Why Low Minimum Wages Kill Jobs and Crush Living Standards for Everyone

[Torsten]

Why Low Minimum Wages Kill Jobs and Crush Living Standards for Everyone

Contrary to right-wing propaganda, decent pay for workers helps the economy and boosts job creation.

April 24, 2012 |

Senator Tom Harkin, Democrat of Iowa, has introduced a bill to raise the federal minimum wage to $9.80 from its present level of $7.25. Polls are showing many voters in favor, though they are confused about what it would mean for the job market. The truth is that a move would be good for a slow economy and have a positive impact on the jobs crisis. Naturally, this has led to the usual cries of opposition, largely based on the notion that raising the minimum wage hurts the very people it is supposed to help. Typical of this view is a letter to the New York Times from Michael Saltsman, a fellow at the Employment Policies Institute, a business-backed nonprofit research group (surprise!).

Saltsman trots out the old canards against the minimum wage, claiming that research indicates that a minimum wage increase “simply doesn’t help the poor — in fact, it hurts them.” He cites studies which showed that states with their minimum wages between 2003 and 2007 found no associated decline in state poverty rates. Saltsman gives three reasons for this:

A majority of working-age inpiduals who live in poverty don’t work, and thus cannot benefit from the raise.

A clear majority of those who do earn the minimum wage live in households that aren’t in poverty.

Less skilled and less experienced employees lose employment opportunities when the cost to hire and train them rises as a result of a minimum-wage increase.

Let’s take these arguments in turn. Implicit in the first point is that a majority of working-age inpiduals don’t work because they choose not to (i.e. they are lazy scroungers), or because unemployment is caused by laziness or lack of training. The argument they often use is that “I can get a job, therefore all the unemployed could get jobs if only they tried harder, or got better education and training.”

The way I go about demonstrating that fallacy is a dogs-and-bones example. Say we have 10 dogs and we bury nine bones in the backyard. We send the dogs out to find bones. At least one dog will come back without a bone.

We decide that the problem is lack of training. We put that dog through rigorous training in the latest bone-finding techniques. We bury nine bones and send the 10 dogs out again. The trained dog ends up with a bone, but some other dog comes back without a bone (empty-mouthed, so to speak).

The problem is that there are not enough bones and jobs to go around. The “bones” in the jobs discussion are insufficient spending power in the economy. It is certainly true that a well-trained and highly motivated jobseeker can usually find a job. But that is no evidence that aggregate unemployment is caused by laziness or lack of training. And besides, we could easily determine how much unemployment is truly voluntary. The government could serve as the “employer of last resort” under a job guarantee program modeled on the WPA (the Works Progress Administration, in existence from 1935 to 1943) and the CCC (Civilian Conservation Corps, 1933-1942). The program would offer a job to any American who was ready and willing to work at the federal minimum wage, plus legislated benefits. No time limits. No means testing. No minimum education or skill requirements.

It’s hard to believe that reducing or even eliminating the minimum wage (which is the corollary of Saltsman’s point), would actually enhance employment, when the problem is a basic lack of demand. Business will not hire more workers until it has more sales. Consumers will not spend more until they’ve got more jobs. A private-sector recovery requires 300,000 new jobs every month. But the private sector doesn’t need 300,000 new workers per month until there exists sufficient spending power in the economy to induce them to hire those workers. How is retaining a static, or reduced minimum wage, going to achieve this?

Higher wages means higher income and thus higher consumption spending, which induces firms to employ more labor. So the truth is that economic theory does not tell us that raising minimum wages will lead to more unemployment, indeed, theory tells us it can go the other way—raising the minimum wage could increase employment. That’s one of the reasons why Henry Ford believed in paying his workers a decent wage: so that they could buy his product.

To be sure, even an increase in the minimum wage to $12 or $15 an hour is not going to provide the means to purchase a Ford (or GM) today. And so what if, as Saltsman argues, the workers earning this minimum wage are not living in poverty? Does that mean they wouldn’t spend the money derived from an increased minimum wage? I wonder if Saltsman would also argue that tax cuts across the board are unnecessary because most of the people who receive them are not living in poverty?

