The concept of marginal utility explained the util ity of the last unit of the supply. That once under stood, the utility of all other units was measured and determined by that last unit. Wages, however, are paid for performance—for results that can be meas ured in the coin of the realm. The employer who con siders adding to his staff wants to know whether be is justified in doing so. Unless be is clearly convinced that there is a production value to be obtained, he re fuies to make an addition to the labor group.
In the case of no-rent land, the two factors in production for which recompense must be paid are labor and capital. There being no other factors that are costs in the creation of the product, the returns from the conduct of production on no-rent land are divided between capital and labor. The line of de marcation between the two is found at the point where there is indifference as to whether labor or capital is used in adding to the product ; that is, where.the ad vantage of labor over capital in the creation of the product is nil.
This situation is a practical one. In the case of the farmer it occurs every now and then when he is confronted with the problem of the addition of a nelv man or another machine. He is undecided as to which will pay the better; if there is no difference, he has arrived at the marginal wage and the marginal interest of labor and capital. The business of the enterpriser is direeted in no small measure to the so lution of this problem.
There is, then, a worker whom we may imagine as a marginal worker, just as there is capital that earns a marginal return. The marginal wage-earner deter mines the wage for his group since, if employed, he must receive the marginal wage" and all other workers in the group must receive at least the same wage.
One of the facts that we have already commented upon is the division of laborers into many non-com peting groups. Beginning with the lowest group, in terms of remuneration received, there is a series of wage payments extending upward to the highest salaried manager. In each group there is a marginal worker held there by the pay he receives and by his inability to go up higher. He refuses to go lower in the scale than the place he holds, so long as he gets his pay. Many other men in his group receive more pay, because they possess an ability greater than that of the marginal worker. A man of the latter type
receives a marginal wage plus a differential payment that coriesponds with his ability. The margin of production varies with the many changes that take place in the supply of capital or with the number of laborers available at any one time.
8. Wages, the discounted casting up his accounts, the employer of labor endeavors to get at the unit cost or piece cost, of his product. What this is, the economist tells us, is determined by the effi ciency of the marginal wor6r as expressed in terms of product. In order to persuade him to work, the em ployer must pay him what the marginal worker would receive from his own efforts on free land, or in an enterprise in which rent and profits were not phases of distribution.
"Under the modern competitive system," says President Hadley, "wages are the discounted product of industry." 1 It is not only the absence of compe tition of capitalists with one another that prevents the cutting of wages to a minimum, but also the fun damental economic law of the marginal worker. Un less he gets his part of the product, the labor sup plies, in the long run, fail to meet the demands. The business of the enterpriser is to place a product in the market. Under the roundabout system of produc tion now in vogue, thru the great specialization of in dustry, there is a long period of time between the com pletion of the work of any specific group of laborers and the placing of the finished product in the hands of the consumer.
The employer of labor is called upon to advance the payment of the nominal wage before the con sumer gets the product. Between the two events, payment of the wages and receipt of the price, there are many obstacles and many operations. The capi talist must therefore discoeunt the product of the la borer, if payment is to be made at once. How much or how little he will discount this product depends upon the length of time it takes for the article to reach the market; but whatever the discount, the basis of payment carmot well be anything but the results obtained by the marginal worker, for the part of capi tal is already provided for, since it appears as the co-partner of labor on the margin of production in the receipt of interest.