Speaking during a Labor Day event in Detroit, Vice President Joe Biden told a crowd of hundreds that union employees deserve a “fair share” of corporate profits. The notion goes, if companies earn more, so should their employees. From Fox News:
Biden spoke Monday on the grounds of the former Tiger Stadium ahead of organized labor’s annual parade Monday. He stuck with populist themes, criticizing corporate pay and companies that leave the U. S. for lower taxes.
He says workers don’t want a handout. Biden says, “Just give them a chance.”
Yet, a handout is precisely what Biden’s advocating for. By virtue of the fact that you work for someone, your success should track proportionally with theirs. Never mind the true value of a given contribution. If your boss gets richer, you should too.
Like so many attractive notions, it falls apart upon deeper examination. Realize that wages, salaries, and other forms of employee compensation are essentially prices. Like all prices, employee compensation needs to reflect the actual market value of the service being provided. To charge different prices to different buyers based on their individual income would negate the entire function of price.
You don’t have to be rich to appreciate this point. Imagine you go to the grocery store and pay $25 for a loaf of bread because you make more money than someone else who only has to pay $3. Such a system would collapse in short order. Yet that’s the kind of silliness dispensed by Vice President Joe Biden and lapped up by his allies on the political Left.
If companies earn greater profits in a free market, it’s because they produce greater value. To the extent individual employees contribute to that value, they will be compensated, as the countless examples of jobs paying higher than the minimum wage and earning raises demonstrate. But to simply mandate that people earn more when the company does, which is the implied policy Biden here advocates, would necessarily take from those producing extra value to give to those who aren’t. In other words, it is a handout. Worse yet, it would disincentivize value creation. Why work to build value if you can’t reap the rewards? Likewise, why work to build value if you’ll be rewarded regardless?
(Today’s Fightin Words podcast is on this topic available here. 12:12 minutes long; 11.78 MB file size. Right click here to download this show to your hard drive. Subscribe through iTunes or RSS feed.)