Is the Market Wage the Just Wage? A Reassessment of Factor Pricing and Distributive Justice

Abstract

Do markets generate a “just” wage? The answer to this question will depend upon the particular theory of the market that the political economist employs. By comparing actual labor markets with the neoclassical theory of competitive equilibrium as its normative benchmark, Joseph Heath (2018) argues that factor pricing is orthogonal to normative issues such as distributive justice. We argue that Heath’s conclusion, though not invalid, is misplaced since it is directed towards a model of the market rather than the market itself. Though indeed classical political economists and early neoclassical economists failed to deliver an explicit theory of distributive justice, what Heath overlooks is that implicit to their understanding of the market process was an institutional theory of distributive justice. From this theory, distributive justice is evaluated on the degree to which institutions generate the conditions necessary for individuals to not only realize, but also increase their marginal product of labor. By arguing in terms of an equilibrium, Heath avoids the more relevant question of a comparative institutional nature, which is to understand under which institutional conditions a just wage can be discovered. Therefore, Heath evaluates factor pricing without taking into account the institutional conditions within which factor prices emerges in the first place.