Updated: 4/13/20
For the kingdom of heaven is like a landowner who went out early in the morning to hire workers for his vineyard. After he had agreed with the workers for one denarius a day, he sent them into his vineyard. He went out again about the third hour and saw other workers standing idle in the marketplace. To them he said, ‘You also, go into the vineyard, and whatever is right I will give you.’ So they went to work (Matthew 20:1–4).
I have discussed this in Chapter 47 of my commentary on Matthew. This is one of Jesus’ pocketbook parables. He used economic stories in order to convey spiritual truths. This parable surveys the history of God’s kingdom from God’s covenant with Abraham until the time of Jesus. It is a story of the resentful workers who were hired early in the day and had to work all day. At the end of the day, all of the day’s workers were paid the same: one denarius. The workers who had been hired early in the day complained. They were being paid only what latecomers were being paid, who did not have to work all day long. The workers in the early morning represented the nation of Israel. God was now making available membership in the kingdom to those who had not been serving God from the days of Abraham. The gentiles were latecomers. Jesus used this parable to teach a lesson about Israel’s resentment.
The parable would have made no sense to the listeners if they had not understood the nature of the bargaining process in the labor markets. This bargaining process rests judicially and morally on the concept of private property: the right to make a contract. “But the owner answered and said to one of them, ‘Friend, I do you no wrong. Did you not agree with me for one denarius? Take what belongs to you and go your way. I choose to give to these last hired workers just the same as to you. Do I not have the right to do as I want with what belongs to me? Or are you envious because I am generous?’” (vv. 13–16a). This passage is the strongest affirmation of private property in the New Testament. It is rarely quoted in this context. The owner of the field asked a rhetorical question: “Do I not have the right to do as I want with what belongs to me?” He followed it with a non-rhetorical question: “Or are you envious because I am generous?” This affirmation of the moral and legal right of the ownership of private property stands as an affirmation of the legitimacy of the free market’s process of allocating resources. This economic message continues to alienate critics of the free market. They are hostile to the concept of voluntary bargaining.
As the day grew shorter, the field owner maintained his original offer: one denarius. This meant that the hourly wage was going up. Because it is a parable about the kingdom, is a parable about the grace of God. But the context of the parable was clear: the field owner had employment for these workers that he believed would be profitable for him. The early workers were paid less per hour, but they had held a guaranteed job for the day. There was no risk of unemployment. They did not know that he would be back later in the day to make offers to different groups of workers. If they had known this, some of them might have delayed accepting the offer. But they wanted guaranteed income. They were not willing to risk the possibility that he would not return later in the day to make the same offer.
The employer did not know for sure that there would be available workers later in the day. Therefore, he also did not have perfect foreknowledge of the future. Ignorance is basic to all negotiating. The parties on either side of the negotiating table do not have perfect knowledge of what the parties on the other side are willing to accept or offer. As with all other areas of economic theory, imperfect knowledge is fundamental to the market process. Any attempt to explain the market process in terms of perfect knowledge, or in comparison with the supposed efficiencies of perfect knowledge, is based on self-deception. Sadly, this approach to explaining the market process is basic to modern economic theory, and it is categorically incorrect. It is called equilibrium. It rests on an assumption: the analytically correct standard of economic efficiency is omniscience. This is available only to God, which is why equilibrium analysis is incorrect.
The laborers were owners of their skills. They had a legal right to come to an agreement with someone who was willing to hire them. The employer was the owner of money. He had a legal right to come to an agreement with someone who was willing to work for him. The laborers had a right to sell their skills for money. The field owner had a right to hire those skills for money. The right of ownership is always the right of disownership. It is the right to allocate whatever it is that you own. You exchange ownership on your terms. So does the other party to the transaction. Buyers and sellers adjust their plans in terms of a particular price. If they cannot find a way to adjust their plans in terms of the initial price offered by the seller, then they may come to an agreement in terms of a different price. Or they may come to an agreement in terms of different terms of payment. There is the possibility of negotiation.
In the parable, there is no mention of other employers who were willing to make an offer to workers. The parable was illustrating the kingdom of God. God has a monopoly over the kingdom. He has a monopoly over who gets access to it. So, it is not a sufficient parable for discussing the market for labor. But it is sufficient in discussing the right of buyers and sellers to make an exchange of valuable assets. It is sufficient in discussing the right of ownership, which is always the right of disownership.
