There's a reason that wages are as they are

Quite why wages are as they are seems to mystify some people. Why isn't it true that the people doing every and all jobs get to live rich and fulfilling working lives? The answer being, well, let one of those who stands around gape mouthed in amazement at the workings of markets take up the story:

Aqueue was already forming by the time Isaac Oti turned up for work before dawn that May morning. He came back a couple of hours later and – “boom!” People were spilling out of Queen Mary college, past the gates, past the engineering faculty. They were standing out on the road three or four deep, almost reaching the tube station.

“It was crazy.” Even 10 years later, Oti’s eyes shine at the memory. “CRAZY!”

Those excited masses were not lining up for a house, the latest iPhone or a glimpse of Beyoncé. They were waiting for the chance to be a cleaner at Queen Mary University of London (QMUL).

This was pre-crash, pre-Brexit London, in its days of pomp and prosecco, those days when it felt like you could score some kind of job in the capital just by leaving the house. One solitary post on the small-ads website Gumtree had drawn this huge crowd to the East End – for cleaning jobs. But these positions were no ordinary cleaning jobs. They were what Oti calls “gold standard”. The lucky few successful applicants would start on the London living wage; at a full 30% above the minimum wage. Equivalent positions paying that rate were rarer than hen’s teeth. Not only that, but rather than working for some cowboy contractor, they’d be university staff – earning a decent pension, good holidays and sick pay.

Add in those benefits and a reasonable guess is that those jobs were paying 60% above market wages for those cleaning jobs.

Meaning that the students - in our loan financed system - are having to pay more for their education than if the cleaners were being paid the market rate. Or in a tax financed system, the taxpayers would be fleeced even more to pay for it all. Making things more expensive isn't quite the way to raise living standards now, is it? 

But there's more to it than that. Note the entire missing of the more basic point about why we use markets and prices in the first place. We desire to arrive at the market clearing price for whatever it is. Here, the price at which the desired amount of cleaning takes place, all those who desire to clean for a living being able to do so. That's what the market clearing price actually means, that we're matching supply with demand.

Which is, of course, why we use markets and the price system more generally. Because if we don't, as here, then prices and market clearing still happen, we've just replaced the clarity of money with the miasmic effects of queues. This is not an improvement in matters as the Venezuelans trying to use the supermarket have found out.

We positively desire employers to pay market prices as wages just as we want all markets to clear. Because the systems which don't are worse.