Less pay is not arguably higher than more pay

Mike Elk has a piece on the UAW election loss at Volkswagen. In it he says this:

Fiorello notes that currently, new non-union assembly line workers at Volkswagen start at $14.50 an hour—which, with cost-of-living differences between Tennessee and the Midwest factored in, is arguably slightly higher than the just-under-$16-an-hour starting pay under the UAW two-tier contracts at the Big Three.

I get the intuition behind this remark and in some situations it is worthwhile to take into consideration cost of living. But this is not one of them.

If you had to choose between moving to Tennessee for a $14.50/hr job or moving to the Midwest for a $16/hr, taking into consideration the local cost of living makes sense. But that is not the choice that workers in this situation are presented with. They are presented with taking a $14.50/hr job in TN or taking a $16/hr job in TN. Clearly the latter pays more.

What people are paid is a function of a lot things, including bargaining power. But, in theory, a worker producing a car in TN is adding the same amount of value as a worker producing a car in the Midwest, provided both workers are using the same tools and processes and such. Their individual productivity does not change just because the cost of living is lower. So why should their wages?

You can certainly tell a story about why the cost of living might cause wages to be bargained down. Workers in those areas might be willing to work for less (because it goes farther) and therefore manufacturing firms might locate there so that they can exploit the workers more and bank more of the surplus (in the Marxist sense). But that’s still working for less. And if workers in that area are truly just as productive as those in the $16/hr plants, then — all else equal — they are leaving money on the table by not bargaining up to that rate. For every unit of labor the $14.50/hr workers provide, their firm is banking more profit off of it than in the $16/hr firm. They are getting less of the value of what they produce, even if the cheapness of the area allows them to do more with it.