I argued this:
2. Businesses in a free market have to compete for labor because labor is needed for every business and is thus the pre-eminently scarce good. Therefore, the business will have to outbid other businesses for their labor. This is the lower limit on wages. In addition, the wage must outweigh the disutility of labor which is present in every human being.
My friend argued this;
"There are not unlimited businesses. They are tied directly to labor and are therefor just as scarce. The labor will have to outbid each other to be employed by the business (continuing to receive a wage/continue to live), undercutting each other. "
This seems so wrong but i can;t quite place why.
Well he's halfway right, but also businesses will have to outbid eacher in order to attract workers... So there are two competitions going on there...
But if you are implying that he used this as a justification for minimum wage, than that is wrong. When you have min wage (price floor) labor can no longer compete for certain jobs.
Any businesses that would offer jobs where the output (dollar value/hr) is less than the minimum wage are eliminated.
miksirhc:I argued this: 2. Businesses in a free market have to compete for labor because labor is needed for every business and is thus the pre-eminently scarce good. Therefore, the business will have to outbid other businesses for their labor. This is the lower limit on wages. In addition, the wage must outweigh the disutility of labor which is present in every human being. My friend argued this; "There are not unlimited businesses. They are tied directly to labor and are therefor just as scarce. The labor will have to outbid each other to be employed by the business (continuing to receive a wage/continue to live), undercutting each other. " This seems so wrong but i can;t quite place why.
Time will tell
miksirhc:They are tied directly to labor and are therefor just as scarce.
tim:You're both right. That's why prices tend toward an equilibrium (which is always changing but this is another story)
In a sense I would also agree with that. There is competition from both sides.
However there is another aspect (and perhaps even more) to it:
That gives the businessmen more power then the worker during negotiating wage agreements.
Torsten: However there is another aspect (and perhaps even more) to it: Businessowners tend to have more resources. They can wait longer before closing an agreement. Workers are usually short on resources, they need to close a contract more urgently. That gives the businessmen more power then the worker during negotiating wage agreements.
That must be why new employees give business owners signing bonuses, so that the work relationship can be established quickly. Tongue firmly in cheek. If you ever sat at the other end of the table during an interview, you'd know just how time is money for a business. All the rent on the capital has to be paid even if the worker is not found yet.
If you ever sat at the other end of the table during an interview, you'd know just how time is money for a business. All the rent on the capital has to be paid even if the worker is not found yet.
That's not only a great point, but it even clarifies the parallel between this argument (which I sometimes waver before) and "predatory pricing." In both cases, the "big guy" is supposedly willing to eat losses in order to defeat the "little guy," expecting to recoup those losses in the future. Before reading your post, I didn't clearly appreciate that the same objection applies to both cases: the future is too uncertain to play that game.
--Len.
Inquisitor:Since firms must also compete and will inevitably bid their product costs down, why not guarantee them a minimum price? If it's alright for workers...
Exactly! And thus we have antitrust laws "protecting" us from "monopolists" and their "price gouging," by outlawing low prices.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Juan:Ha. I didn't realize - that's an elegant way to describe 'antitrust'.
Walter Block has a favorite joke that sums it up well. Three convicts in a cell fall to talking about their convictions. The first says, "I was charging more than my competitors, and they accused me of gouging." The second says, "I was charging less than my competitors, and they accused me of predatory pricing." The third says, "I was charging exactly the same as my competitors, and they accused me of price fixing."
ok, here's another question I've been wondering about. Obviously, businesses will not pay a wage higher than the marginal productiviy of the workers, so if a minimum wage is higher than the marginal productivity of a worker than that worker sill become unemployed. However, how do we know if there are workers out there whose marginal productivity is less than the minimum wage?
how do we know if there are workers out there whose marginal productivity is less than the minimum wage?
To a first-order approximation, you know by checking whether anyone makes less than the proposed wage. (Of course that's only an approximation, b/c wages at a given moment only approximate the worker's marginal revenue product.)
But workers aren't paid their MP, businesses pay them however much they need to in order to take workers away from other industries. This could be no greater than the MP, but if it were equal to the MP, then the business wouldn't make a profit on that worker.
miksirhc: But workers aren't paid their MP, businesses pay them however much they need to in order to take workers away from other industries. This could be no greater than the MP, but if it were equal to the MP, then the business wouldn't make a profit on that worker.
You're absolutely right. The profit margin on an individual employee is often unknowable--much as employers would wish otherwise. Wages are still about the best estimate of MP available, though. If there's a dramatic disparity between wages and MP, it will be bid away shortly after its discovery.