Under the Mosaic law, it was legal for somebody to sell himself into permanent slavery (Exodus 21:5–6). This is no longer the case in the modern world, although there is no reason from a biblical standpoint why such an agreement would be either immoral or illegal. The New Testament is clear that it is best not to be part of such an arrangement. Paul said that if a slave owner should offer manumission to his slave, the slave should accept the offer. “Were you a slave when God called you? Do not be concerned about it. But if you can become free, take advantage of it” (I Corinthians 7:21). [North, First Corinthians, ch. 8] I argue that the reason for this is that an individual who is delivered out of slavery increases his personal responsibility. This is a fundamental goal of the dominion covenant.
In the modern world, people sell their labor services. Salaried people do this at a fixed salary per hour. Some people work by the hour. Other people work on a piece-rate basis: payment for units of output. They sell their services for money. This means that they are in a weaker bargaining position than the employers are. Employers own money. Money is the most marketable commodity. This means that it conveys to the owner a wide range of potential purchases. In contrast, laborers have specific skills to sell in a limited geographical area.
Workers are not helpless. Labor is by far the most versatile factor of production. A complex machine can be used for only one purpose. If the market for the output of the machine shrinks, the value of the machine declines, and therefore the price of the machine declines. This is also true of labor services, but labor services are far more versatile than a complex machine. People can find other ways of making a living. So, when the market for labor services declines, there is a reduction of demand, and competition among laborers forces down salaries. But in a market with a high division of labor, there are employment opportunities for almost all workers. Of course, this brings forth the economists’ favorite qualification: at some price.
A worker needs income or capital in reserve in order to support himself and his family. He is usually not in a position to bargain with the same degree of authority that an employer is. The worker has a narrow set of skills. He also has a narrow geographical area in which he can use these skills if the skills are based on manual labor. In contrast, the employer has money. He can offer sufficient money to recruit laborers from outside the immediate geographical area. He probably has capital in reserve. He is in a stronger bargaining position than the laborer is.
The process of pricing labor services is the same as the process for pricing all other scarce economic resources. Buyers compete against buyers. Sellers compete against sellers. This reduces the range of ignorance in specific circumstances. There is always some degree of ignorance, but the wider the range of competition, the less ignorance there is. The objective reality of market prices reduces the range of ignorance.
1. Value Paid for Value Received
An employer will not hire a laborer if he thinks it is going to cost more to keep him on the payroll then the value of the output of the laborer’s labor services. He does not want to lose money on the transaction. If he can keep more money by doing nothing, he will do nothing. But the employer believes that future consumers will be willing to pay more than he pays for specific labor services. There has to be a spread between the expected costs of employing a laborer and the expected return on the expenditure.
Economists use technical language. They say that the expected marginal value of a specific labor service in a competitive market will be equal to the expected marginal value of the price paid by a final consumer. There is no way for an employer to assess this with precision. It is a guess. It is an entrepreneurial guess. It is a well-informed guess, but it is a guess. Any attempt to represent this transaction by means of a graph or an equation is spurious. Academic economists have been trained so long to use formulas, equations, and graphs to convey economic knowledge that they do not tell the students that most of this process on the part of the entrepreneur is guesswork. There is insufficient precision to justify the use of a graph. But the graph is more important to academic economists than the truth of the underlying relationship that is supposedly expressed by the graph.
The worker accepts the best opportunity that is available to him at the time that he makes a decision to go onto the payroll of a company. He has the right to quit later on. He has the right to accept a better offer unless he has signed a contract prohibiting this. Such contracts are common in professional sports and the entertainment industry. They are not common outside these areas of the economy.
2. Competition and Knowledge
In a competitive market, employers compete against employers. Employees compete against employees. Out of this competition comes an array of prices for various labor services in various markets. Competition keeps the participants from making major mistakes in pricing scarce resources, and this includes labor services. Employers are not deliberately going to pay workers more than they must pay in order to keep the workers from accepting offers from other employers. Similarly, workers are not going to accept salaries that are lower than the best offers made by another employer. The more accurate the price information, and the more widespread the price information, the narrower the range of negotiation between employers and employees.
