Albert Rees was a University of Chicago trained economist who wrote some of the most influential works in the field of labor economics. Despite his Chicago training – Chicago being the epicenter of the idea that humans are guided largely by rational choice – he was well aware of something crucial missing from economic theory: the idea of fairness. Here’s a great paragraph from something he wrote near the end of his career:
In none of these roles [working for two presidential administrations, directing two corporations, being provost of Princeton University, and president of the Alfred Sloan foundation] did I find the theory that I taught so long to be the slightest help. The factors involved in setting wages and salaries in the real world seemed to be very different from those specified in the neoclassical theory. The one factor that seemed to be of overwhelming importance in all these situations was fairness.
Or as I usually put it: the strongest determinant of someone’s happiness with their salary is whether the person in the next office, or adjoining cubicle, is paid more than they are.
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