It seems wrong because it is wrong - there most certainly are unlimited businesses. The number of businesses are limited only by the imagination. Ever have an idea for a business opportunity, but lacked the capital and labor to make it anything more than a pipe dream?
If businesses are tied directly to labor, what happens when that business begins utilizing a labor saving process? Does that business become smaller? of course not - the business actually grows, because the labor that was saved can be allocated to other areas.
A business exists regardless if there is labor to operate the business or not. The labor allows the possibility of profit. Without labor, you have non-operating businesses which generate zero profit and zero loss.
Something that most people don't realize is that a wage is literally the price for labor. Laborers offer their service for sale (or rather rent), and the ones who charge the least are the more likely to be hired. When they are forbidden to charge below a certain rate, all those who don't have the ability to compete at the higher price will simply go out of business, that is, become unemployed.
The fact is that not every laborer sells the same quality service. Some of it is downright crappy. And there are those who simply do not have the ability to do better - the uneducated, the retarded and otherwise disabled, immigrants who can't speak the language of the land well, etc. A minimum wage GUARANTEES that most of those people will be unemployed.
But if people are able to rent their labor at a rate befitting the quality of service offered, there is no reason why they won't be employed, even if they have to accept a lower rate of profit in return (i.e,. a lower wage).
And once full employment is reached, labor becomes scarce, and the price of labor (wages) will rise naturally. Sure, full employment isn't guaranteed in a non-minimum wage economy, but when there is a minimum wage, unemployment IS guaranteed. And that ensures that labor is perpetually in surplus, which hampers the natural raising of wages that would occur otherwise.
Pro Christo et Libertate integre!
miksirhc:But workers aren't paid their MP, businesses pay them however much they need to in order to take workers away from other industries. This could be no greater than the MP, but if it were equal to the MP, then the business wouldn't make a profit on that worker.
Be careful, businesses can and do pay their workers more than their MP. They would simply be incurring a loss. The law that wages are eqaul to their MP only applies to the hypothetical construct of the evenly rotating economy or long run equilibrium. Since the long run is never attained workers wages will never equal their MP but rather tend towards a perpetually changing MP in accordance with consumer demand.
So wages can be greater than or less than their MP; in fact, they must be, otherwise there would be no incentive for entreneurship and all activity would cease. Remember, if one company is raking in the profits, then another company(s) is incurring a loss, or, at a minimum, a drop in profits. This probably means that part of that loss is a result of paying their workers more than their MP.
Be careful, businesses can and do pay their workers more than their MP. They would simply be incurring a loss. The law that wages are eqaul to their MP only applies to the hypothetical construct of the evenly rotating economy or long run equilibrium.
Right. Also, we should bear in mind that a business can carry an overpaid worker indefinitely, as long as the company continues to show a net profit. The fact that workers are fired proves that, previous to their firing, they weren't producing value at least equal to their wages. Some underproducers are never caught--they're just carried by their more-productive coworkers. The success of Dilbert attests to that.
Remember, if one company is raking in the profits, then another company(s) is incurring a loss, or, at a minimum, a drop in profits.
Not necessarily. The economy isn't a zero-sum game, so it's theoretically possible for everyone to profit. Environmentalists convert this to a zero-sum game by arguing that man's profit is nature's loss.
Len Budney: Not necessarily. The economy isn't a zero-sum game, so it's theoretically possible for everyone to profit. Environmentalists convert this to a zero-sum game by arguing that man's profit is nature's loss.
I think I'd have to disagree to a certain extent, atleast with regard to the capitalists.
I'm not saying that exchange involves a zero-sum game, otherwise it wouldn't occur!
But in a monetary economy I don't think it's possible for every producer to simultaneously make a monetary profit. The cash receipts producers take in, by definition, can only come from what they pay out. It makes no sense for all producers to simultaneously receive more than they paid out, where would the extra come from!
Now, technically speaking, almost all producers never make a loss, as their next best oppurtunity besides selling their product is simply using it, and in a specialized economy, direct-use value for products of producers is near 0. Consequently, the oppurtunity cost of selling will almost never be less than its marginal utility, so that sellers will almost never incur a loss, at the time of sale.
