What is the Austrian position on the effects of the minimum wage?
I think most economists agree that the minimum wage will cause some job losses, depending on the increase. But there’s also the offsetting increase in income. Essentially, the desirability is an empirical question. How do Austrians reconcile these two opposing effects?
That the two participants enter into the transaction means that they both benefit, ex ante.
Making this transaction illegal will thus potentially nullify a wealth-creating transaction. It is logically an anti-growth policy, that will, at best, mandate a bit of redistribution by turning a private company into a state-regulated charity. This could lower raise wages for those who still have a job, but only in the short term, because in the long term, the effect of increasing wealth due to more wealth-creating transactions creates a rising tide that lifts all.
Doesn’t raising the wages of minimum wage workers qualify as wealth creation?
No. Pretending a CEO has 10 employees, he could pay them each $1 per day while he makes $10 per day. If the government makes him pay his employees $3 per day, he isn’t suddenly going to take their new payment out of his own paycheck. He’ll just raise the price of the goods he’s selling. And if people don’t buy them at such high prices, he’ll end up firing some employees because they don’t need to make as much product.
No, it was transferred, not created. Wealth is created by production.
Whether you support the minimum wage depends upon your views of market competition. On a competitive market, wages will be bid up to their marginal level, and trying to force wages up will only unemploy people because no employers will pay higher than marginal wages. They’d be losing money.
If however, you live in an uncompetitive market, minimum wage laws can raise wages. Consider a slaveowner who reaps supersurplus from his slaves. You can mandate a higher minimum wage for them, say extra food, and it will not unemploy them because it is still profitable.
Austrians think the perfectly free market is competitive and does bid up real wages to their marginal level, minus some inefficiencies from lack of perfect information and forecasting errorr. But these errors could go either way, so a minimum wage is just as likely to be as effective as a wage cap in terms of getting the “right” marginal wage.
Austrians then identify aaaall these policies in America that contribute to non-competitiveness. A reasonable person would seek to remove these barriers FIRST, and then, if the market still isn’t competitive enough, consider a minimum wage.
The money comes out of someone else’s pockets. For example, if an employer has 10 dollars, and his employee 5, making the employer give 2 dollars to his employee doesn’t actually increase net wealth.
Why would he raise prices? I thought Austrians claimed that costs dont determine prices, the market does.
If he laid off workers then his costs wouldn’t necessarily be any higher
Or the employees walk out on him, or unionize against him, or just in general fight back.
Yes, having the company closed down by the methods you mention is indeed a third possibility.
The pooint is, we are talking aboiut a situation where the money is not coming in. The employees are not being “attacked” by the employer, so the concept of “fighting back”, though very romantic and exciting, is irrelevant.
“But he’s firing them. If that isn’t an attack what is?”
He’s firing them because he has not the money to pay them.
“Motives are irrelevant. Their livelihood is being threatened, and so it is justified to call what they are doing ‘fighting back’”.
It’s fighting, but not fighting back. Fighting back means attacking the SOURCE of the problem. Which is the minimum wage law that lost them their job.
It also means attacking in such a way as to get back what one lost. But attacking the employer will acheive nothing but getting more people fired, when the whole business closes down since it is no longer profitable. Abolishing the minimum wage gets to the heart of the matter, and will restore everyones job.
Well, minimum wage combined with capitalism is a recipe for involuntary unemployment, in a common-sense non-Keynesian way. Smiling Dave, are you familiar with Anarcho-syndicalist Catalonia, and how it was a major success for self-management, cost of living, and real wages until the Fascists and Bolsheviks destroyed an otherwise successful non-capitalist alternative to the typical ancap argument?
Nope. Not familiar with it at all.
Here’s what I got from http://mises.org/daily/1132
"Historian Burnett Bolloten, in The Spanish Civil War (1991), quotes a prominent anarchist from the Barcelona region (Catalonia), Diego Abad de Santillan:
“We do not wish to deny that the nineteenth of July [1936] brought with it an overflowing of passions and abuses, a natural phenomenon of the transfer of power from the hands of the privileged to the hands of the people. It is possible that our victory resulted in the death by violence of four or five thousand inhabitants of Catalonia who were listed as rightists and were linked to political or ecclesiastical reaction. But this shedding of blood is the inevitable consequence of a revolution, which, in spite of all barriers, sweeps on like a flood and devastates everything in its path, until it gradually loses its momentum.” [pages 52–53]"
MORE:
"Anarcho-Syndicalism, as seen in action during the Spanish Civil War, is yet another dangerous leftist utopian fantasy. There, the syndicalists tried to abolish money, but ended up using “coupons” (money) instead. They promised to abolish the state, but instead created a bunch of mini-states—“committees.” They promised that a new individual freedom would blossom, but what emerged was a frightening new totalitarian control by the committee, over every aspect of life. As noted by testimonials reported by Burnett Bolloten:
“The committee is the paterfamilias. It owns everything; it directs everything. Every special desire has to be submitted to it for consideration; it alone has the final say.”
“If someone has a girl outside the village, can he get money to pay her a visit? The peasants assure me that he can.”
“I tried in vain to get a drink, either of coffee or wine or lemonade. The village bar had been closed as nefarious commerce.”
“With the abolition of money, the collective held the upper hand since anyone wishing to travel had to get ‘republican’ money from the committee.”
Bolloten further notes that “Puritanism was a characteristic of the libertarian movement. . . excessive drinking, smoking and other practices that were perceived as middle-class attributes were nearly always censured.” [pages 68–69] All in all, an inmate at a maximum security prison in New York State today has somewhat more personal freedom than those who lived in Chomsky’s “libertarian” paradise.
There’s an economic critique of syndicalism there as well. Interesting read.
I would say that the (correct) Austrian take is: a minumumwage will, ceteris paribus, raise unemployment compared to the level which otherwise would or could have been.
Workers that cannot justify their wages since their costs exceed their output value are laid off or never hired in the first place. The result is a net loss of output productivity, which means higher prices for consumers.
Prices are higher because output supply is relatively diminished and not because costs determine prices.
I just wrote out something, but I realized that you said unemployment. Can you explain what you mean by “involuntary unemployment”? I think I might just be confused by the wording.
minimum wage laws force employers not to hire “x” amount of prospective employees because of “y” value in the minimum wage law. We’re looking at it macroeconomically. In a sense there will probably be some amount of people who are simply pushed out of the market by the wage laws.
Oh, my apologies. I understand that. I was thinking that you were saying more people are hired when we have minimum wage laws. I must have just read it incorrectly.