Unequal wages and claims of unfairness

A recent story on NPR, “2-Tiered Wages Under Fire: Workers Challenge Unequal Pay For Equal Work,” describes how workers at a US plumbing manufacturer responded after learning that some workers were paid differently than others for doing similar work. Simply stated, those paid less than their peers were not happy. According to the NPR story, “[One worker] says the unequal wages caused friction in the [company’s] distribution center, where newer, lower-paid workers grumbled at being asked to perform the same tasks for less money.”

Factory

After the “Great Recession” in the late 2000s, many companies changed their hiring practices, so that workers hired after the Recession were paid less than workers hired before the Recession. Even after the Recession ended, the two-tier wage structure persisted.

Is it fair that workers doing the same work receive different wages, even after controlling for time on the job?

Business executives might argue the situation or practice is fair. If workers agree to work at a wage of, say, $10 an hour, then how can they say that is not fair? Workers willingly accepted the terms of the contract. If they don’t like those terms, then they can work somewhere else. Besides, isn’t it better to be employed, even at a lower wage, than to be unemployed?

This is the challenge of dealing with issues of fairness. Fairness perceptions can be very subjective. What is perceived as fair to you might be seen as unfair to me. So, subjective assessments can be very difficult to assess. Which side is right? I guess it just depends on which side you look at. Assessing unfairness claims is also difficult when people adopt different conceptual or theoretical frameworks, such as principles of procedural or distributive justice or theories of John Rawls or Robert Nozick, because different perspectives weight elements of the problem differently (e.g., something is fair if the rules are followed, or something is fair if the outcome to everyone is the same, or something is fair if the size of the reward is commensurate to the effort expended, etc).

Asking which side is right misses the problem. Just because one person makes a good case that something is fair doesn’t mean that the other side’s perspective is without merit. Is there a way to assess objectively the merit of unfairness claims, such as those made by workers paid less than their peers?

Mary Hendrickson and I, along with our colleagues, have been working on this problem for a while. We have developed an innovative approach for assessing claims of unfairness that does not require the a priori selection of a specific theory or conceptual framework. Instead of picking our favorite theorist or theoretical perspective, we focus on the expectations that individuals have. Expectations are important because claims of unfairness usually arise when expectations are violated. For example, if my student expects an A in the class but receives a C, then it would not be surprising to me if she complains. Similarly, if I get pulled over for speeding and expect to get off with a warning but instead get a ticket, I might claim, “That’s not fair!”

In a series of papers (“Power, Fairness and Constrained Choice in Agricultural Markets: A Synthesizing Framework” and “The Assessment of Fairness in Agricultural Markets“), we show that evaluating the reasonableness of expectations is a way of assessing claims of unfairness, because reasonableness can often be evaluated objectively. If a person’s expectations are reasonable and if the expectations are violated, then the resulting claim of unfairness has merit. Conversely, if a person’s expectations are not reasonable, then any claim of unfairness resulting from a belief that expectations were violated would not have merit. For example, suppose an outside observer asked my student who received the C why she expected an A, and suppose she said, “because I worked hard and attended class every day.” Suppose further that the outside observer reviewed my course syllabus, which clearly stated that a grade of A is only awarded to students earning a score of 90 percent or higher on all tests (but makes no reference to “effort” or “attendance”), then the outside observer would likely conclude that the student’s expectations were not reasonable and hence the resulting claim of unfairness was without merit.

Several conditions can provide a reasonable basis for expectations. The first is equal treatment of equals. In our work we refer to this as “structural equivalence”. People who are structurally equivalent to others, that is, who are in the same position and doing the same work, would reasonably expect to be treated the same. The second is based on the idea of time consistency. For example, someone who has received a year-end bonus for many years would reasonably expect a year-end bonus this year. The third is rights, which by definition determine expectations. If I have a right to vote, then it is reasonable for me to expect to be allowed to do so. We discuss other ideas in our papers as well.

Are the complaints by workers in the plumbing manufacturer about the unfairness of wages with or without merit? Stated differently, is it reasonable for workers to expect to be paid the same as their peers for doing similar work given the length of time they worked in the company? I think this is reasonable. Why wouldn’t it be? If two workers are doing the same work for the same amount of time but one is paid more than the other, then the person receiving the relatively lower wage would have a claim that the wage structure is not fair.

Apparently the plumbing manufacturer agreed, too. A worker strike and a tight labor market brought labor and management to the bargaining table, with the company agreeing to phase out the two-tier wage structure within the next five years. According to the article, it was leverage that convinced the company to pay fair wages. Workers didn’t have leverage during the recession, but they have it now.

As great as leverage and other economic incentives are in moving businesses and people to fairer outcomes, it would be nice if instead they did that simply because it was the right, or fair, thing to do.

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Author: Harvey James

Professor, Agricultural and Applied Economics, University of Missouri Editor-in-chief, Agriculture and Human Values

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