But in monetary terms, firms can certainly incur a loss and in fact, it's nonsensical to say that all could simultaneously make a monetary profit. It's wrong to use zero-sum game in most aspects of economcs. But when talking about money, for the sake of simplicity, we often assume there's a set amount, and accordingly, there is a zero-sum game in that regard.
edward_1313:. . .in a monetary economy I don't think it's possible for every producer to simultaneously make a monetary profit. The cash receipts producers take in, by definition, can only come from what they pay out. It makes no sense for all producers to simultaneously receive more than they paid out, where would the extra come from! Now, technically speaking, almost all producers never make a loss, as their next best oppurtunity besides selling their product is simply using it, and in a specialized economy, direct-use value for products of producers is near 0. Consequently, the oppurtunity cost of selling will almost never be less than its marginal utility, so that sellers will almost never incur a loss, at the time of sale. But in monetary terms, firms can certainly incur a loss and in fact, it's nonsensical to say that all could simultaneously make a monetary profit. It's wrong to use zero-sum game in most aspects of economcs. But when talking about money, for the sake of simplicity, we often assume there's a set amount, and accordingly, there is a zero-sum game in that regard.
However, those firms that take in a lot of profit tend to divert their gains into r&d, which results in more efficient production, from which a higher standard of living inevitably follows.
Perhaps it is a zero sum game, ceteris paribus, and only looking at the profit margins of the competing firms. But on the whole, production is a positive-sum game.
But in a monetary economy I don't think it's possible for every producer to simultaneously make a monetary profit. The cash receipts producers take in, by definition, can only come from what they pay out.
The loophole you're overlooking is that prices can fall. Adding wealth to the economy tends to drive prices down. All other things equal, that literally benefits everyone: the money in your pocket gains purchasing power while you lounge in the back yard. For this discussion, "monetary profit" is not a useful concept. In times of hyperinflation, it's possible that everyone is profiting immensely in monetary terms--even while many starve to death.
MacFall: However, those firms that take in a lot of profit tend to divert their gains into r&d, which results in more efficient production, from which a higher standard of living inevitably follows. But on the whole, production is a positive-sum game.
But on the whole, production is a positive-sum game.
I agree in totality.
Len Budney:The loophole you're overlooking is that prices can fall. Adding wealth to the economy tends to drive prices down. All other things equal, that literally benefits everyone: the money in your pocket gains purchasing power while you lounge in the back yard. For this discussion, "monetary profit" is not a useful concept. In times of hyperinflation, it's possible that everyone is profiting immensely in monetary terms--even while many starve to death.--Len.
In general you are completely correct and I utterly agree. For one thing, I was assuming that the money supply was held constant, so hyperinflation wouldn't be possible. Secondly, I was not looking across time.
Last, just to clarify your statement; when an economy creates wealth, thus causing prices to fall, in order for that process to be ignited, money must be taken away from present consumption and diverted towards future consumption, i.e, the production of capital goods.
All I'm saying is that if, say, Bob pays out $5 to his one employee (his MP in the ERE) and his sales suddenly amount to $10 then that extra $5 came from someone else who hadn't been spending that $5 there before. Accordingly, someone else is now not receiving that person's business. Whatever that business was, it now has $5 less and consequently, has over paid his employee(s), capital goods, or land, $5 more than their MP.
This is all that I was saying. I think you're grossly misinterpreting what I'm saying and thinking it to be something that it is not.
First of all, I am pretty sure it is impossible for every business to increase in wealth at the same time. The reason being competition. Once one business in an industry becomes more efficient, then for a time period, the rest of the businesses in the industry will lose business to the more efficient business until they are able to catch up. However, the economy as a whole has increased in wealth, because costs have gone down for that industry. Meaning that now, instead of two people having to pay $10 between the two of them, now they only have to pay $8 between the two of them, and they can still spend a $1 each on some other industry.
So it is definitely not a "zero-sum" equation. Efficiency leads to capital, which leads to investment, which leads to efficiency, which leads to capital, etc., etc.
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
Funny thing, I just had an inconclusive exchange with somebody on this....
