Mythology of the Minimum Wage
Once again politicians and pundits are calling for increases in the legal minimum wage. There are a few economists who have been leading the charge for higher minimum wages. Some of these economists have obvious ideological leanings. Some others do not but are very confused about how to read the evidence concerning jobs and wages. FULL ARTICLE
Comments (60)
Angelo
Oprah had a show about this recently with Morgan Spurlock. It was incredibly, unbelievably, moronic, totally absent of a single mention of economic considerations, and was full of self-congratulations for being moral.
Published: May 3, 2006 9:28 AM
Bill Dowis
The advocates of the minimum wage are the same group of despites who through their operatives have the American public beleiving there exists GDP growth while the federal budget hurdles out of control.
It is also this group that promote the drone of the USA being a wealthy naotion: Please stop with the nonsense now and begin paying back the enormous debt you we have incurred as this is the ONLY viable path the freedom; if it is not too late.
Published: May 3, 2006 10:04 AM
Chris Hofmann
MacKenzie missed a point on Card and Krueger's study on minimum wages in the fast food industry. Their methodology was never questioned by the press but soon after a group of economists looked into it. They found that Card and Krueger simply called the fast food establishments and asked if they "plan" to fire any employees as a result of an increase in the minimum wage in New Jersey. Many of them said no. When this group of economists went back and looked at their books once the minimum wage went into effect, they found that employment did in fact decrease as a result. Suffice it to say, no one was surprised by the lack of sound methodology by two Clinton economists nor by the silence of the press and academics once the report was discredited.
Published: May 3, 2006 10:14 AM
Daniel M. Ryan
If worst comes to worst, there's always the snap-to question:
"Why not raise the minimum wage to $20 an hour? After all, the worst that could happen would be a marked increase in diversity in America."
Published: May 3, 2006 10:31 AM
spencer
Since 1980 the real minimum wage has fallen by about 30%, yet the teen unemployment rate is still about the same as it was in 1980. If the minimum wage were the reason the teen unemployment rate was so high why hasn't this very large fall in the real minimum wage generated a drop in the teen umemployment rate.
Interestingly, the correlation between the real minimum wage and the teen unemployment rate is 0.06. This does not imply that there is much of a causal relationship.
Published: May 3, 2006 10:43 AM
R M Vance
Maybe I missed it, but in my reading of the article I did not see where the connection between minimum wages and higher unemployment rates for lower-aged members of certain groups was proved. How is it known that "minimum wage" is a cause, let alone a major cause, of those unemployment rates?
Published: May 3, 2006 10:47 AM
iceberg
I've been there before, trying to preach that minimum wage is a disastrous policy, but the 'slippery slope' argument pleases no one in the crowd.
What I mean is that if you ask them, "Why not $20, $50, or even $100 per hour", the most you will get from the MSM-fed sheeple is "Come on, you have to be reasonable" or something to that effect.
I believe that this attitude stems from the thought that consistently holding to firm principles is not as desirable as appearing to be moderate, and generally cool-headed.
I think I get more mileage arguing from morality, not economics, and use the economic reason as the icing, if they already are agreeing with the moral reasons.
Anybody care to agree or disagree?
Published: May 3, 2006 11:08 AM
banker
Law of Supply and Demand.
If the minimum wage is below the going market rate, then there is no change in Qd (jobs available) and Qs (people wanting work); Qs=Qd. If it is higher than the market rate, then Qs>Qd. That means there will be more people looking for jobs than there are jobs available. This is the definition of unemployment.
If you don't believe in the laws (not theory) of supply and demand, then there is no basis for a civilized discussion. Something so basic in economics seems to be lost on most people when they talk about minimum wage or any other price control law. How interfering in the private business transaction between two people is helpful is simply beyond my comprehension.
