Economics Questions

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

BrianAnderson — Mon, 24 Jan 2011 00:33:25 GMT

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.

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.

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

econ_n00b — Sun, 23 Jan 2011 20:04:14 GMT

Thanks all for the responses.

And thanks in particular for the pointers nirgraham, this is exactly the kind of thing I was hoping for.

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

AJ — Sun, 23 Jan 2011 11:20:22 GMT

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.

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

Sieben — Sun, 23 Jan 2011 03:30:48 GMT

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).

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

Stranger — Sat, 22 Jan 2011 23:40:05 GMT

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.

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

Isaac "Izzy" Marmolejo — Sat, 22 Jan 2011 21:04:54 GMT

@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.''

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

nirgrahamUK — Sat, 22 Jan 2011 20:58:45 GMT

http://mises.org/journals/qjae/pdf/qjae10_2_2.pdf

As Murray Rothbard argued, the problem of multi-employer monopsony (or as he

more properly labeled it, oligopsony) is an imaginary problem. As long as

there are competing employers, and it doesn’t matter how many, wages of

workers will be driven toward their value of marginal products. The distinction between the supposedly infinitely elastic supply curve of perfect competition and the upward sloping supply curve of a multi-employer real-world

labor market is at the heart of the welfare implications drawn from old and

new monopsony theories

For more and harder:http://mises.org/journals/scholar/block12.pdf

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

z1235 — Sat, 22 Jan 2011 20:54:45 GMT

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?

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

econ_n00b — Sat, 22 Jan 2011 20:31:25 GMT

What is "insufficient" competition

Competition insufficient to drive wages towards marginal product level (or just very slow in doing so).

why would it be seen as a problem in need of a (albeit "carefully applied") solution?

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).

Re: Minimum wage as a fix for insufficient competition between buyers of labour?

z1235 — Sat, 22 Jan 2011 19:26:13 GMT

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?

Minimum wage as a fix for insufficient competition between buyers of labour?

econ_n00b — Sat, 22 Jan 2011 19:17:18 GMT

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)