That argument is a red herring. The truth is, if you earn your money through wages (unlike many of the 1 percent, who earn through things like investments and a tax system biased in favor of capital gains over income) then a higher wage, minimum or otherwise, would mean that you’d spend the additional dollars, creating jobs for other workers. You’d pay down your mortgages and car loans, getting yourself out of debt. You’d pay more taxes — on sales and property, mostly — thereby relieving the fiscal crises of states and localities. More teachers, police and firefighters would keep their jobs. America would get a virtuous cycle toward higher employment and, more importantly, the cycle would be based on a policy which creates higher incomes, not higher debt via credit expansion.

Then there’s the common belief that minimum wages cause unemployment, which relates to Saltman’s third point – namely that less skilled and less experienced employees lose employment opportunities when the cost to hire and train them rises as a result of a minimum-wage increase. It is at least partly true that for an inpidual firm, higher wages reduce the number of workers hired. But we cannot extrapolate that to the economy as a whole. The issue of eroding wage competitiveness, which allegedly follows from a higher minimum wage, doesn’t really apply to jobs which offer the minimum wage. It might apply to areas such as manufactured goods and traded services like insurance and banking. But these are sectors in which most people already earn far more than the minimum wage.

As far as the minimum wage goes, the jobs we’re talking about are in non-traded services like checkout clerks, haircutters, domestic help, and food-service workers. When checkout clerks and cooks earn more in wages, then businesses start getting the sales required to induce them to hire more workers. And if sales are robust enough, then guess what? Even more workers will be hired, or wages will actually be increased.

The point is: wages are a source of demand, as well as a cost input. Reduce wages and demand plummets, which more than overrides any cost savings derived from paying less to workers (especially given today’s paltry minimum wage, which is hardly a living wage for any American).

Let’s be clear; Americans have never embraced welfare. For better or worse, our nation has always preferred a more libertarian path: self-help, personal responsibility, inpidual initiative. As a result, our welfare programs have always been stingy, temporary and purposely demeaning. But maintaining the minimum wage at today’s ridiculously depressed level does not enhance anybody’s employment prospects. In fact, it makes it worse, because it sucks demand out of the economy and minimizes the chances of those now receiving unemployment benefits or other assistance to quickly get back into the workforce, to “pull themselves up by their own bootstraps,” as conservatives like to say. They cannot do that when our work force continues to focus on policies which merely enhance the incomes of the top 1 percent.

http://www.alternet.org/story/155132/why_low_minimum_wages_kill_jobs_and_crush_living_standards_for_everyone

Really a valid point? I smell fallacies

[Blargg]

The author of the article seems to have already decided whether minimum wage is beneficial, and then, without examining that position, came up with arguments to support the position, and rebut the arguments of someone against it. The tone of the whole article is dismissive, that of not taking the criticism seriously; calling opposition “right-wing propaganda” makes that clear. Near the end, the author invokes some arguments involving benefits relative to costs, but never gets into the numbers, merely assuming that the benefits outweigh the costs. The numbers are critical there, because they are what makes or breaks the argument.

Unless you’re aiming to practice your skills at rebutting his arguments, I see reading it or responding to it as a waste of time.

[billott1]

I found three fallacies scanning the article, one Austrian and two more Classical:

1. The fallacy to Austrians: Individuals acting create the economy. The economy is not some aggregate function of variables. Just because some aggregate statistic might improve through an act of force on individuals in the economy, some of those individuals are necessarily worse off and some are better off. In the same manner the economy is not utilitarian in that those worse off could be, and in the case of Minimum Wage, are much worse off at the expense of the rest of society that might be better off.

2. The fallacy to all economics, except Crude Keynesian: That is that there are short term fluctuations in a complex economy that may mask the true effects of applying force to change the behavior of individuals in that economy. In the longer term the negative effects of this force do come to light.

3. Similar to 2. The economy is extremely complex and it is impossible to discern the behavior of an act of force given the multitude of other things going on.

[gravyten577]

The propping up of wage rates was the reason the Great Depression was so deep and lasted so long. By coincidence I just happen to be read “America’s Great Depression” by Murray Rothbard electronoic page 307

http://library.mises.org/books/Murray%20N%20Rothbard/Americas%20Great%20Depression.pdf

Wolman concluded that “it is indeed impossible to recall any past depression of similar intensity and duration in which the wages of prosperity were maintained as long as they have been during the depression of 1930–31.”13 He noted, however, that pressures to cut wage rates were building up almost irresistibly, and that some construction labor had been able to maintain their employment by accepting sub rosa wage cuts. Wage cuts responding to severe losses at the end of 1931 took place secretly for fear of the disapproval of the Hoover administration.14

