What's wrong with this argument?

Economics Economics Questions
1

“Corporations like Nike pay their laborers in third world countries far below both a living wage and the actual value that they put into shoe production; Nike could double the wages of their factory workers by having their already-wealthy investors take a small haircut considering how much of a mark-up there already is on shoes and the massive profit Nike reaps as a result.”

A few responses I have would be:

-if it’s a known fact that laborers in third world nations are being paid well below their discounted marginal value product then entrepreneurs will bid the labor factors away from Nike, eventually raising wages up to their DMVP

-Nike cannot be accused of marking up their products because the price of a good or service is determined by the intersection of demand and supply curves in the consumer goods market and not based on production costs, i.e. value is imputed backwards.

-if third world nations are concerned about their low real wages then they should allow further market liberalization to encourage capital investment and the corresponding increase in the marginal productivity of their citizens which would to move DMVP and thus wages upward

-if a government was to intervene in the market by imposing a minimum wage above the labor factor’s DMVP then this would cause chronic unemployment and an oversupply of labor in the market

-if Nike was to purposely pay their laborers above their DMVP this would also cause an increase in unemployment and an oversupply of labor in the market (this is the only point I’m not all too sure about; is there such a thing as an endogenous price floor?)

Do you guys have any other rebuttals?

2

The response is simple:

If people are working in these jobs, then they have decided that they are better than the alternative. Sure, go on and prevent these jobs from being created. That way you can make people in the rest of the world worse off. Feel better about yourself?

On a similar note, if we actually shifted much more production to those countries, labor would become competitive and wages would increase. But as it stands, we believe that paying people overseas better than their businesses at home would is evil. Hence, we legislate regulatory hurdles.

I think it’s sad how nationalist and racist the mainstream is. “Hey, people in Asia, we’ve decided that you choosing to work this job is bad for you, so we’ll shut it down. It’s OK, we know what’s better for you than you do.”

3

Also, this.

4

I could be wrong here, but it was my understanding that the demand curve for factors of production was determined by their discounted marginal value product, that is, marginal revenue multiplied by marginal costs discounted by the natural rate of interest. So would moving business overseas necessarily shift the demand curve for labor to the right? If they invested in factories which raised the marginal productivity of labor, then yes, but otherwise I’m not so sure.

5

Very interesting article, Wheylous; thanks for the link.

6

You’re quite right that instituting a minimum wage would decrease employment in these places. Even if it’s below the actual DMVP doesn’t matter because they are seeing a greater amount of employment than they otherwise would.

First of all it’s important to recognize that these people have few or no other options to this employment, and what is a ‘living wage’ in America is nothing like even a high wage in a third world nation. Low wages open the door for laborers to gain work experience which, in combination to the still low wages, attracts further businesses to come in and eventually bid the price of labor up to its actual value as well as increasing the actual value of their labor. To institute price controls would prevent other businesses coming in and actually causing buisinesses to naturally bid up and increase the price of labor.

Furthermore, so long as there are poor areas in the world without price controls, these companies will tend to gravitate there instead of the ones with wage controls.

7

Thanks for the response, Neodoxy. Do you think that a company or group of companies deliberately setting wages above DMVP would have the same effect as a government-instituded price floor? To me it seems like it would, sort of like they’re deliberately making wages sticky downwards and causing unemployment and an oversupply of labor as a result. Sorry if I’m talking nonsense; it’s late and I’m not sure if what I’m saying is intelligible anymore!

8

What would they gain from doing this? By definition they would be losing money compared to what they would otherwise be paying. The only thing that I can see that they’d possibly hope to gain would be to ensure that smaller employers would have a harder time setting up, but this probably wouldn’t work unless they left but a few unemployed because then these laborers would be picked up by the smaller firms anyway.

9

They wouldn’t “gain” anything; it’s just a hypothetical scenario, specifically one my opponent hopes would be a reality. So what do you think the effects would be?

10

The effects would be exactly like a government price control so long as the companies continued their action up until firms came in and, assuming they act in a ceteris paribus manner, they would drive the high DVMP firms out of business.

Then they or new firms would continue to hire workers at their real value. That there’s praxeological.

11

Saying that people prefer to work in factories vs. the alternative is looking at things rather narrowly. We need to consider the larger social factors that drive these people to work in factories. Is the government forcing the people off the land or depriving them of a living in another way? If so, then saying the workers deserve to be paid more is not so unreasonable. If group A destroys the livelihood of group B, and group B then chooses to go to work for group A (or even group C), it would not make much sense to me to say that whatever the market determines as the wages for group B is somehow just–even from a propertarian perspective.

12

I really wanna see an anarcho-syndicalist debate a modern liberal.

13

But to be more on topic, you have not presented any evidence for your claim.

14

I don’t really have time tonight, but tomorrow morning I can post links to articles on discounted marginal value product and price floors, if you’d like.

15

If so, then saying the workers deserve to be paid more is not so unreasonable.

