Concept of Fairness

Concept of Fairness

Individuals do not posses the same level of income

Perfect Equality of outcome: Everyone makes the same, to the dollar (Everyone makes 15,000 a year)

MRP: How many goals, how much that sells for (hockey tickets sold)

Fairness of Outcome Concept 1

  • will the workers wages equal the Marginal Revenue Product (value of what they produce

  • John Bates Clark:

    • “If the labouring classes were to produce an ample amount and only a part of it, many of them would become revolutionists, and all would have the right to do so”

    • Basically if wages are less than the Marginal Revenue Product, workers will become mad and rightfully so

    • When Wages and MRP are equal or close to equal, everything is fair

  • Profit maximizing firms will only hire when the Wage is less than the Marginal Revenue Product

  • Free market economists (liberals), like Friedman and Clark

    • competition between employers will ensure that its close

      • if there isn’t a monopoly, people will leave to companies that pay better

    • For a liberal, they think that this is an important way to think about fairness

    • competition between free market

  • A Marxist would argue that the extent to which this is true depends on conditions in the labour market

    • There is a multitude of things that impact wages

    • structures in place so the wage remains way lower than the marginal revenue Product

    • Unemployment rates, Social Assistance Rates

      • situations with high unemployment, Marxist argues that because of the desperateness of people, wages will not go up, can just employ someone else for less

  • The more specialized you are, the more you are able to demand a fair wage

Packback Question: Is income inequality all about “Fairness”?

  • there are a bunch concepts of fairness to discuss

  • income inequality cannot be used to evaluate all fairness concepts, but can be used to discuss fairness of outcome

Fairness of Outcome Concept 2:

Even if wage = MRP, that is not enough to say that something is fair

  • Does MRP represent societal value?

Diamond Water Paradox

  • Use Value vs. Exchange Value

  • Exchange Value: The price of something

  • Use Value: Satisfaction, The value you receive in using something

  • Society Value SHOULD be Use Value

  • Use value of water is very high, water exchanges at very low prices

  • Diamonds is very low, Exchange value is very high

  • Therefore, no equivalence of Use and Exchange Value

    • Example: Athletes vs Teachers

If you are going to ask what is the use value of the diamond or the Athlete, how want satisfying those activities are

see how much people are willing to pay for it

Liberals argue that Use value IS Exchange value

Liberal Exonomist:

  • Use value is captured in the market

  • Likely to be fair in a competitive market

The way you should value

Marxist focuses on if wage equals the marginal revenue product

Packback Question: Is Income Inequality between genders growing or decreasing?

  • Comparing to 1960’s, the Income Inequality is decreasing

  • Starting at 2000’s, Income Inequality is increasing/stagnant

  • If not a liberal, social value is determined by our societal standards

  • Nursing, Childcare

    • Feminized Occupations

  • Occupational Choice: Women are overrepresented in occupations that traditionally pay less

  • These occupations are valued less in our society

Fairness of Outcome Concept 3:

John Rawls, A Theory of Justice 1971

  • Actually doesn’t matter what value you produce

  • Is not a criteria

  • Only thing that matters in any income distribution is weather or not the worst placed person in society can live

  • Rawls Theory: A Veil of Ignorance: ask a group of people if they had no idea where they would place you in an income in society, where they would place them in society

    • Almost everyone chooses an income distribution that allows people to live sustainably

    • Income of the worst person is still not disastrous

    • People cannot know where they place: Answers would be biased

    • Only genuine question that can be asked about income distribution is when they are ignorant to where they pace

  • There will always be a safety net

Fairness of Process: Any income distrubution is acceptable, as long as how that was arrived at is acceptable

Fairness of Process

Concept 1:

Robert Nozick

  • Argued that the most important in a society is freedom

  • any intervention would create a decrease in liberties in that society

  • anything that is a voluntary agreement between two parties is fair

  • (someone kills all buffalo that creates living, say you got a place to stay, technically ‘fair’)

  • Voluntary = without direct coercion

Concept 2: Equality of Opportunity (Economic Nationalist)

  • any outcome is fair as long as there is the equality of opportunity

  • Revolves around the process, not the outcome

  • Amartya Sen’s (Development as Freedom) Capabilities approach

    • purpose is to increase freedom or ability to choose what they want to do

    • make sure any outcome between people is not due to unequal starting positions

  • Any outcome is fine; as long has everyone has Equality of Opportunity

Packback Question: On the 2nd concept of Fairness (Outcome), how can equal opportunity be granted when parents can provide significant advantages and disadvantages to their children depending on their life choices?

  • Some people are born into wealth; some are not

  • spectrum of fairness (societies that are more or less fair)

  • Intergenerational Mobility - The extent of which their children’s opportunity is dependent on their parents

    • a kids income is determined

    • Equality of Opportunity is not well served

    • better nutrition, money on schools, housing, etc

  • how can we reduce the parental impact of money on children?

    • Scholarships and Funding

  • Nations that rely on market has Higher Intergenerational Mobility