Just posting this because this is where I am at in the book

See electronic page 288 Albert H. Wiggin. The depression of the earlier 1920s passed quickly was never allowed to reach 25% unemployment becauce wages were allowed to fall. It was not a drop in purchasing power that caused depressions because capital goods industries always slump more than retail sales

Wiggin further pointed out that production had declined far more than consumption, thus indicating that it was not lack of “purchasing power” that was causing the depression. Finally, he noted that in the 1921 depression, costs and wages had been quickly scaled down, and unsound activities liquidated

Here are some statistics electronic P. 300

Hardest hit, in accordance with Austrian cycle theory, were producers’ goods and higher order capital goods industries, rather than the consumer goods’ industries. Thus, from the end of 1929 to the end of 1931, the FRB index of production of durable manufactures fell by over 50 percent, while the index of nondurable production fell by less than 20 percent. Pig iron production fell from 131 thousand tons per day (seasonally adjusted) in June, 1929, to 56 thousand tons daily in December, 1930, to 33 thousand tons in December, 1931, a drop of nearly 80 percent. On the other hand, retail department store sales only fell from an index of 118 in 1929 to 88 at the end of 1931, a drop of about 25 percent.

[Dave_Chappell]

One thing that always intrigues me when it comes to the minimum wage debate is the assumption that the labour supply curve slopes up to the right, in other words a lower wage will cause less labour to be supplied. The thing is, if I had my wage cut by a third tomorrow, I would go out and search for a second job in order that I can still pay the rent etc. So a drop in wages will cause my labour supply to increase not decrease. Conversely, if my wage rose suddenly tomorrow, I would not reduce my hours supplied straight away. I would wait it out to see if the wage rise was permanent, and that’s presuming that my boss would allow me to reduce my hours, which is doubtful. Either you work full time or you don’t work at all; bosses don’t like it if you decide only to turn up 10 hours a week, in my experience.

So essentially, we are left with a situation in which the response of labour supply to a change in wages, is dependent on the direction of that change. A decreasing wage would see a downward sloping supply curve (higher supply of labour), and an increasing wage would see a vertical supply curve (no change in the labour supplied). Given all of this, isn’t it possible that a decreasing wage will increase unemployment because more people are taking on second jobs?

[gravyten577]

Given all of this, isn’t it possible that a decreasing wage will increase unemployment because more people are taking on second jobs?

If we had no minimum wage and no welfare state wages would go down and you would see an increase in the demand for workers, for example a business might find that it is more economical to hire workers rather than automate. Why not put a minimum wage on apples out of expectation that it will allow more apples to be sold?

http://reason.com/archives/2009/07/30/a-minimum-wage-equals-minimum

It’s why gas stations no longer hire teenagers to wash your windshield. Wage minimums tell employers: “Don’t give a beginner a chance.”

[dude6935]

So essentially, we are left with a situation in which the response of labour supply to a change in wages, is dependent on the direction of that change. A decreasing wage would see a downward sloping supply curve (higher supply of labour), and an increasing wage would see a vertical supply curve (no change in the labour supplied). Given all of this, isn’t it possible that a decreasing wage will increase unemployment because more people are taking on second jobs?

Some workers will drop out of the labor force or reduce worked hours if their free time is more valuable than the new wage rate. Some will out-migrate to areas with higher wages. Is your free time really less valuable than the wage a 2nd job would bring in? This wage would almost certainly be lower than your preferred 1st job otherwise you would have chosen it as your 1st job. Why not reduce your rent payment or other expenses and enjoy the same amount of free time? And remember working has its own costs in gasoline, taxi fare, etc. These become even more important when working at a reduced wage.

[Dave_Chappell]

Some workers will drop out of the labor force or reduce worked hours if their free time is more valuable than the new wage rate. Some will out-migrate to areas with higher wages. Is your free time really less valuable than the wage a 2nd job would bring in? This wage would almost certainly be lower than your preferred 1st job otherwise you would have chosen it as your 1st job. Why not reduce your rent payment or other expenses and enjoy the same amount of free time? And remember working has its own costs in gasoline, taxi fare, etc. These become even more important when working at a reduced wage.