Published: May 3, 2006 11:30 AM
Doug MacKenzie
I would like to point out to spencer that even a correlation coeficient of .99 does not imply causation. Correlation NEVER implies causation. Also, I find the 0.06 claim suspicious. Most of my work on wages focuses on industrial wages during the Great Depression. Real wages were 'procyclical' back then, and I have found significant statisitcal correlations between real wages and employment. As for more recent data, standard theory predicts that price floors (like those created by minimum wage laws) create excess supply. There is obviously an excess supply of teen and young adult labor. I think your 0.06 figure needs some scrutiny. I bet I could generate a 0.006 correlation, were I to torture the data long enough. I do not claim to have settled these issues once and for all. However, the claims that minimum wage laws cost very few jobs, and that these jobs are unimportant, derive partially from personal value judgments and do not fit the stats that I cite.
Published: May 3, 2006 11:36 AM
Paul Edwards
“I believe that this attitude stems from the thought that consistently holding to firm principles is not as desirable as appearing to be moderate, and generally cool-headed.�
I agree. This is the great gift that the MSM gives to those who get impatient studying a topic and are uncomfortable standing out, or opposing the masses. I have friends who believe they are objective and logical and that I am too emotionally wound up with the idea that the state is purely evil. (How can they say that about me?)
My conclusion is that most people don’t have the time to educate themselves and start thinking for themselves, much less the inclination to follow the arguments of a libertarian radical. They believe that if the press doesn’t object to something, or especially if it advocates it while moderately criticizing it, this it, whatever it may be, can’t be all bad.
My thinking is that only one in a hundred adults is capable of opening his mind to libertarian truths. So I sort of eased off. Instead, I read ethics, economics, logic and history to my kids for 40 minutes a day, every day I can, without exception. At least there will be three kids raised to think outside this box the state propaganda machinery attempts to keep us in.
This pays off. Last month my 13 year old indicated to me that she was not in favor of helping her friends add to a fund to buy rainforest land to keep the natives from developing it. She took that stand on the grounds that it bought land from a state that had not homesteaded it first and it would keep the land from native people with a legitimate right to homestead it. She argued that their friends should instead knock down their own houses and plant, and live in the trees. And this is all without prompting from me.
Now tell me this, what’s more gratifying and inspiring than knowing you’ve taught your kids some superb ethics that the rest of the world rejects without even comprehending them? The kids are where it’s at; let the old statists sit back and watch. Life is still good.
Published: May 3, 2006 12:29 PM
Paul Edwards
(that's "her friends" not "their friends")
Published: May 3, 2006 12:32 PM
Jim Waddell
Chris, you are correct. The key is that they looked at the hours worked, which decreased.
Published: May 3, 2006 12:36 PM
Lisa Casanova
Banker,
You're spot on about the laws of supply and demand. The crazy thing is, I've actually seen minimum-wage arguments where people make claims that go something like "Well, that whole supply and demand thing works in theory when you're sitting in econ 101 looking at pretty graphs. But in the real world of the labor market, it just doesn't work the way your neat little theories do." People really believe this, and so can convince themselves that raising the price of something will cause the quantity demanded to rise.
Published: May 3, 2006 2:43 PM
Yancey Ward
Sadly, there does appear to be one thing whose demand rises with rising price- Government.
Published: May 3, 2006 2:51 PM
Greg
Speaking of a "living wage," I am still trying to figure out how someone can earn a wage and not be living. Doublespeak.
Published: May 3, 2006 2:56 PM
M E Hoffer
In a tangent...
Iceberg (and y'all),
"MSM-fed sheeple"--The afore seems to be a rather large flock. Seriously, What's in it for them ?
Why are seemingly so many so willing to accept, without questioning, what's being handed to them ?
The old saw: "There are some serious Questions that need Answering!" really floors me, isn't that backwards? Rather: "There are the some Answers that need Serious Questioning!"
What says Ye ?
Back to the point: The whole Q of "Minimum Wages" falls within the Statist frame and amounts to a violation of the 5th Amendment, no?
Published: May 3, 2006 3:22 PM
spencer
Doug MacKenzie -- I agree with you completely that there should be a good relationship between real wages and employment. So all I am asking is why is there no relationship between the real minimum wage and the teenage unemployment rate.
My correlation is simply between the real wage and the teen unemployment rate since 1950-- just a simple straight forward relationship.