In the parable of the field workers, there is no mention of another employer. There was no open competition among employers to hire workers. The employer made them an offer: take it or leave it. They all took it. He offered them opportunities to engage in productive work in exchange for a fixed payment for the day’s work. He honored his contracts with all of the workers.
There was a biblical requirement that is not found in the modern world. An employer had to pay his workers at the end of the day. He could not refuse payment overnight. “You must not oppress a hired servant who is poor and needy, whether he is of your fellow Israelites, or of the foreigners who are in your land within your city gates; Each day you must give him his wage; the sun must not go down on this unsettled matter, for he is poor and is counting on it. Do this so that he does not cry out against you to the Lord, and so that it not be a sin that you have committed” (Deuteronomy 24:14–15). [North, Deuteronomy, ch. 61] This law recognizes that some workers have no savings. They are at a competitive disadvantage in relation to those workers who do have savings. The workers who do have savings are in a position to offer an employer an advantage: he does not have to pay them immediately. The Bible makes it clear that this is an illegitimate bargain. It is one of the few cases in which a limitation is placed on bargaining. There was no civil law against it in Mosaic Israel, but there would have been an ecclesiastical law against it.
It is not illegal for an employer to offer to pay in advance for labor services. Perhaps he will pay two weeks in advance. He can pay a month in advance. He bears the risk that the worker will accept payment, but then not show up or else work poorly. The bargaining is asymmetrical. The employer bears a greater risk than the employees.
In a developed market in which there are numerous employers, workers can be confident that they are probably being given a reasonable offer by an employer. Only if their work is highly skilled and narrowly specialized, thereby leading to some degree of uncertainty about what their work is worth in the marketplace, is there face-to-face negotiation in which one of the two parties may gain a significant advantage. The worker does not really know what he is worth to the employer, and the employer is not sure how little money the worker will accept as payment. There is room for negotiation in these circumstances. This is often the case with highly skilled athletes in professional sports. This is why, in the United States, highly skilled athletes employ agents to negotiate for them. The agents are skilled at negotiating. They receive a percentage of the athlete’s salary. But for common laborers, there is not much negotiating. Neither side of the transaction devotes a lot of time or effort to the negotiating process. This is because wage rates for specific kinds of labor are widely known by employers and employees. The range of ignorance is much narrower, so the salary range subject to negotiation is much narrower.
Salaries and employment conditions can change when final demand by consumers changes. In times of recession, wages are generally stable by tradition, but employees get fired. If wages were more flexible, fewer employees would get fired. If the business’ management persuaded them to accept lower wages, the total wage bill will be reduced. The business would not have to fire anybody. Also in a recession, newcomers in the marketplace find it difficult to get job offers at wages that prevail for existing employees. They have to be superior workers in order to earn the same wage as somebody who is already on the payroll. In contrast, in times of rising economic output, wages generally rise. This is because of competition from other employers who are attempting to bid away talent that is on the payroll of a particular company.
When workers are provided with improved tools of production by their employers, their output increases. When output increases, workers become beneficiaries, either directly because of increases in their wages, or else indirectly because they can purchase more goods and services even though their wages have not increased nominally. These benefits spread beyond the limited number of workers who have been provided with additional tools of production. These benefits spread to consumers. This increases the wealth of nations, which in turn enables consumers to save money for additional capital creation. Society benefits from positive economic feedback.
The classic example is the Ford Motor Company in 1914. Early in the year, the company doubled wages to $5 a day. The development of the production line in 1913 had vastly increased the output of automobiles. While the level of skill required to become part of the assembly line process was reduced, the disincentives associated with assembly-line production were so great that Henry Ford decided to double the hourly wage schedule. The experiment was immediately productive. Absenteeism ceased. Very few workers quit their jobs. They could not get comparably paying jobs in the region. It had required enormous capital investment on the part of the Ford Motor Company to create the production lines, but the workers benefitted greatly from this investment.
1. Specialized Labor
Increased capital investment enables workers to increase their output. They do so because the capital increases the specialization of labor. Specialized labor is more productive than nonspecialized labor. Workers can satisfy consumer demand more effectively. As innovations in capital and production spread, they get copied. Other workers are then equipped by their employers with better tools, and these workers also increase their productivity. Some of this increase will produce greater income for business owners who innovated. Inventors of new tools will also be rewarded. In other words, all of the net productivity that is derived from increased capital investment does not flow to workers.