I certainly agree with two of the points you make. Over the long run I can imagine moving to an area where wages were higher, and I would definitely try to find a cheaper flat, smaller car etc in order that I could go back to having just one job. However, the point you made about people reducing hours because the prefer leisure to work, is not something I accept. It assumes that people can survive without working, maybe via a trust-fund or such like. Most people don’t have anything like that, and so the impact on the labour market due to these people withdrawing, would be next to nothing.

In the short run I still think my questions highlight a number of interesting issues though. It takes time to move house, especially to another town, and I’d be interested to see what effect these time-lags have on the dynamics of the system. I did a little control engineering on my electronics degree, and one thing I learnt is that time-lags are incredibly important in the stability of a negative-feedback system (such as the economy is purported to be); get the timings wrong and it’s possible to have a system oscillate out of control. Do you happen to know if any Austrian economists have written on the evolving dynamics of the economy as it adjusts?

[dude6935]

However, the point you made about people reducing hours because the prefer leisure to work, is not something I accept. It assumes that people can survive without working, maybe via a trust-fund or such like. Most people don’t have anything like that, and so the impact on the labour market due to these people withdrawing, would be next to nothing.

After thought, yes falling wages create unemployment, by definition. That in essence is a layoff. Production falls, wages fall, then people either get fired, quit, or they accept a lower wage rate. Wages are the employee’s portion of their output.

Will the employed workers increase their hours? Some will, others will not. Here are some examples of those who will not: early retirement, choosing to be a stay at home parent, choosing to remain on welfare up to the maximum duration, and choosing to live on savings. These instances would be quite significant.

But are we talking about a natural reduction in wages or a reduction in the legal minimum wage?

Lowering the minimum wage does not lower wages for most workers. Watch the video linked below for explanation.

It actually raises wages for workers whose output is above the new-low minimum wage, but below the old-high minimum wage, because it will be legal to employ these low value workers at a wage that benefits both the employer and the employee.

Edgar the Exploiter

[Neodoxy]

I’ll read it later, but immediately I think to myself: aww not one of these claims again. Anti-economists have been arguing against the conventional minimum wage theorems for centuries now. The only really compelling one that has ever been presented is monopsony, and it’s hard to claim that that’s a real world phenomenon that can be solved by minimum wages in developed countries.

[fakename]

Doesn’t his focus on consumer demand contradict his assertion that although businesses consume labor, an increase in their spending power (brought about by lower wages) won’t help to increase demand and fund the lives of wage-earners (perhaps allowing them to spend their money on the goods that presently exist)?

Isn’t this process much less roundabout then helping to boost consumer demand through higher minimum wages, which must then go to fund new products only to THEN pay-off in the form of higher output for workers?

[Dave_Chappell]

After thought, yes falling wages create unemployment, by definition. That in essence is a layoff. Production falls, wages fall, then people either get fired, quit, or they accept a lower wage rate. Wages are the employee’s portion of their output.

I’m not sure I understand, sorry. I can see how unemployment creates a downward pressure on wages as more people compete for jobs, but from the standard neoclassical or Austrian perspective I always thought falling wages would lead to falling unemployment.

Will the employed workers increase their hours? Some will, others will not. Here are some examples of those who will not: early retirement, choosing to be a stay at home parent, choosing to remain on welfare up to the maximum duration, and choosing to live on savings. These instances would be quite significant.

Well I guess this is a question that would require an empirical investigation to answer. My personal hunch is that the number of people dropping out the labour market by choice would not be very high, but then that could be a false impression (even if we include early retirees, stay-at-home parents, or people with savings). I also don’t know many people that choose to remain on benefits out of choice, despite the stereotypes and demonisation that occurs in the media of claimants. Being dependent on welfare a very soul-destroying thing; most people will avoid it like the plague if they can. Once again, a detailed look at the actual numbers would be required, and even if the numbers turn out to be significant, these numbers will change from one geographical location to the next and over time.

But are we talking about a natural reduction in wages or a reduction in the legal minimum wage?

I was considering either. If it is a drop in the real-wage at least, which I should probably have specified.

Lowering the minimum wage does not lower wages for most workers. Watch the video linked below for explanation.

It actually raises wages for workers whose output is above the new-low minimum wage, but below the old-high minimum wage, because it will be legal to employ these low value workers at a wage that benefits both the employer and the employee.

I won’t have the chance to watch the video till I get back home this evening, so can’t comment on this yet. But thank you for the link, I will take a look asap.