I understand the theory that the minimum wage causes teen unemployment and you are the one making the claim. I am just asking why the national data does not support the theory or your claims.
Published: May 3, 2006 3:23 PM
Dain
Paul, that is an awesome story about your daughter. To say she will be a thorn in the side of the clap happy state school save-the-rainforest crowd is to state the obvious. Good luck to her.
I have a question about the demographic effect of MW. Doesn't a raise in MW actually do more harm to single mothers, the working elderly and adult poor than your typical teenager? This isn't to dispute anything McKenzie said - his discussion of inter-teen disparities is spot on - but I think a sector of society that the state socialists herald, the truly down and out, are hurt even more than minority teens. Especially given the aging of the population.
Published: May 3, 2006 3:37 PM
Stefan Karlsson
The minimum wage is one of the few areas where Bush and the Republican congress have been good, as they have blocked repeated attempts by Ted Kennedy and other Democrats to raise it. As a result, the minimum wage is now much lower in real terms than it was just before the Clinton increase in September 1996 (when it was raised from $4.25 to $4.75, followed by an increase to $5.15 in 1997), meaning that the increase have in effect been repealed.
As for the teen unemployment rate which spencer asks about, it seems that teens in recent years have been much less interested in working as the data I saw on the BLS web site indicated a dramatic decline in teen employment levels in recent years ( from 45% as late as 2000 to 37% now). This means that the number of unemployed teens relative to population have in fact fallen, even though the number of unemployed relative to the employed have stayed roughly unchanged compared to 1980. Why teens have been less interested in working is not clear. It could perhaps be that schools have been more successful in persuading teens not to drop out of high school or it could perhaps be that illegal immigrants have replaced teen workers.
Published: May 3, 2006 3:53 PM
Paul Edwards
Dain,
I agree. The targeted victims of the minimum wage law are all the suppliers and demanders of unskilled labour who, if otherwise free to do so, would contract their work at below the minimum wage rate.
With this low skill labour market unhampered by legislation, it would clear. That is, there would be nobody unemployed, and no employer unable to find labour.
Instead, we have more laborers looking for work including single mothers than there otherwise would be, and fewer employers willing to hire than there otherwise would be.
spencer,
"So all I am asking is why is there no relationship between the real minimum wage and the teenage unemployment rate."
I can think of two possible explanations.
1. The minimum wage is too low to significantly influence employment figures of teenagers. It is not impacting this market because the market clearing price for teenage labour is higher than the legislated figure.
2. The government doesn't record teenage unemployment well enough to reflect the impact.
The cool thing about correct economic theory is it is necessarily correct. If there is a discrepancy between theory and statistics, it is because the statistics are either irrelevant or incorrect, 1 or 2 respectively.
Published: May 3, 2006 4:13 PM
happyjuggler0
There are other variables at work for teen unemployment than wages. Going way back and recalling my own days as a teen, I remember many of my classmates not getting a job during high school because they were going out for sports.
Other possibilities include increased desire and/or ability among urban blacks to get a better high school education than before, with improved college prospects via admittance or scholarships. The result of this in this group of teens is choosing to work at study rather than at a wage earning job. Call itthe more you learn, the more you earn taking effect. It doesn't have to be blacks either mind you, and increase in teen studiousness would do.
Take away a significant supply of labor, and the effect is lower unemployment for a group. The absence of job alternatives for teens such as school sports or desire to study instead, and you get a bigger labor pool of teens.
Just throwing it out there for food for thought. With adults the choices are more limited. Work, or get a handout, or starve/sleep in the cold etc.
Published: May 3, 2006 6:03 PM
Doug MacKenzie
Spencer,
I have not seen the study that you mentioned. I cannot explain a study that I have not seen. All the wage-employment data that I have run regressions on show that wage floors create excess labor supply. I find your claim that there is only a 0.06 correlation very suspicious. That is an increadibly low R-squared. It could well be that whomever ran that regression was out to make the case that minimum wage laws are OK. That is, I suspect data manipulation. Given that I have not seen the study that you mentioned all I can do is speculate, and that is my speculation.
