L.A. Liberty

Re: On Minimum Wage, "show me the equity" →

politico2012:

laliberty:

After receiving a few messages today regarding the minimum wage, I thought it worthwhile to offer a brief summary of the argument. (For a bit more detail, please see my post Repeal the Minimum Wage.)

The premise can be understood in one sentence: you set a price floor for anything, you create a surplus of supply.

When it’s a price floor on hirable labor (aka a minimum wage) - you get a surplus of hirable labor (aka unemployment).

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laliberty

please tell me what happens when the ‘market clears’.

It is when a good (or service) reaches its equilibrium price, courtesy of consensual and mutually beneficial exchange. The market is a discovery process, and prices are merely the natural result of the multitudes of independent exchanges expressing individual preferences. A market, then, is said to “clear” when the demand and supply find relative stability, and satisfaction of consumer desires is thus maximized. Prices set outside this process, such as a minimum wage determined by a central planning state, are necessarily arbitrary, since there is no standard against which they can be said to be correct or incorrect.

what happens to those who would have been willing to work at a higher wage?

You mean the entire human race? Can’t imagine too many individuals who aren’t “willing to work at a higher wage.”

are they not unemployed?

Only if they are, in fact, unemployed.

or are they just not officially unemployed, having been so discouraged at the lack of jobs that cover basic expenses that they don’t even bother looking?

For these unfortunate individuals at the margin, it is the minimum wage that makes them “officially” unemployed; so some earnings are better than no earnings (a preference that is made clear once the individual performs the action of accepting a given job). Plus, once the hurdles of interventionism are removed, competition will ensure that prices reflect the new “savings” of lowered wages, making the necessities the now gainfully employed individual would like cheaper.

and what about notions of fairness?

What’s fair about a third party using aggression to interfere in the voluntary, peaceful, and mutually beneficial exchange of others? And, to be sure, every free market exchange is mutually beneficial. Every participant values what he receives more than what he gives up, otherwise the exchange would not take place as there is no state gun to anyone’s head threatening him to act against his will.

is it not fair that a business entering into a contract with someone for that person to spend a day working for that business, to offer in exchange a wage that covers all that day’s expenses? from travel to board to sustenance to leisure?

What’s fair is for every party in an exchange to only give up what they are willing to, and nothing more.

or do we live in a society where we all see with how little we can get away with paying, or how much we can get away with when entering into any contract, any relation with other people?

Have you ever walked into a store and offered more than the asking price for any item? Have you ever opened a menu and thought, “This is an unfair price! I must pay them double!” Or do you, more often than not, understand that wealth saved at one location can be placed toward another desire elsewhere? Negotiations and haggling aren’t taking advantage because all parties are free to simply walk away if the offers are no longer beneficial. No one’s stopping you from paying more, of course. You are free to be as generous as you please. But the market-clearing price is about fairness not charity. Both parties in a given exchange are always trying to give up less than they receive in order to maximize their material or psychic profit. Meanwhile, the existence of competitors ensures that no one is unfairly overcharged or under-compensated. This is true for all exchanges, even labor. The fact that most people employed today - that is, approximately 95% of all hourly-paid workers in the U.S. - actually earn more than the minimum wage proves that employers must and do compete for labor.

if that is the society we live in, laliberty, why do you wish to reinforce it by abolishing the minimum wage? is that society not just a little worse to live in? a little less safe as people trust each other a little less? a little unhappier as some worry about having a little less?

Let’s consider the previous post on your blog. It says simply, “why do we not stand up to the bully?” and you tagged it “non-violence.”

Now how do you comport that sentiment with your above lament? How can you be against bullies and violence when you clearly advocate for a bully, the state, to use its monopoly on force to threaten violence on individuals if they don’t concede authority over their private decisions.

You speak of society, but what is society? Is it not merely individuals and their consensual interconnected relationships? Well, that’s all the free market is: individuals interacting. If we insert violence into these relationships, even for some purported greater good, we’re already off to a bad start. How can you suggest that your way, with this third party leviathan that inserts itself into the personal decisions of others (usually at the behest of “special interests”), is one that fosters more trust and happiness?

To the contrary, allowing no interference in the peaceful and voluntary interactions of people ensures every exchange is mutually beneficial, and as such we would all be wealthier and more free (which no doubt would lead to greater happiness and, when all individuals enter every exchange with the same power to walk away, greater trust).

I understand your concern. You and some others like you who support the minimum wage are disturbed by the conditions of the poor. (Though there are many - among them racists, xenophobes, and labor unions - who support a minimum wage for strictly selfish purposes). But a minimum wage does not solve these problems. It only makes those very same poor carry a disproportionately heavier burden.

I can, of course, point to no shortage of Austrian and neoclassical literature expressing my problems with minimum wage. But even some Keynesians once understood this…

Paul Samuelson expressed this succinctly:

“What good does it do a black youth to know that an employer must pay him $2.00 an hour if the fact that he must be paid that amount is what keeps him from getting a job?”

Also, James Tobin:

“I am against minimum wage legislation and have said so. It diminishes job opportunities, ceteris paribus, and it is an inefficient and haphazard tool for income maintenances or redistribution.”
“People who lack the capacity to earn a decent living need to be helped, but they will not be helped by minimum wage laws, trade union wage pressures, or other devices which seek to compel employers to pay them more than their work is worth. The more likely outcome of such regulation is that the intended beneficiaries are not employed at all.”

This should be uncontroversial: if you truly care about the plight of the poor, you must not support a minimum wage.

Posted May 27, 2012 at 1:03pm in ∆ politico2012 politics economics austrian economics minimum wage | comments || home