[Dave_Chappell]

OK, I finally got round to watching the video and I don’t see it addresses the points I have made here. It begins by repeating the assumption that people can refuse a low wage if it doesn’t meet their expectations - exactly the assertion I am arguing against. It then moves on to address the demand side of the labour market, which is an important area of debate, but doesn’t answer my questions regarding the supply of labour.

[Dave_Chappell]

If we had no minimum wage and no welfare state wages would go down and you would see an increase in the demand for workers, for example a business might find that it is more economical to hire workers rather than automate

Only just saw this post, so sorry for not replying sooner. It is certainly true that a lower wage will increase the quantity of labour demanded, but this does not necessarily mean unemployment will fall in the case of a downward sloping labour supply curve; it all depends on the slopes of the curves. Take the following diagram.

On the left there is a situation in which a lower wage increases labour supplied, but labour demanded increases at a faster rate than supply does and so there is a point of intersection towards which the level of employment and wage gravitate. On the right, however, both demand and supply for labour increase at an equal rate, and as such, regardless of how low wages are, there is no point at which there is not involuntary unemployment.

The only way in which the situation on the right can be resolved is by there being a decrease in the prices of goods elsewhere in the economy upon which workers depend. In short, it can be said that in some situations unemployment arises, not from unresponsive wage adjustments in the labour market, but from unresponsive price adjustments elsewhere. In this situation, lowering the wage will have no impact on unemployment.

Why not put a minimum wage on apples out of expectation that it will allow more apples to be sold?

A price-floor on apples isn’t a fair analogy. I do not see how a lower apple price would result in more apples being supplied - which is the analogous argument I am making in regards to the labour market. My argument is about the rate of unemployment as opposed to the absolute level of labour hours employed. For example, in the chart on the right, lower wages lead to more labour being employed, but no change in the gap between labour demanded and labour supplied; i.e. no change in the rate of unemployment/underemployment.

[dude6935]

A price-floor on apples isn’t a fair analogy. I do not see how a lower apple price would result in more apples being supplied - which is the analogous argument I am making in regards to the labour market.

It is an excellent analogy. Assume you run an apple farm. Take your previous statement as replace wages with apple profits.

The thing is, if I had my [apple profits] cut by a third tomorrow, I would go out and [harvest more apples] in order that I can still pay the rent etc. So a drop in [apple profits] will cause my labor supply to increase not decrease. Conversely, if my [apple profits] rose suddenly tomorrow, I would not reduce my hours supplied straight away. I would wait it out to see if the [apple profits] rise was permanent […]

Again. You can’t increase apple production without increased marginal costs due to your increased investment. That is the crux of the issue.

Your whole life utility is the value of your wage PLUS the value of your free time. You cannot add wage hours without reducing your free time. And as your free time diminishes, each hour has greater and greater value while your wages per hour shrink and shrink. It is about marginal utility and marginal cost (or opportunity cost, whatever).

And the video (Edgar the Exploiter) was about:

Lowering the minimum wage does not lower wages for most workers. Watch the video linked below for explanation.

Did it not explain that?

[Dave_Chappell]

It is an excellent analogy. Assume you run an apple farm. Take your previous statement as replace wages with apple profits.

The thing is, if I had my [apple profits] cut by a third tomorrow, I would go out and [harvest more apples] in order that I can still pay the rent etc. So a drop in [apple profits] will cause my labor supply to increase not decrease. Conversely, if my [apple profits] rose suddenly tomorrow, I would not reduce my hours supplied straight away. I would wait it out to see if the [apple profits] rise was permanent […]

Again. You can’t increase apple production without increased marginal costs due to your increased investment. That is the crux of the issue.

Your whole life utility is the value of your wage PLUS the value of your free time. You cannot add wage hours without reducing your free time. And as your free time diminishes, each hour has greater and greater value while your wages per hour shrink and shrink. It is about marginal utility and marginal cost (or opportunity cost, whatever).

OK thanks, I understand the point you are making now. The difference between the two scenarios is that the apple producer, in facing increasing marginal costs, either switches to a more profitable line of production or goes out of business. The worker, however, has no alternate means of supporting himself apart from offering labour, and so the point about increased labour supply entailing increased marginal costs (or rather, decreased marginal utility), is irrelevant. Work and leisure are not substitutable goods for the vast majority of people.

And the video (Edgar the Exploiter) was about:

Lowering the minimum wage does not lower wages for most workers. Watch the video linked below for explanation.