Published: May 3, 2006 6:34 PM
M E Hoffer
Doug,
The analysis that came up with the 0.06 correlation was run on a Wintel pute powered by a P-III CPU. When this was brought to his attention, the good Dr. stated that he had not "the budget" to expend on a re-do due to the fact that his Grant had already run out. Pressed further, on the subject of academic integrity, he chalked it up as: "Good enough for Government work."
Published: May 3, 2006 11:33 PM
Robert Vienneau
Suppose wages and employment were determined by some mythical law of supply and demand. In applying such a theory in practice, one would have to account for practicalities, such as imperfections in competition, asymetric information, monitoring costs, etc. In other words, there's good theoretic support for those who Lisa Casanova opposes in her comment above.
Second, I'm not the first to realize economic theory does not support the claim that wages are not determined, in theory, by the interaction of well-behaved supply and demand curves. See my blog post linked to in my name.
Published: May 4, 2006 4:15 PM
banker
"Suppose wages and employment were determined by some mythical law of supply and demand."--quote
Wages and employment are determined by the individuals involved in those transactions through a very real negotiation. There is a reason it is called the LAW of supply and demand and not THEORY of supply and demand.
If an employer offers $100k/yr to clean the bathrooms in his restaurant he will get many applications. If he offers $1k/yr then he will get much fewer applications. This is your upward sloping supply curve (labor in this case). You should be able to figure out an example for the demand curve.
The law of supply and demand is hardly theoretical or imaginary. It is very real and if you pay close attention you can see examples of it everywhere. All you need to know about supply and demand curves is that supply slopes up and demand slopes down. Not very complicated.
Published: May 4, 2006 9:10 PM
Cosmin
I say government ideally shouldn't impose a minimum wage. When it does, it impacts, as this article and most of you have pointed out, on the supply of jobs.
However, I said "ideally", because real life is more complicated than that. Government impacts on the demand of jobs very much by limiting the opportunities for self-employment. It does so in many ways, like, for example, intellectual property laws, or enforced certification. I don't see many of you decrying this situation, which is unfortunate. As long as it does this, I feel it's reasonable that it imposes a minimum wage, and even raise it to a living wage, as to offset, even slightly, the harm it caused in the first place.
A real solution, though, would be for government to butt out completely.
Published: May 6, 2006 10:19 PM
Peter
Government impacts on the demand of jobs very much by limiting the opportunities for self-employment. It does so in many ways, like, for example, intellectual property laws, or enforced certification. I don't see many of you decrying this situation, which is unfortunate.
Then you must be blind (or deliberately avoid looking!)
As long as it does this, I feel it's reasonable that it imposes a minimum wage, and even raise it to a living wage, as to offset, even slightly, the harm it caused in the first place.
This makes no sense. You admit that a minimum wage does harm, and then suggest that it can "offset" other harms. So if I break your legs, which I'm sure we both agree would be a bad thing, you'd advocate breaking your arms as well, to "offset" the broken legs?
Published: May 6, 2006 10:37 PM
Cosmin
"Then you must be blind (or deliberately avoid looking!)"
My visual acuity notwithstanding, I've seen people argue a little too pasionnately in favor of government-enforced property privileges, even around here... Heck, the article made nary a mention of this counter-balancing phenomena. (Unless I missed it... I must admit I spaced out a bit while reading entire paragraphs full of useless numbers.)
"This makes no sense. You admit that a minimum wage does harm, and then suggest that it can "offset" other harms. So if I break your legs, which I'm sure we both agree would be a bad thing, you'd advocate breaking your arms as well, to "offset" the broken legs?"
You're the one not making sense. If you break my legs, what would offset that is me breaking your legs. That would raise my spirits. :)
If you had bothered reading 'till the end, I said it would be preferable to have none of the government intervention in the first place. No borken legs for anyone. The most unfair situation, though, is when government favors only one side of the equation. I don't understand how you can't see that as being worse than government apllying its weight to both sides equally.
Published: May 6, 2006 10:55 PM
Alan Dunn
You cannot apply the rules of supply and demand as they pertain to commodities / things to purposeful acting human beings.
The demand for labour is a derived demand and is completely different to that of other commodities.