Here the first mail:
Dear Friends, Does anyone have any first-hand knowledge of Georgian or EU labor law? I have a question about employers requiring work without pay. The Universal Declaration of Human Rights states, "Everyone who works has the right to just and favourable remuneration..." Slavery was abolished in Russia in 1860. In America, the 13th Amendment abolished slavery and indentured servitude in 1865; my guess is that Federal and state statutes prohibiting employers from requiring hourly workers to work without pay are universal. One Georgian lawyer tells me that there is nothing in Georgian law to prohibit an employer to require one or more month's of work without pay as a condition of employment. Theoretically, I can advertise for workers in my factory, choose two or more in a competition, designate them as "interns," or "probationary," pay them nothing, and then fire one or all after a period free labor. Presumably, I could do this time and again and have free labor for the whole year! I don't know about Georgian law, or EU law, but this so obviously immoral that I cannot believe it conforms to any civilized system of law. Sincerely, ---My reply: I'm not sure it is immoral, provided several conditions are met:1. The employee is free to leave any time.2. The employer has informed the employee that he may not be employed at the end of the 'trial' period, but that the relationship may be terminated. If these two conditions are met, I do not see anything immoral in a relationship that was entered into freely, knowingly under these conditions. The employee can then decide whether he sees this as a risk worth taking. Such jobs, in various forms, exist in many countries, including Canada. I don't see why there should be laws against this - unless you want to legislate 'being nice'.Cheers, ----the answer:In labor relations classes, we teach something called "countervailing power." That concept is at the heart of the National Labor Relations Act. The "immorality" charge comes from the obvious imbalance of power and the exploitation of that assymetry. "Would you like to work under these unfair conditions? No? OK. Goodbye. Next!" Grapes of Wrath should be required reading for all of us. ---my reply (since then, nothing) I do not doubt that this is what is taught in labor relations classes. The choice for the employee here, however, is simple: no money or ... no money. If he takes the job, he has no money, but if he does not take it, he also has no money. Accepting the job for the time being may be to his advantage, since he may in this manner acquire new skills, meet new people, learn something completely unexpected, have at least something to put onto his resume - as opposed to 'unemployed'. What also has to be considered is the reasons why the employee is in this situation: how is it possible that he is in a situation that he has so little to offer to the labor market that employers are not willing to pay him anything? Is it the employers fault that the individual in question has no skills worth money? Simple economic thinking would tell one that the fact of marginal cost and benefit apply even in this situation. The evils described in the Grapes of Wrath stem almost exclusively from the intervention of the state into the labor market: I'm not even beginning to discuss the monetary system that caused the Great Depression, but I simply focus on the fact that police (state) power was used to fight those who did something as simple as express their discontent with the situation. Obviously, had the state not intervened in the situation between the employers and the employees, the outcomes would have been very different. What we are dealing with here is a situation where marginal workers are not able to find anybody willing to pay for their labor. No law can change that - they would still not be able to find somebody to pay for their labor - their skills are not worth any money. After all, would you claim the the old women who sell fruits on the market, but can't find a buyer are in a situation where the state should force people with appetite for apples, but no interest in buying them, should have to pay for them? After all, the old woman really is in no position to do anything about people willing to eat apples for free, but not willing to pay for it. Anybody willing to work for free does so for a reason. Anybody willing to give apples away for free does so for a reason. People willing to eat apples that are given to them for free should not be forced to pay for them anymore than people who are willing to employ labor that is given to them for free. ---
That's usually true, but not necessarily so. For example, I can wander into the wilderness with nothing but a knife, and come back with a buckskin sack full of gold. People usually don't do that, because it's more efficient to start with existing capital.
JimS:That must be why new employees give business owners signing bonuses, so that the work relationship can be established quickly. Tongue firmly in cheek. If you ever sat at the other end of the table during an interview, you'd know just how time is money for a business. All the rent on the capital has to be paid even if the worker is not found yet.
I happen to have sat on both sides of the table. Did you have evert sat on any side of the table during job interviews?
If your comment was meant as a refutation, it was quite a silly failure.
Someon that doesn't have money won't pay signing bonusses, because he doesn't have that kind of money at all. He will rather consider making concessions in terms of the agreement. Businesses rarely have to fill in all positions at once.
It may differ from industry and socio-economic situation. But an established business owner (for that matter his HR-Manager) who has a running income will always be in a stronger position then a work seeker that doesn't know how he is going to pay for his rent or food the next day.
MacFall: The fact is that not every laborer sells the same quality service. Some of it is downright crappy. And there are those who simply do not have the ability to do better - the uneducated, the retarded and otherwise disabled, immigrants who can't speak the language of the land well, etc. A minimum wage GUARANTEES that most of those people will be unemployed.
Don't worry. Congress is always there to supplement the ill effects of a minimum wage with an anti-discrimination law.
Diminishing Marginal Utility - IT'S THE LAW!
Of course, most employers don't even know what MP is, this is strictly a microeconomic assumption for the sake of theoretical analysis.
