So, I was just watching Professor Block’s debate with Professor Blundell on the minimum wage, and there’s something that I can’t answer(although, it wasn’t even brought up in the discussion).
Let’s say that the average unskilled, entry-level worker’s MRP is $10 an hour, but their wages are only $5 dollars an hour. Now, I understand that market forces would push this towards an equilibrium(side note: wouldn’t the market always keep it below $10, because the business man has to make a profit, not just break even? Block said that they would tend to equal each other, and I can’t see why they would.), BUT could not legislation be enacted to immediately push them to equilibrium?
The market always moves towards a situation of no profit or loss (the “evenly rotating economy”) but never gets there due to changes in the real world. If the real world was static, we’d reach the ERE and profits/losses would disappear.
Legislation could, in principle, push a wage towards the MRP quicker, but there are serious problems with this approach. First, the legislation would essentially have to target a single individual, since individuals differ so greatly. This is troublesome, since legislation normally has to apply to everyone. Second, the legislators need to know what the MRP of this individual worker is, or at least know better than the employer. This is rather intuitively unlikely. Third, employers need to be convinced that the legislators know more than they do, otherwise they’ll just dump the employees that they think are now overpaid. Fourth, the employee whose wage we are boosting would have to maintain the same level of MRP or else the whole thing has to be done again. Fifth, the employee would be unable to change jobs, because, again, we’d need to start this whole business over again.
So, in sum, it is practically impossible for legislation to “speed up” the market process and leave it undisturbed.
Also, you are confusing cost of labour with economic cost.
In order to work out the true “profitability” i.e. return to capital, of a firm, you have to take into account the opportunity cost. Why bother running a firm for a 2% return if you could sell it and make 4% in interest on your money. The point being: despite gaining money, you are actually losing potential money.
I have explained myself extremely poorly there, but you should get what I mean.
This isn’t a broken window fallacy. The people who will be defending the minimum wage defend it BECAUSE of the broken window. They openly recognize that the extra money will come out of the capitalist pig’s pocket, and they welcome it. They WANT to shift the capital from the employer to the employee…that’s the entire idea behind the minimum wage.
They can not be good, because they are immoral. An evil act can not be good, because it is already evil. Passing such a law is creating evil where there was none before. No amount of “good” consequences can wash out this original evil.
Fact is that deals are between the signing parties. A third party has no buisiness telling free people under what conditions can they broker a deal. To say anything else is to appease evil.
Not really interested in the moral aspect. Telling someone that minimum wage laws are immoral isn’t going to get you far, and even if you do show them that it’s immoral and they accept that, they’d rather be immoral and hurt the rich to help the poor. I mean, that’s the entire basis of their political ideals(stealing from the rich and giving to the poor).
eroding the incentive structure, and retarding capital growth will hinder the advancement of the productivity of labour. so the poor and relatively unskilled will not earn as good wages in the future if they grab what they can from the capitalist today. – thats the short version
I would like to address only your side note, since I feel there are plenty of others who will respond to your question on minimum wage. You ask “wouldn’t the market always keep it below $10, because the business man has to make a profit, not just break even?”
The answer to your question is yes. Bohm-Bawerk explained that there will always be the element of time in production, whereas labor gets its wages well in advance of the revenue from the goods they produced, the capitalist must wait, and thus there will be a discout to the wage, such that: Wage= MRP-(discount from time). Rothbard has some good writings on this, as well as in his lectures.
How can a senator know what someone should be paid? You make $0/hr when you work in your yard. Shouldn’t you pay yourself minimum wage? Is it fair to make yourself work for anything less? If you shouldn’t have to pay yourself a min wage, why should someone else?
This seems to be correct. Just as protectionism helps an inefficient industry in the short run, so too would a minimum wage help the worker who doesn’t earn their DMVP. But, just as protectionism harms all parties in the long run, including the protected industry, so too would a MW harm all parties, including this worker, in the long run. The cost of the MW bureaucracy, distortions in the capital structure, increased job competition, etc. would all make this into a negative-sum game.
Of course, we have to take into account all those people who are hurt by the MW: workers whose wages are higher than their DMVP, workers whose DMVP is lower than the MW, employers, etc.
And as Morty pointed out, it would be practically impossible to do this.
Block points out that there are two factors influencing the tendency for wages to equal DMVP. First, employers bid up wages in competing for employees. Second, employees can seek out higher wages themselves.
If their wage is truly five dollars an hour lower than MRP, then they should easily find employment in a company where they are payed MRP. You fail to think of the bargaining power of the worker. The worker’s bargaining power is determined by the value of his services and the only determinate of his MRP is the maximum price he can be hired at.
It’s simple macroeconomics. If the demand is high enough for this man’s supply of labor he will receive a wage of $10 an hour. Wages are no different from any good or service one can purchase with respect to this. The supply and demand determine the price(as they should), by maximizing productivity and eliminating inefficient surpluses and devastating shortages.
To determine the price of this man’s labor any other way is to reduce overall productivity which is harmful to the consumer and the producer. Minimum wage can only result in a net loss for the economy.
Productivity benefits everyone, not just the rich.