Take any two persons in the same occupation and there is no guarentee that the person thats more skilled / productive will be the higher paid of the two. This is because wages are determined by a persons ability to bargain / sell their labour - not by their productive capacity or labour skills.
Thus, any notion that persons are paid according to their marginal products is a complete falacy.
In addition, the anti minimum wage argument also assumes that their is "no speculaive demand for money"... oh dear!
I am not for or against minimum wages because neither approach addresses the causes of unemployment.
What is known though is that never, and I repeat never has the economy closer approached full employment than since governments have intervened in labour markets.
Does this mean that I advocate government intervention - no it does not.
In an economy where private and public sectors co-exist the public sector through its monetary and fiscal activities probably exogenously determines the unemployment rate.
It is well documented also that the percentage of employment generated by the private sector has not changed much in the last 70 or so years, perhaps even longer - yet real minimum wages have continued to fall.
Wage price flexibility is a very shall we say newtonian / mechanistic concept and I cant for the life of me understand why Austrians in this case actually advocate scientism.
Say's Law is an equilibrium concept, and nobody has yet devised a way to explain how Say's Law can hold if speculative money demand is present.
The treating of a government and a household as being the same another fallacy of which the Austrians and Neo-Classical share.
Full credit to Mr. Bentham and freinds - the lie has become the truth so it would seem.
Cheers
Published: May 7, 2006 12:46 AM
Peter
There have been two threads just in the last couple of days about so-called "intellectual property". How can you still be ignorant of the writings of Stephan Kinsella, inter alia, on this subject? Same for licensing/certification requirements. You "don't see many decrying this situation" only because you choose not to: that's pretty much all anyone ever does on this site!! As for "government-enforced property privileges" for legitimate property: there's no reason to complain about government - or anybody else - enforcing legitimate rights. As long as the government exists, it acts to prevent private enforcement (e.g., there are fewer private security guards today than there would be if the government didn't provide police).
You're the one not making sense. If you break my legs, what would offset that is me breaking your legs.
Perhaps, but that's not what you're advocating. The minimum wage does harm to the same people most harmed by the other interventions you want to "offset". It's equivalent to me breaking your legs and then me breaking your arms, not to me breaking your legs and then you breaking mine.
I don't understand how you can't see that as being worse than government apllying its weight to both sides equally.
First, assume you weight 150lbs. When you apply your weight to something, you can only apply that much weight, however you distribute it. You can apply 150lbs to one side, or 75lbs each to each side. In your view, the government is applying 150lbs to one side of the economy. But what you're advocating, even in your own mind, is not that the government apply 75lbs to each side, but that it apply another 150lbs to the other side. That's worse, because more total weight is being applied.
Second, you're mistaken in thinking that the points at which you want to apply pressure are on opposite "sides". You want to apply twice as much weight, and you want to apply it to the same poor souls who are suffering under the existing weight. Minimum wage has very little effect on employers: they simply employer fewer people, or reduce the number of hours for which the same number of people are employed, or cut costs somewhere else. The people most hurt are the would-be employees, who can't get a job, or have to work fewer hours, and the consumers who pay higher prices for the decreased quantity and/or quality of goods produced - i.e., the very people the minimum wage supporters claim to want to help!
Published: May 7, 2006 12:57 AM
Doug MacKenzie
"What is known though is that never, and I repeat never has the economy closer approached full employment than since governments have intervened in labour markets."
This is demonstrably false. There are many studies showing that intervention IS the cause of unemployment. SOme of these studies are summarized here- http://mises.org/daily/1623
"Say's Law is an equilibrium concept, and nobody has yet devised a way to explain how Say's Law can hold if speculative money demand is present."
thisis also demonstrably false. There are several versions of Say's Law and you seem to be refering to the JS Mill version. See "Karl Marx and Say's Law" (_Quarterly Journal of Economics_, LXXI, November, 1957, 61-29 for a discussion of different interpretations of Say's Law. There are crude versions of Say's Law that assume equilibrium, but this does not apply to Mises and Hayek. Mises and Hayek deal with a world of disequilibrium and change. The strict equilibrium version of Say's Law (from JS Mill as I recall) is what Keynesians target because it is an easy target. Taking on Mises and Hayek is not so easy.