There are times when better tools can be used by common workers who will not need additional training. The more that these workers are replaceable, the less they will receive as their share of the increased output. If there are lots of competitors for their jobs, this increased productivity will benefit the owners of capital more than it will benefit the users. Usually business owners who wish to persuade workers to change their ways and learn how to use new equipment have to offer increased benefits for making the changes. People do not like to change their behavior. It is easier to do things the old way. They need incentives to persuade them. Higher wages are the obvious incentives in labor contracts. The more specialized the tools of production, the more specialization is required by the workers who use these tools. They must have greater knowledge. Employers must pay premiums over the prevailing wage structure in order to attract efficient users of these tools.
We can see this in the examples of Jesus’ early recruits. “When he was walking beside the Sea of Galilee, he saw Simon and Andrew the brother of Simon casting a net in the sea, for they were fishermen. Jesus said to them, ‘Come, follow me, and I will make you fishers of men.’ Then immediately they left the nets and followed him. As Jesus was walking on a little farther, he saw James son of Zebedee and John his brother; they were in the boat mending the nets. He called them and they left their father Zebedee in the boat with the hired servants, and they followed him” (Mark 1:16–20). When Jesus recruited Simon and Andrew, that ended their family fishing business. They were specialized businessmen, and they left that business in order to follow Jesus. They were partners with James and John (Luke 5:7–10), who also left the business behind.
They left their father Zebedee in charge. Presumably, he also acted as a trustee for Simon and Andrew. We presume this because, after Jesus’ death, He appeared to Simon Peter and other disciples, including the sons of Zebedee. Peter had returned to his occupation as a fisherman. He decided to go fishing, and he got into a boat (John 21:1–4). Presumably, it was his boat. He did not ask permission. So, it had not been sold. When the four men initially departed with Jesus, Zebedee would have had capital: two boats and two sets of nets. These nets had to be repaired from time to time, which his sons had been doing. He would have had to pay a wage to at least four people who could perform the same skilled tasks. To do this, he would have to pay wages high enough to lure four fishermen away from other employers. Their wages would have to be competitive because there would be bidding between Zebedee and the other employers. There would also be bidding among candidates for the replacement jobs.
The capital investment of having boats and nets increased the total output of the partners’ joint business. This capital enabled them to catch more fish. This in turn led to an increased quantity of fish in the community. Their capital increased their wealth, the wealth of their father, the wealth of their employees, and the wealth of members of the community.
Jesus did not have to offer the four disciples wages in order to recruit them away from their careers as fishermen. He would now teach them to become fishers of men. This would be a nonprofit venture. The four men gave up their income as fishers of fish in order to become fishers of men. This was a cost of becoming a disciple of Jesus. Their opportunity costs of abandoning their jobs were whatever they would have earned. But it was nothing compared to the cost that Levi/Matthew paid when he abandoned a box of money when he left the job as a tax collector (Matthew 9:9; Luke 5:27–28). Later, three of the four recruits wrote documents that helped shape Western civilization. All four will be remembered for eternity. This was the most important thing they could do in which they would have been most difficult to replace. Their callings were more important to them than their jobs. They were not motivated by money.
As capital spreads through the economy through competition among employers, productivity is likely to raise per capita output. Competition among the employers benefits the employees. The greater the knowledge component of any capital improvement, the greater the benefit to those employees who qualify to use the capital. There is always a premium paid for skilled knowledge. Increased investment increases the number of jobs in which skilled knowledge is required. The existence of higher-paying jobs that require specialized knowledge is an incentive for people to invest in the education required to gain this knowledge. Knowledge is a complementary factor of production. Its value rises when there is increased investment in capital.
2. Unemployment
Improved output puts pressure on those workers who do not have capital or do not have the knowledge required to use capital. This is what took place in agriculture from 1800 until the present. The number of workers on farms has fallen steadily. The output of those who remain on the farms has increased, but even here, the Pareto 20/80 distribution is dominant. Only the top producers are able to prosper. This forces those who are not efficient producers to leave the farms and go into other lines of work. They must specialize in other areas in which they have an advantage. The constant improvement of capital increases output, which leads to price competition. Per capita wealth rises in the society as a result.