Did it not explain that?

I’m not sure how that point is relevant to the question I am raising, sorry.

[dude6935]

The difference between the two scenarios is that the apple producer, in facing increasing marginal costs, either switches to a more profitable line of production or goes out of business.

Or it accept a lower profit and continues operation.

The worker, however, has no alternate means of supporting himself apart from offering labour

Somewhere at some time. That does not mean here and now.

Work and leisure are not substitutable goods for the vast majority of people.

Then why don’t you work 24 hours a day?

I’m not sure how that point is relevant to the question I am raising, sorry.

Me - “But are we talking about a natural reduction in wages or a reduction in the legal minimum wage?”

You - “I was considering either. If it is a drop in the real-wage at least, which I should probably have specified.”

Me - “Lowering the minimum wage does not lower wages for most workers.”

That seems relevant to me. If what we both say is true, we are not talking about minimum wage laws at all anymore. They are irrelevant.

[Dave_Chappell]

The difference between the two scenarios is that the apple producer, in facing increasing marginal costs, either switches to a more profitable line of production or goes out of business.

Or it accept a lower profit and continues operation.

That assumes a certain degree of slack in a persons income. A lot of people only just cover their outgoings.

The worker, however, has no alternate means of supporting himself apart from offering labour

Somewhere at some time. That does not mean here and now.

I don’t understand, sorry.

Work and leisure are not substitutable goods for the vast majority of people.

Then why don’t you work 24 hours a day?

Because I can afford to live on the income I get working a regular job. There are also physical limits, obviously. I guess a more accurate way of representing my point would be to say that whilst I can give up my current free time for more hours of work (up to a physical limit), I cannot necessarily give up my hours of work for free time. The substitutibility is not comparable to the choice between buying an apple or a pear.

I’m not sure how that point is relevant to the question I am raising, sorry.

Me - “But are we talking about a natural reduction in wages or a reduction in the legal minimum wage?”

You - “I was considering either. If it is a drop in the real-wage at least, which I should probably have specified.”

Me - “Lowering the minimum wage does not lower wages for most workers.”

That seems relevant to me. If what we both say is true, we are not talking about minimum wage laws at all anymore. They are irrelevant.

Fair enough. I suppose the point I am making is more to do with the claim that a fall in wages will restore full employment. So I am questioning the assumptions underlying the claim that labour markets will self correct in this way. Of course, this has implications for the Austrian and Classical critique of both minimum wage laws and trade union wage policies, for if it is not the case that allowing wages to fall will resolve an unemployment problem, then what is the point in allowing them to fall?

[dude6935]

I guess a more accurate way of representing my point would be to say that whilst I can give up my current free time for more hours of work (up to a physical limit), I cannot necessarily give up my hours of work for free time.

Sure you can. Unless you are teetering on the brink of starvation, you certainly can reduce your hours worked. The question is if you value another hour of wages more or less than another hour of sleep, or xbox, or yoga. I don’t understand how you can reject this basic idea of opportunity cost. All choices have an opportunity cost.

Work is your way of gaining future utility. Leisure is your way of gaining present utility.

At this very moment you can choose to read a book (or do whatever brings you present utility), or you can walk outside and sell your labor in order to make money (so you will be able to purchase future utility). You cannot gain future utility without sacrificing present utility. That is, unless you get paid just to live your life.

I also refer you to a similar topic, the law of rent. If wages fall low enough, people will just work for themselves. Or conversely, the wage rate that unskilled people can earn working for themselves sets the lower rate limit.

[Dave_Chappell]

Sure you can. Unless you are teetering on the brink of starvation, you certainly can reduce your hours worked.

This simply isn’t true these days. A fifth of the workforce here in the UK earn less than the living wage, and as such, only survive because incomes are topped up via tax credits and housing benefits. That’s a fifth of the workforce that have no choice but to work the hours that are necessary to survive.

I also refer you to a similar topic, the law of rent. If wages fall low enough, people will just work for themselves. Or conversely, the wage rate that unskilled people can earn working for themselves sets the lower rate limit.

This ignores the fact that most people don’t have access to either start-up capital or land upon which they can be self-suficient. Both of these things - the claim that people can choose between leisure and work, and the claim that if wages are low they can leave the labour market to self-subsist or be independent - these are claims have not been true for hundreds of years. The acts of enclosure and the highland clearances made sure of that long long ago.