Hi Dr Herbener,
Multinational companies are often accused of exploiting workers by paying them relatively low wages. In theory competition and arbitrage lead to a tendency that wages equal the workers’ discounted marginal revenue product.
I’m just wondering if it’s possible to demonstrate empirically that workers are actually paid their discounted marginal revenu product. Has this ever been done?
Such estimates are difficult to come by because the conditions of generating empirical evidence do not often occur or, at least, are not often recorded. Entrepreneurs make such estimates in making business decisions, but the public data recorded is usually just the wage rate and the number employed.
Richard Vedder is a fellow-traveler of Austrian economics who has ventured to make estimates of MRP in the case of slave labor. Here is one Vedder article on teh topic:
But that’s just the point. Entrepreneurs cannot pay workers less than the DMRP. Such is the conclusion of economic theory. In an unhampered market, each factor of production earns its DMRP. Of course, there are constant adjustments that entrepreneurs must make to changing underlying conditions, but they are always acting to exploit value differences and by so doing they eliminate them. And entrepreneurs can make mistakes, but they are corrected by entrepreneurs with superior foresight. So there is no systematic deviation of wages from DMRPs.
The problem in arguing about this topic is that people use the term “exploitation” ambiguously. In economic theory it refers only to the narrow point about whether entrepreneurs can systematically pay workers less than their DMRP. To others, exploitation means not paying a “living wage” or manipulating workers psychologically and so on. In economic theory, the only meaning one can give to “exploitation” is the case of involuntary exchange. The criminal gains at the expense of his victim. But voluntary exchange is mutual beneficial and therefore, involves no exploitation.