Is the following correct?
If competition between buyers of labour was low enough, wages would not be 'bid up' towards marginal product level of its sellers. In this situation it's possible that the introduction of a minimum wage law would not result in any additional unemployment, since the marginal product of all affected workers may be above the minimum wage level (although their previous wages were below it).
If this is true, then advocates of minimum wage can claim that min wage, carefully applied, can function as a market 'correction', that may fix a problem caused by insufficient competition between buyers of labour.
Ignoring the practical difficulties of determining whether competition is low enough that min wage would help more than hurt, Is this defense of minimum wage law sound?
(Any references for further reading apreiated too)
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
econ_n00b:If this is true, then advocates of minimum wage can claim that min wage, carefully applied, can function as a market 'correction', that may fix a problem caused by insufficient competition between buyers of labour.
What is "insufficient" competition and why would it be seen as a problem in need of a (albeit "carefully applied") solution? Does a "carefully applied" minimum price for Yugo cars exist which would similarly solve the "problem" of insufficient competition between their buyers?
Z.
What is "insufficient" competition
why would it be seen as a problem in need of a (albeit "carefully applied") solution?
econ_n00b:Possibly because of a desire for there to be a situation in which workers are able to get something approaching a 'fair' price for their labour (ie. a price that comes close to their marginal product).
1. Whose desire? On what basis would a seller's desire (for a higher price) take precedence over the buyer's desire (for a lower price) of a voluntarily exchanged product (in this case, labor)?
2. How would establishing a minimum Yugo price by fiat (force) help the Yugo sellers get "something approaching a 'fair' price" for their product?
@econ noob
Lets assume what you said in the first paragraph as true. Why would we need a minimum wage as a ''market correction'' because of insufficient competition? The market, when freed, just doesn't provide ''insufficient competition'' because the market never fails. The only reason I can think of that causes this ''insufficient competition'' is by some institution intervening in the market to cause lower investment, thus cause this ''insufficient competition.'' So why rely on the same institution to offer a solution when they are in fact the problem to this whole mess? If one really wants a solution to ''correct the market'' one would advocate more investment by deregulation of that intervening institution. The increase of investment, cases more businesses to rise, eliminating this ''insufficient competition.''
My Blog: http://www.anarchico.net/
Production is 'anarchistic' - Ludwig von Mises
Given a fixed supply of capital, capitalists will always hire the most productive laborers at high wages and leave the others unemployed. A minimum wage results in reduced investment in capital over the long run.
For this reason "competition" between buyers of labor is irrelevant. Even a single employer benefits from hiring the whole supply of labor so long as it is profitable for him to add more capital goods to employ with laborers.
The fallacies of intellectual communism, a compilation - On the nature of power
If there were insufficient competition among employers, raising the minimum wage would increase the "monopoly price" for consumer goods proportionately assuming that poor people work to produce things for other poor people (walmart, etc).
If the problem is caused by another law, then in theory it could help by undoing some of the negative effects of that other law, but it's highly unlikely. The only way a state regulation can ever help is if it substantially undoes the ill effects of another much more harmful state regulation.
Why anarchy fails
Thanks all for the responses.
And thanks in particular for the pointers nirgraham, this is exactly the kind of thing I was hoping for.
There is really no reason for there to be insufficient competition unless people are lazy. If someone sees an opening in a certain field of the economy, they'll jump in to compete. The government can't "carefully apply" minimum wage laws to a specific field. Even if they did, prices would still rise, and, if the goods from that field are absolutely needed by consumers, they'll have to spend just that much more money on the necessary goods and won't have any money leftover to go shopping or something, so the unemplyoment rate in retail may drop.