As Americans close out our summer with a relaxing Labor Day, it is time to reflect on why fairness always matters, why wage equity is important and how greater fairness and equity can positively impact our society’s wellbeing, productivity and economic growth.
Let us start with fairness.
Fairness is understood and valued even by non-human species. This was confirmed by Sarah Brosnan, a professor of psychology, philosophy and neuroscience at Georgia State University who performs a now famous experiment.
She presents two capuchin monkeys with a task: hand the researcher a rock when signaled to do so. If the monkey performs, they are rewarded with a piece of cucumber. Good news for the monkey. The researcher then differentiates between the two monkeys, rewarding one with the cucumber and the second with a grape, a preferred treat. When the monkey getting the cucumber sees this unfair practice, they are enraged — they throw the cucumber down, rattle their cage and bang the floor. There is no mistaking their anger over the clear unfairness for the same task.
Since this demonstration, an understanding of fairness and cooperation has been shown in other species, including dogs, ravens and chimpanzees. Fairness predates humanity: It has “deep biological roots.”
Research shows our own children understand fairness from an early age, and what academics call distributive justice.
Children are surprised and upset when seeing resources distributed unequally for no reason and, by age three, will state they want equality in distribution. Children will also make sacrifices to be fair and to punish those who are unfair. This is seen in experiments when kids reject unequal distribution of rewards even though doing so means they get no reward as a result. Kids will also act to correct an unfairness they have witnessed even if they are unaffected by it, which researchers call third-party punishment. Instead of viewing kids as selfish, miniature versions of the “homo economicus,” we ought to recognize them as young moral actors with quite clear views of what is and is not fair.
On Labor Day, we would do well to remember and recognize that fairness matters when we are children and when we become adults and workers.
In 2022, I see a change in perspective, an equity reawakening post-pandemic, with millions of poorly paid waiters and service workers responding to the dangers they faced in the pandemic by demanding better pay for hard work that has historically been underpaid (particularly in America).
Unionization and industrial action are on the rise. These workers’ reasonable demands for fairness are finally being addressed by employers competing for workers in a tight market. In July, there were 11.2 million job openings. If firms and we as consumers want people to do hard essential work, then they must be compensated fairly and appropriately. Greater transparency and fairness in wages — rebalancing in favor of labor and away from capital — is long past due.
This readjustment in favor of labor will pay economic dividends. Janet Yellen, the U.S. Treasury Secretary, understands as much.
Decades ago, Yellen, writing alongside her Nobel Prize-winning husband George Ackerlof, proposed a ‘fair wage effort hypothesis’ to explain workers’ commitment and productivity in the workforce. Yellen posited that “workers have a conception of a fair wage; insofar as the actual wage is less than the fair wage, workers supply a corresponding fraction of normal effort.” People will come to work, but if they believe they are being undervalued and not being paid a fair wage for their labor, the firm’s performance will suffer.
The last decades in America have been tough for most, with more and more revenue taken by executives and firms and less going to the workers. As the Economic Policy Institute notes, productivity went up 62 percent from 1979-2020, but wages only went up 17.5 percent. Employees are not stupid. They can see what’s happening.
A disgruntled workforce will not deliver for companies and the wider economy. This dynamic may have been unfolding in the U.S. for many years, with persistently low wages leading to dissatisfied workers who are undervalued, who then underperform.
A partial answer to the productivity puzzle seen in stagnant low-wage advanced economies like the United Kingdom may be that post-pandemic wage rises and worker anger can slowly begin to address the fairness gap. By demanding more and solving the fairness gap, those employees will also likely become more motivated and dedicated. Employers, who are paying more for labor, will have an incentive to invest to further lift labor productivity.
We can see this cycle play out in Germany: higher wages for employees; much shorter work weeks, solid productivity; strong, more equitably distributed economic growth.
This Labor Day, perhaps the outlook for wage fairness and greater equity is better than it has been for many a year. If successful, worker demands can help lift many or most boats, rather than only the super yachts of the plutocrat class. It’s about time.
Stuart P. M. Mackintosh is executive director of the Group of Thirty.