Imagine Walt on a well-deserved vacation day, gently swaying in a hammock when his phone rings. It’s his boss. She tells him that his colleague has an emergency and can’t come to work. Although it is last minute, she asks if Walt wants to work today or the store will be short-staffed to open.
Walt says, “Look, I’m enjoying my free time even more than I expected. And as you know, I’ve been looking forward to this holiday for a month and I’d actually rather not come. But I’ll tell you what: if you pay me double for the day, I’ll put down the lemonade and go to work.” His employer agrees, as the benefit of opening the store outweighs the cost of Walt’s extra wages.
I suspect most of you can identify with Walt and even sympathize with his situation; it doesn’t seem wrong for him to insist on something extra for interrupting his vacation to clock in to work.
Note, however, that Walt is guilty of “price gouging.” After all, a wage is only the price of labor. And here Walt takes advantage of the labor shortage and raises his “price.” But it also seems like he’s asking a reasonable question.
First, Walt has the right to ask for double pay if he comes in on his day off. Here is the argument:
If Walt has the right not to work at all on his day off, he has the right to work for double pay on his day off.
Walt has the right not to work at all on his day off.
Walt therefore has the right to work for double pay on his day off.
What can be said in defense of the first premise? Recall that, from his employer’s perspective, Walt’s offer of expensive labor is no worse, and potentially better, than an offer of no labor. If she rejects his offer of expensive labor because it does not benefit her, she is no worse off than if Walt had not offered to work at all. If she accepts the offer because it would benefit her, she is better off than if Walt had not offered to work at all.
As for the second premise, I imagine everyone would agree that Walt has the right not to work at all on his day off. It certainly is generous but it’s not like his employer (or the government) could force him to come in. So we have to conclude that Walt is within his right to ‘paygouge’.
Moreover, allowing Walt to ‘gouge wages’ has good consequences. If he had not the right to ask for double the reward, he would have stayed in his hammock. And this outcome would have left both Walt and his employer worse off. Walt would be worse off because he wouldn’t receive the pay he values more than his day off, and his employer would be worse off because she wouldn’t be able to open the store, something she values more than double the pay. she would give Walt.
If you think these reasons justify Walt asking for double the reward, you should think they also justify more traditional cases of “price gouging.” For example, it seems that people have the right not to offer ice cream at all to people at a disaster site (although it might be a generous thing to do). That is to say, the government has no right to force Walt out of his hammock to purchase bags of ice and transport them to the location. And if Walt isn’t offering ice cream, he might be offering expensive ice cream– it either makes potential buyers better off, in which case they will buy it, or worse off, in which case they can simply refuse the offer. Additionally, the opportunity to earn an unusually high amount of money may motivate Walt to get out of the hammock and get the ice cream to those who need it. Although we are more likely to sympathize with ‘wage gouging’ than with ‘price gouging’, we have equal reasons to allow both.
Christopher Freiman is Professor of General Business Administration at the John Chambers College of Business and Economics at West Virginia University.