Please help me with my Economics discussion question...?

Question

Professor Thomas DiLorenzo discusses in his article “Do Capitalists Have Superior Bargaining Power?” labor unions and the perceived disadvantage of individual laborers in bargaining individually for wages. He argues that that is a common and incorrect perception saying:

“All employers want to pay the lowest price possible for the things they buy, such as labor services, and get the highest prices for the things they sell … But economic reality places limits on these pipe dreams. In labor markets, competition among entrepreneurs assures that there is a close association between worker compensation and the marginal productivity of labor … Workers therefore become more valuable to employers if their marginal productivity increases, which is caused by capital investment by employers (which makes labor more productive and hence more valuable), technological improvements, which are usually the result of employer investments in research and development, and improved human capital, which is

Answer 1

There are three ways to increase the market price of labour above the equilibrium price: minimum-wage laws; unions and collective bargaining; and efficiency wages. Efficiency wages, unlike union and legally imposed above-equilibrium wage rates, is voluntarily paid by the firm. This is to attract the most skilled and productive workers, as well as decrease woker turnover (opportunity cost of being fired is greater).

Generally, higher wages result in a higher quality and more productive workforce, so the trick is striking the right balance between cost, productivity and output quality, which measn that firms will have to perform an objective analysis on which quality levels are worth how much to the firm. I would focus your argument on efficiency wages, and use Henry Ford (founder of the Ford motorgroup) as an example. Also, he used the efficiency wages to stop possible 'soldiering' (Management Theory - 'Taylorism') and increase productivity, as well as increase the average income for low-income earners so they could afford his cars.

Answer 2

His argument is standard economic theory and the huge increase in the standard of living of workers over the last 150 years provides evidence that it is true. However during this time period there were also organized labor movements making sure that it happened. Over the last 30 years technological advances have produced large productivity gains, but wages in the US has stagnated, so you could also argue that productively gain are not always shared by workers. see graph at
http://www.visualizingeconomics.com/2007/11/04/has-middle-americas-wages-stagnated/