The Sins of "Wage"

Tuesday, December 02, 2014

I recall hearing it said, from where I no longer recall, that the term "wage" is unfortunate in discussions about economics because it makes it easy to forget or gloss over the fact that a wage is a price is a cost -- the cost of labor. If I correctly recall the general vein of the argument, this obscurity, in turn, makes it easy to treat wages as some sort of entitlement since they aren't being thought of in a similar manner as other expenses.

I see some merit to that idea, but that merit is limited, as the thinking of many employers demonstrates:

It can be hard to swallow the reality that a company just isn't going to make a prudent decision when it makes a ridiculously low job offer. I can't tell you how many times I've advised clients to raise offers -- after I've shown them what it's going to cost to leave work undone. Crummy job offers also cost employers their reputation -- in their own professional community when word gets out that their offers are too low.

Many just don't get it. Employers incorrectly view hiring as an expense rather than an investment with [a return]. The great irony is, the actual extra dollars spent on higher offers are almost irrelevant when compared to the value the new employee will create. The more subtle lesson that some companies -- but not most -- learn is that enhancing an offer can make a new hire happy, more loyal, and more productive. Money doesn't buy love, but it can buy better work. [bold added]
So while, yes, pointedly calling wages something like "labor prices" might help novices to economics realize that employers are people with bills to pay, too, a terminology shift can't fix the kind of un-integrated thinking discussed above. I see no similar quick fix to that problem: The best one can do when attempting to teach or persuade others is to encourage them to make connections, such as by asking the question, "What for?"

Even then, the best one can do is indicate what other mental effort is required. At some point, people have to be left to think for themselves. The above example is also instructive in the sense that even high stakes can't "make" someone think.

-- CAV

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