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Pastimes : Austrian Economics, a lens on everyday reality -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (198)	4/25/2003 11:55:10 AM
From: gpowell	Read Replies (1) \| Respond to of 445

In the long run Mises is correct. In aggregate, the empirical evidence supports that labor wages (or more correctly - total compensation) are commensurate with its contribution to productive output. However, I believe there are factors that contribute to large differences in the wages paid by specific companies to specific individuals. It’s difficult for most businesses to identify and classify exactly the productive contribution that each type and unit of labor contributes to output; therefore businesses tend to use the prevailing prices for each type of labor to set their initial price expectation. Because much of the market for labor is composed of bilateral monopolies there is no guarantee that these prices correspond well to productivity. As I stated earlier the labor market is not composed of homogenous jobs and laborers. By definition, oligopolistic competition exists when there are relatively few sellers in a market, each of whom sell a slightly different product. This definition can be applied to the labor market when each individual is selling a product, himself, that is slightly different from the product sold by others in the market. Some of the differences might include, skill set, experience, network connections, attractiveness, etc. The compelling condition of oligopolistic competition is the concept that competing products, namely people, are not identical. As such, it is reasonable to expect that prices will differ. However, the actions of other sellers and buyers in the labor market place bounds on the price range. The concept of establishing a price range in the market for labor, rather than a specific price, is a defining characteristic of a bilateral monopoly. I believe these considerations can explain your observations that seemingly identical jobs can have different wages. We’ve all observed this state. I’ve observed that even within the same company similar jobs can have different salary ranges depending on what department the job is in.