It’s Magic!
The Senate defeated an attempt to mandate an increase in productivi…er, wages:
“I believe that anyone who works 40 hours a week, 52 weeks a year should not live in poverty in the richest country in the world,” said Sen. Edward M. Kennedy, D-Massachusetts, arguing for the Democratic proposal to increase the minimum wage by $2.10 over the next 26 months.
At least the CNN headline wasn’t what you usually expect: “Senate Fails to Pass Minimum-Wage Increase.”
Here Are a Few Publications on the Effects of the Minimum Wage: 1, 2, 3, 4.
Tom headlines, in response to the recommended legislative increase in the minimum wage:
“$2.10? What a Cheap Jerk Ted Kennedy Is! Why not $21.00?”
I’ve used this argument numerous times. The typical response from the economically unsophisticated is, “Ross…that’s just silly.” This would be an amusing response were it not for the fact that the economically unsophisticated vastly outnumber the rest of us…
CNN in the morning really angered me today. They interviewed someone from Money magazine about the minimum wage. The host of the show kept showing surprise and shock, like “why are the Republicans not fighting for the little guy?”.
UGH!
I really liked this, from the AP story:
“When you raise the minimum wage you are pricing some workers out of the market,” said Sen. John Sununu, R-N.H. “It is an economic fact, and the proponents of raising the minimum wage like to dismiss this by saying we have a hard time measuring it and the economy is large.”
Countered Sen. Tom Harkin, D-Iowa: “This is a values issue. This is at the heart of what kind of country we want.”
This is the exact same exchange any libertarian will have with almost anyone on ANY issue.
Us: You see, policy X has consequence Y, which leads to Z. And Z is obviously bad. So policy X is a bad idea.
Them: BUT THINK OF THE CHILDREN!!!
Reminds me of the Cato seminar in Quebec last Fall. I mean, we might be wrong about all this – maybe someone can somehow show that the minimum wage is a good idea. But what do you do with people who won’t even enter onto the terrain of logic and reason? It’s very frustrating…
– Adam
When I was in college, and the minimum wage was raised (way back then I think it went from a nickle to a dime…), I wrote a harsh editorial in the college newspaper attacking the idea as racist, since most of the job losses fell disproportionately on minorities while the benefits accrued to mostly white labor unions that were succesfully pricing their competition out of the market. This proved a marginally successful strategy in the sense of exposing people to some simple-to-follow arguments that made sense and that they had never heard of before.
What keeps wages higher than a subsistence level? Isn’t increased capital per worker a more substantive answer than Russell Roberts’ “competition”?
From the CNN story: “”I have not had any ideological problem with the minimum wage, ” Santorum responded, adding he voted for the last increase to clear Congress, in 1996.”
Well, he should have an “ideological problem” with the minimum wage. As well as a economical problem…
Here’s a $5 book on the min. wage: http://www.theadvocates.org/Merchant2/merchant.mv?Screen=PROD&Store_Code=LS&Product_Code=MW&Category_Code=AA-NEW It makes an interesting point: think of min. wage laws as victimless crime laws.
Here’s a good piece on why workers won’t be exploited: http://www.libertarianworld.com/jobsforeveryone.html
P.S. Dr. Palmer, I’m still waiting for that refutation of the Post editorial on eminent domain you said you’d have up by Sunday night.
P.S. Dr. Palmer, I’m still waiting for that refutation of the Post editorial on eminent domain you said you’d have up by Sunday night.
Calma te, Adam W.!!! Tom probably hasn’t yet recovered from his first Krav Maga course.
Sorry, Adam. Patrick is quite right. (I had a private lesson tonight and I’ve got to say that it’s remarkably exhausting; the point is to be able to fight effectively and with extreme ferocity; I don’t recall ever being so tired.)
But…I will read the articles and post a (probably short) response tonight. (Then it’s prepare for a seminar tomorrow and another after that, put together a reading list and lesson plan for conferences in Jordan and Iraq, draw together some stories from the American constitutional convention and ratification, answer correspondence, and then….fall asleep.)
You’re working on the 37 hour day then, Doc?
In Support Of The Poorest Of The Poor
The senate did something right:
The Senate defeated dueling proposals Monday to raise the $5.15-an-hour minimum wage – one backed by organized labor, the other salted with pro-business provisions – in a day of skirmishing that reflected Republican g…
All right Dr. Palmer, I see the response. Thanks, and apologies if I was too impatient.
Adam pointed out that minimum wage laws can be viewed as a form of victimless crime law. This is certainly true, and raises an interesting point. For some victimless crime laws–drug laws, for example–the State typically tries to prosecute both the seller and the buyer of drugs. However, in the case of minimum wage laws, the State routinely attempts to fine only the buyer of labor, never the seller. Why is this? Surely a significant percentage of those selling labor (accepting a job) under the minimum wage know they are violating the law. And, anyway, “ignorance of the law is no excuse”. Why aren’t these people prosecuted? This might be an interesting question to ask someone who supports minimum wage laws.
