labor force, which…
Given the preceding discussion – do we feel that an individual outside of a commodity position, even knows if they are getting paid a lot extra (not a true sinecure, if they accomplish something), so that they should suspect they are being bribed? Do we know if they are being bribed, if we see their pay?