The key error here is the word “deserve”. If someone is kicked off his land by the govt, he certainly deserves to get it back.

But no matter what the injustices suffered by a person in his sad miserable life, that does not make him “deserve” to be paid more for his labors than the next guy.

Indeed, let us not confuse moral and scientific issues here.

Let us address the scientific issues first.

The first question is, what determines the wages a person will get? And the answer is, as so often in economics questions, look to the law of supply and demand. That is what will determine his wages. Nothing else. Neither justice, nor injustice, nor govt, nor exhortations, can erase the law, just as none of those things can erase the law of gravity.

Going a bit deeper into this analysis, we may ask, what determines the demand curve for labor, meaning what determines how much an employer will be willing to pay someone? And the answer to this is also easy to discover if we ask ourselves, why did the employer open a business in the first place? And we all know the answer, to get as much satisfaction as possible from it, [which usually translates into “to make as much money as possible”]. So that every business decision is always made by appealing to the question, “If I do this, will I make more or less money?”

So that the demand curve is determined by those options that the employer thinks will make him the most money. That’s the way it is.

Oddly enough, the worker, too, when deciding whether to work and what wage to ask, is also guided by the same lodestar, of what will give me the most satisfaction. He will never take a job at a given salary unless he is convinced that a] he is better off working for this salary than not working at all, and b] he cannot find something better.

Now for the moral questions:

Are any of these two people being greedy? If we choose to call their atitude greedy, then they are both greedy, because both want the same thing for themselves, the most satisfaction possible under the circs. A more enlightened person might say neither of them are greedy, but merely seeking to improve their lot in life for themselves and their family.

Are there circumstances where an employee “deserves” more than he is being paid? It is up to someone answering in the affirmative to lay out his value system for examination, that we may understand why someone desreves to be paid more than the law of supply and demand will apportion him.

Also, he must explain how defying this law will be accomplished.

16

The key error here is the word “deserve”. If someone is kicked off his land by the govt, he certainly deserves to get it back.

But no matter what the injustices suffered by a person in his sad miserable life, that does not make him “deserve” to be paid more for his labors than the next guy.

If someone is forced off his land into slavery and spends most of his life building up someone else’s plantation, then I think he “deserves” more than just his old land. He has contributed to creating a vast quantity of wealth whose presence in the market has made his old way of life uncompetitive. (Of course I don’t think being paid more is the best solution; I think the solution is to take control of the means of production.)

Going a bit deeper into this analysis, we may ask, what determines the demand curve for labor, meaning what determines how much an employer will be willing to pay someone? And the answer to this is also easy to discover if we ask ourselves, why did the employer open a business in the first place? And we all know the answer, to get as much satisfaction as possible from it, [which usually translates into “to make as much money as possible”]. So that every business decision is always made by appealing to the question, “If I do this, will I make more or less money?”

So that the demand curve is determined by those options that the employer thinks will make him the most money. That’s the way it is.

Yes, this also helps explain Nike’s action vis-a-vis the state. If Nike decides to donate money to certain politicians, then it is because they think doing so will make them more money. So the actions of the state are determined by the “demand” of their funders. If aggressive measures will yield more money than peaceful ones, then they will choose war. I am not very familiar with the Nike situation, but a little research shows that one country they have factories in is Vietnam. I also assume the Nike has donated money to the US government. And I also know that the US government was involved in destroying thousands of acres of agricultural land via bombs and chemical warfare. It also destroyed homes, businesses, and many many lives. One could see how such a policy might increase the supply of laborers willing to work in a Nike factory and therefore also decrease the price of wages. This may even have a ripple effect and cause the wages in, say, Indonesia to decrease. So it seems relevant to me to note the effect aggression has in determining the level of supply and demand.

Oddly enough, the worker, too, when deciding whether to work and what wage to ask, is also guided by the same lodestar, of what will give me the most satisfaction. He will never take a job at a given salary unless he is convinced that a] he is better off working for this salary than not working at all, and b] he cannot find something better.

And I think what the argument is trying to bring up is the other options the worker has. He does not merely have to take the options given to him. He may also choose to fight back, to strike, to occupy, to make demands of the government. To make such choices requires dialog and cooperation with other workers.

Are any of these two people being greedy? If we choose to call their atitude greedy, then they are both greedy, because both want the same thing for themselves, the most satisfaction possible under the circs. A more enlightened person might say neither of them are greedy, but merely seeking to improve their lot in life for themselves and their family.

Perhaps a better question to ask is, are any of these people being aggressive? I think in the case of Nike the answer could indeed be “yes.”

17

Rcder, I was talking to FotH, not you (about “evidence”)

18

I really wanna see an anarcho-syndicalist debate a modern liberal.

I’ve been looking for message boards of other viewpoints. Know of any good modern liberal ones?

19

Oops, sorry Wheylous.

20

That question makes no sense to me XD (@FotH)