LB’s query is well formed. A necessary condition for rising wages overall is increasing productivity of labor. But if there were a monopoly of all the capital in a society (somewhat difficult to imagine), then there would be no competitive market process to impute to labor its marginal product. So both (increasing productivity of labor and competition among providers of capital) are necessary conditions for rising wages, and neither is sufficient by itself.
Rising wages: due to increased labor productivity or competition? I’m not quite sure I follow Tom’s argument, so let me try one of my own…
There are costs associated with increased productivity. If there weren’t, the productivity would have been increased already. What incentives do producers have to increase labor productivity? The fact that if they don’t they’ll fall behind their competitors. So increased labor productivity is what CAUSES labor wages to rise, what JUSTIFIES the increased payments, whereas COMPETITION is what MOTIVATES producers to increase labor productivity (by investment in capital and other complementary factors, including education, training, etc.). Does this make sense?
Another way to look at it: Why would other producers compete to offer more money to workers? At equilibrium, the workers are already paid their marginal value product. Paying them more would lose money UNLESS the producer believes he’s able to increase labor productivity, justifying the increased income he’s willing to pay to lure laborers to him and away from competitors. So WHEN there is competition in a dynamic market, that is EVIDENCE that at least one producer believes he has a way to increase labor productivity; should his firm actually end up making a profit, he was right, and labor productivity, be definition, must have risen.
Ross L.
So the waiter whose profession is not usually associated with any sort of labour productivity revolution gets his higher wage not directly because of increased capital for his particular head but because he is open to offers in other restaurants and other lines of work elsewhere. These other lines of work in question, being more capital intensive, offer higher wages, because through increased capital investment, the workers are simultaneously more productive and relatively more scarce to the previous amount of capital for each of their heads.
I like both the comments above. My point was that there’s no reason to expect wages to rise in the absence of increases in labor productivity, even if there is a competitive labor market. It has to be worth it for employers to offer more to compete away workers from other enterprises. Competition alone will not cause wages to rise (unless they were below the market to begin with; but then wages would rise and then stabilize). Ditto for a situation with no competitive labor market but increasing productivity, as wages would be determined purely by bargaining power, absent any salient and determinate outcome provided by marginal productivity.
LB’s argument is analogous to Eugen von Boehm-Bawerk’s refutation of Marxism. Marx in vol. I of Capital argued that only variable capital, in the form of hiring of labor, generated profits, since profit is the difference between the product of labor and what is necessary to reproduce it. Constant capital, however, being nothing but crystalized socially necessary labor time, yields no income in excess of its cost of reproduction, hence no exploitable surplus, hence no profit. Were that true, we would expect that there would be different rates of return to total capital investment depending on the ratio of constant to variable capital, i.e., depending on how “capital intensive” or “labor intensive” an industry is. Thus, “capital intensive” industries would be less profitable than “labor intensive” industries, since the latter use an input (labor) that generates more value than its cost of replacement. But we observe that in market economies that is not the case; there are incentives to equalize rates of return across investments. (In Vol. III of Capital, Marx — and Engels, as it was published after Marx’s death — revised the original claim in Vol. I that goods exchange in ratios proportional to the amount of labor time that they represent into a tautology, viz. that all the labor in the economy is equal in value to all the labor, which is quite uninteresting. Thus, the disastrous implications — different rates of return — are avoided at the cost of making the whole system empty.)
More later, but I’m on a quick break and have to scoot!
Competition in the labor market is
what prevents each employer from
paying each worker’s reservation wage–
in the extreme, what it takes for a
worker to survive.
But that doesn’t say how much employers
are willing to pay. That depends on
labor productivity. Workers tend to get
paid their marginal value product.
Competition in the labor market is what
creates that tendency.
Competition in labor market is employers
paying workers more to keep them from
working for other employers instead.
Capital per head does influence a workers
marginal value product. But so does
technological know-how and the worker’s
skills.
I believe that competition does drive technological progress, but I don’t think
it is a key element in capital accumulation or
worker education. Still, even without
competition, a private enterprise system would
have an incentive to develop and implement new
technology.
It is not the case that the reason workers
today have higher incomes than they did
one hundred years ago is solely that we
have accumulated more capital. Workers
are more educated and we can take the physical
capital we have and the labor and produce more
and better stuff with it becaue of improved
technology.
The reason why all of that extra product doesn’t
go to the owners of enterprises and rather much
of it gets paid out to workers is competition
in the labor market.
Another way to see this point is that total output and income increases with increased productivity. Even if the share going to workers should shrink, the income of workers could rise because there is more product.
The zero-sum vision that sees any rise in workers income as due to a rise in workers’ share of total product misses what is really going on–economic growth.
But why is it that workers get more than whatever tiny share of total product and income is needed for their survival? Competition among employers for workers.
Could we not say that without capital there would be pitiful output and little technology, without economic growth the level of education would be lower and without savings there would be no economic growth or capital. People get more than survival wages because increased capital per head has not only meant higher productivity leading to higher wages but also increased output leading to lower prices and greater variety.