Published: May 7, 2006 7:01 AM
Cosmin
Peter, when I said intellectual property, it was as an example of what the government does today. As long as it does so, those who look for jobs are at the mercy of employers, whether you decry the situation or not. If you're calling for change in minimum wage laws, be aware that you'll need these changes to happen at the exact same time.
Then, you said: "As for "government-enforced property privileges" for legitimate property: there's no reason to complain about government - or anybody else - enforcing legitimate rights."
I say corporate property is not a right. It is a government-enforced privilege. This abomination has fewer opponents than intellectual property, around here, according to the feel I got about this place through some admittedly sporadic reading.
You also said: "Perhaps, but that's not what you're advocating. The minimum wage does harm to the same people most harmed by the other interventions you want to "offset"."
You are completely wrong about this. Minimum wage directly harms employers. They, in turn, transfer the harm to their employees. Thus, you could say minimum wage indirectly(!) harms employees. However, that can only happen when restrictions on self-employment are in place. If there were no such restrictions, minimum wage increases would not have any negative effect on those looking for jobs. Just on employers.
Published: May 7, 2006 11:20 AM
banker
A much simpler explanation for minimum wage law effects:
A minimum wage of $X per hour makes it illegal for anyone to work less than $X per hour. At first, this may seem to be a good thing. Just realize that there are some (or a lot) of jobs where employers are unwilling to pay more than $X per hour for certain work that needs to be done, while there are people who would be willing to work for less than $X/hr. This is what causes the unemployment.
Published: May 7, 2006 1:59 PM
Cosmin
Not surprised that such a simplistic argument comes from a banker...
"while there are people who would be willing to work for less than $X/hr"
How about: there are people who would be coerced into working for less than $X/hr, under penalty of death by starvation, through a system that denies them the opportunity for self-employment.
Published: May 7, 2006 3:14 PM
Fred Mann
Cosmin,
Do you believe that the assertions about the necessary effects of minimum wage are incorrect (i.e. raises unemployment). Or, do you believe that it is simply wrong/immoral for a person to work for below a certain amount of dollars per hour, even if they want to, and that these people should be forced onto welfare?
Published: May 7, 2006 3:57 PM
Cosmin
I thought I made my position clear. Minimum wage raises unemployment only in the context of a system that puts obstacles to self-employment. High rate of unemployment then depresses wages. Such a situation leads to exploitation.
Increasing minimum wage is the solution presented by government, but it is a false solution.
The real solution would be for government to stop favoring employers through its enforcing of unnatural property privileges.
Favoring one branch of the equation is the worst thing possible. Abolishing minimum wages without removing obstacles to self-employment means exploitation. Both things should be abolished at the same time.
Published: May 7, 2006 4:18 PM
Fred Mann
Cosmin writes,
"Minimum wage raises unemployment only in the context of a system that puts obstacles to self-employment."
Minimum wage raises unemployment in ANY and EVERY context. If the minimum wage was raised to $100 per hour, there would be a massive increase in unemployment!! Period.
This is true even if people had more opportunities for self-employment.
But if I'm reading you correctly, you *seem* to be implying that, in your scenario, people who are disemployed by minimum wage laws would all simply go into employment for themselves. Therefore, according to you, minimum wage could not cause an increase in unemployment because there would always be the escape-valve of self-employment.
But of course, unless EVERYONE is self-employed, there will always be EMPLOYEES who suffer from an increase in minimum wage. And, as an employee, your labor is only worth a certain amount of dollars to your employer. If the minimum wage is raised beyond this level, you will be fired.
So, in order for your statements to be true, you must be envisioning a world without employees. Or conversely, you must be envisioning a world comprised of 100% entrepeneurs.
Published: May 7, 2006 5:32 PM
Cosmin
Quite right, Fred. Everyone self-employed. 100% entrepreneurs, or partners, and 0% unemployed exploitables. THE HORROR!