Throughout the period of the Industrial Revolution and the communications revolution, there has been great fear that increased output will lead to widespread unemployment. So far, this has not taken place. The fear is that the increased productivity of a handful of workers who have been equipped with capital will produce unemployment in those sectors of the economy that have not kept pace with capital development and its associated rising skill sets. This fear today underlies criticism of robotics and algorithms: digital innovations, which are much more rapid and widespread than innovations in the past. But, so far, society has benefitted from increased output, and a rising rate of unemployment has not resulted from digital/technical innovation. New jobs have been created by these innovations, especially service jobs.
Employees have uses for their time other than working for a wage. They can go home early, and they can do what they want with the rest of the hours in their day. Leisure is therefore a consumption good. It is a very special form of consumption good. It is not taxable. Earned income is subject to an income tax in most nations. Leisure is not subjected to any tax. It is therefore highly competitive with taxable income.
When the owner of an asset decides to keep the asset rather than sell it or rent it, economists call this reservation demand. The most widespread form of reservation demand is leisure. This means that there is no such thing as free time. Whenever someone spends time on something other than earning a living, it costs him the forfeited income of whatever else he could do with his time. He gives up something of value in order to enjoy what is inaccurately called free time.
Leisure is not counted as part of gross national product. There is no way to estimate the value of leisure. So, economists ignore it. They count only the income generated in the form of wages. This is misleading. When a society gets richer, most workers increase their consumption of leisure time. If people want to consume time in the present in preference to consuming greater wealth in the future, this is a present-orientation. If they consume leisure today at the cost of not working extra hours, then they will be poorer in the future than they would otherwise have been. People with high time preference make this decision.
It is a mark of a society experiencing economic growth that employees put in longer hours than employees in a society in which people enjoy greater leisure. A biblical society will be marked by long work hours. Jesus said this: “We must work the works of him who sent me while it is day. Night is coming when no one will be able to work” (John 9:4). These extra work hours need not be salaried. They were not salaried for Jesus’ disciples. But they are work hours. This is what the dominion covenant requires. This outlook is marked by a phrase popular in the United States: “You have to work only half a day to be successful. It doesn’t matter which half.”
Labor is a factor of production. It is the most versatile of all factors of production. People can use their skills to supply many kinds of services. They can learn new skills. This makes them flexible in seeking employment. They can adjust their wage demands in terms of the state of the economy. In recessions, they can reduce their wage requests; in booms, they can increase their wage requests.
The market’s process of competition tends to pay workers the equivalent of their output in the process of production, just as it does with every factor of production. Economists say that the marginal price of this output tends to equal to the marginal price paid by consumers for the output of employees. Analytically, consumers (final buyers) determine what every factor of production is paid. They do not sit down and estimate what should be paid to every factor of production. They simply decide to buy or not buy the goods and services placed before them. In making this choice, they reward those producers who meet their requirements. This favors particular lines of production.
Competition for factors of production continues among employers. Through this bidding process, successful businessmen are in a position to bid away factors of production from their competitors. They are in a position to do this because, in the past, customers have rewarded them by purchasing their output. These businesses build up capital reserves. They have lines of credit that unsuccessful businesses do not possess. They are successful bidders for raw materials, labor, and capital. Consumers have enabled them to be the successful bidders in the marketplace. Consumers are in positions of authority because they have money to spend: the most marketable commodity. Those businesses that benefit from their expenditures also have money. This puts them in a strong position as employers.
The greater the supply of capital invested in production, the higher the wages paid to employees. Increased capital investment increases workers’ output. Because they know how to use the tools of production, which are specialized, their value in the production process rises. In order to keep them on the payroll, employers must offer them wages comparable to the wages offered by rival employers.
A highly future-oriented society is marked by long hours on the job or on the calling. The price of this dedication is forfeiting whatever benefits leisure would have offered. A highly present-oriented society is marked by lots of leisure activities, especially digital entertainment. The individual’s price of this leisure is the wealth and the dominion that he will not attain because of the hours that are not invested in either his job or his calling. There is always a trade-off. There is always a price to pay. There are no free lunches. There is no free time.
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