Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/91773
Authors: 
Schlicht, Ekkehart
Year of Publication: 
2011
Series/Report no.: 
IZA Policy Paper 26
Abstract: 
The increasing wage inequality in many countries is usually seen as brought about by economic forces that drive for economic efficiency within a changing technological and social environment. Ethical evaluations of these developments diverge, yet the view that free labor markets drive to efficiency remains undisputed. This note sets out to criticize, in a non-technical manner, this efficiency presumption which is based on Adam Smith’s theory of wage setting. It is urged that a Smithian wage structure would indeed be both efficient and fair. Yet modern labor markets work in ways that are fundamentally different to what was envisaged by Adam Smith. That makes the outcomes observed in modern labor markets, according to Smithian standards, both inefficient and unfair. As a consequence, the pursuit of the Smithian ideal requires organizational remedies, intervention and regulation in labor markets.
Subjects: 
inequality
compensating differentials
equalizing differentials
fairness
efficiency
efficiency wages
selection wages
Reder competition
collective organization
taxation
over-qualification
JEL: 
J2
J3
D3
H2
B1
Document Type: 
Working Paper

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