In reality, wages are based on several factors, varying with different sectors and so on.
The minimum wage in the US, as I understand it, basically has no real effect (except in rare cases) on wages since natural wages are higher than the minimum (thus, some economists argue, a rise in the minimum wage would have no real effect).
In other places, where unions are strong - wages are based on such agreements, where representatives of employers and employees agree (after hours and hours of arguing) on a certain min. wage rate plus various benefits).
Unions, of course, plays a crucial role regarding unskilled labour. But for jobs requiring advanced skills, the opposite is most often true - employers compete for the workers, offering high salaries and good benefits (meaning: supply and demand is what matters).
However, in practice, there are no good ways of telling how "productive" a worker may be - so there's no way to use the productivity criteria in setting the wage. All they know is that they need this particular experise, and will then try to pay enough so to attract somebody with the demanded skill.
And how do they do this? Yea, basically look at what other employers pay workers with similar jobs and levels of education. A kind of industry average. Some argue that, in the case of women on average being paid less than men, the rule of thumb is that women is a less secure "investment" - meaning that they more often quit their job due to having children, moving away with their husbands, caring for the elders and so on (known as the glass-cieling theory), and therefor must be paid a lowe wage - regardless if a particular woman employed will actually have kids or leave.
It's similiar to advertising - in an interview, a quite well-known Swedish advertiser said that roughly 50% of advertisment costs is a loss - the problem is that you'll never know what 50% accounts for the loss so you'll just have to go for the whole thing, it all adds up in the end anyway.
I'm thinking of trying this argument on the next statist I argue with over the
MW:
Tell him to imagine a government that wanted to use its power for evil
purposes instead of good. Never mind why, I would tell him, just imagine it.
Now imagine that these politicians wanted to think up a law that will hurt
low-wage workers, say, hamburger flippers, causing them to get laid off.
Again, never mind why they want to do this, they just want to.
Then they come up with a brilliant piece of legislation to do just that: This law
will make it illegal to hire anyone below a certain wage. In setting this
legally mandated wage floor, they make sure it is higher than the wage the
flippers are currently being paid. The politicians reason (correctly, for a change)
that the business will not be able to afford the higher mandated wage, and the workers
will have to be let go, putting them out of work and accomplishing their evil goal.
Then I would ask the statist, do you really think this law would backfire and have the
unintended consequence of making the hamburger flippers better off? Then I would say,
if you still believe this, then you do admit that a law can indeed backfire and cause consequences
beyond what the law was originally designed to do. So how can you be so sure that the minimum wage
law that you advocate doesn’t backfire and have the unintended consequence that economists
say it brings about?
At least you could argue to a clear stalemate this way, which is sometimes the best one can accomplish with a statist
—and possibly get your foot in the door for more.
All you will achieve is that you agree to the nonsensical statement of minimum wage making people better off. Only the most idiotic and stupid person can deny that laws have unintended consequences. You want to argue economic logic, not human fallibility. The minimum wage does NOT work to the advantage of marginal workers, even IF there was no unintended consequences. Your argument starts off perfectly well, because you talk about what the law really will accomplish. What you end up arguing is that laws always achieve the opposite of what we want them to do. Which means that if we made it a law that everybody could just randomly kill whomever he wants, the unintended consequence would be that suddenly nobody murders anybody anymore.
Not logical.
Sorry - stick to the first part of the argument, namely that an evil government would do exactly what you propose (hell, maybe that IS what's going on?)
What about laws of minimum profits for businessowners ?
dietwald: All you will achieve is that you agree to the nonsensical statement of minimum wage making people better off. Only the most idiotic and stupid person can deny that laws have unintended consequences. You want to argue economic logic, not human fallibility. The minimum wage does NOT work to the advantage of marginal workers, even IF there was no unintended consequences. Your argument starts off perfectly well, because you talk about what the law really will accomplish. What you end up arguing is that laws always achieve the opposite of what we want them to do. Which means that if we made it a law that everybody could just randomly kill whomever he wants, the unintended consequence would be that suddenly nobody murders anybody anymore.
The only thing that I can think of one could do is having an institution which could give wage guidelines.
I think that a comparative demonstration of the policy would drive the point home quite well.
Start out your discussion by assuming that the minimum wage does help poor people. Then go about showing that if someone wanted to hurt poor people, enacting a minimum wage to reduce the income of poor families would be an effective way of doing that.
The initial assumption cannot be reconciled with a demonstration that a minimum wage disemploys low skill and entry level workers.