SEPTEMBER 01, 1981 by LUDWIG VON MISES
Wages are the price paid for the wage earner’s achievement, i.e., for the contribution of his efforts to the processing of the good concerned or, as people say, for the value which his services add to the value of the materials. No matter whether there are time wages or piecework wages, the employer always buys the worker’s performance and services, not his time.
Every employer must aim at buying the factors of production needed, inclusive of labor, at the cheapest price. An employer who paid more than agrees with the market price of the services his employees render him, would soon be removed from his entrepreneurial position. On the other hand an employer who tried to reduce wage rates below the height consonant with the marginal productivity of labor would not recruit the type of men that the most efficient utilization of his equipment requires.
The entrepreneurs are not merely faced with a shortage of “labor in genera],” but with a shortage of those specific types of labor they need for their plants. The competition among the entrepreneurs in bidding for the most suitable hands is no less keen than their competition in bidding for the required raw materials, tools, and machines and in their bidding for capital on the capital and loan market.
In the market economy the worker sells his services as other people sell their commodities. The employer is not the employee’s lord. He is simply the buyer of services which he must purchase at their market price.
The only real and effective protection of the wage earner in the market economy is provided by the play of the factors determining the formation of prices. The market makes the worker independent of arbitrary discretion on the part of the employer and his aides. The workers are subject only to the supremacy of the consumers as their employers are too. In determining, by buying or abstention from buying, the prices of products and the employment of factors of production, consumers assign to each kind of labor its price in the market.
An employer cannot grant favors at the expense of his customers. He cannot pay wage rates higher than those determined by the market if the buyers are not ready to pay proportionately higher prices for commodities produced in plants in which wage rates are higher than in other plants.
On the unhampered labor market, wage rates always tend toward the height at which they equal the marginal productivity of each kind of labor, that is the height that equals the value added to or substracted from the value of the product by the employment or discharge of a man.
Wage rates are ultimately determined by the value which the wage earner’s fellow citizens attach to his services and achievements. Labor is appraised like a commodity, not because the entrepreneurs and capitalists are hardhearted and callous, but because they are unconditionally subject to the supremacy of the consumers.