Published: May 7, 2006 6:00 PM
Fred Mann
Cosmin,
Your world never has and never will exist, with or without regulations.
Not everyone is capable of, or interested in, being an entrepeneur (or an equal partner to an entrepeneur). Being an entrepeneur takes a great deal of discipline AND skill. Not everyone can do this. Not everyone WANTS to do this!
In the REAL world, there will always be someone offering to box up an item, deliver an item, answer a phone, etc. ... and there will always be someone offering a wage for these services. This is NOT exploitation, but mutual agreement.
Published: May 7, 2006 6:50 PM
Cosmin
There's more to the story, but perhaps this isn't the best place to get into it... ;)
Published: May 7, 2006 6:58 PM
Fred Mann
I can't think of a better place to get into it.
Published: May 7, 2006 7:12 PM
M E Hoffer
Fred,
Why does the phone answerer or box packer Have to be an employee? Didn't this whole model, of Corporate employment, derive itself from the Guildsman, and their Master/Apprentice model, of yesteryear?
Even the etymology of the term, employee, gives rise to the idea that they might as well be "cannon fodder". Having employees around, as Hayek so cogently foretold, is truly a threat to Liberty. There's a grand gulf between being "employed" and being productive, the former, ready, willing and able, to take orders, the latter quite right in asking "Why?"
Any wonder why the Gov't and its assembled mouthpieces are forever trumpeting the Employment rate, at the same time deriding those deemed "overly" productive?(price-gouging, anyone?)
Published: May 7, 2006 7:55 PM
Fred Mann
"Why does the phone answerer or box packer Have to be an employee?"
I'm not quite sure what you're asking here. Are you suggesting that organizations consist entirely of equal partners and that all duties will be shared equally by the partners?
I just need some clarification before I can answer.
Published: May 7, 2006 8:24 PM
quincunx
Cosmin, the investor serves at two important:
1) Risk-taking. 2) Time-waiting. The entrepreneur does both of the above and engages in organizational and decision making roles. They have to constantly readjust their behavior in accordance with the market.
Do you honestly believe that everyone is capable of the above?
Is it even possible to have division of labor if everyone is an entrepreneur?
Also, in a sense, isn't everyone already an entreptreneur? Everyone seems to do the above: risk-taking, decision making, etc. Now if that is the definition you like - then you don't have to argue it. However, if that were the case the word entrepreneur would be the same as human. Therefore entrepreneur must entail organizing other people who are either unwilling or unknowing in applying the above to the maximum extent - to satisfy as many consumers as possible.
Published: May 7, 2006 8:40 PM
quincunx
Cosmin,
BTW, the biggest reason why you think that people are 'coerced' into working or must starve is: public land. Most people choose to work, but those that don't want 'coersion' can just move to unclaimed land, if it wasn't seized by the state to begin with. About 1/3 of the land is undeveloped and yet has been seized by the state, and another 1/8 is developed but owned by the state. Another portion is privately owned but heavily subsidized. Another portion is privately owned but protected from foreign competition. That is just what the state does to restrict supply.
Published: May 7, 2006 8:51 PM
M E Hoffer
Fred,
Not necessarily "equal partners". Are not piece-rate workers professional "contractors" ?
and on like that...is what, I think, I alluding to.
"contractors" being operative
Published: May 7, 2006 9:16 PM
M E Hoffer
quin,
Good point about Land, if those holdings were unlocked by the State, it would provide a whole new richness to those long RE b/c: "They aren't making anymore of it."
Also, you mention: "consumers", Don't they come out of the same paradigm that utilizes "employees"?
If so, maybe as a corollary to Hayek's observation: "Consumers are a threat to Liberty."
Published: May 7, 2006 9:26 PM
Fred Mann
Cosmin,
M.E. Hoffer writes:
"Are not piece-rate workers professional "contractors" ?"
Does M.E. Hoffer's statement reflect your position?
If so, then you've established that you're not against one person employing another person, per se. As long as people are independent contractors or entrepeneurs, everything is okay.
If I'm interpreting your all-too-brief statements correctly, the problem arises when people become employed regularly by an organization, but are not equal partners? Is it better for people to have to constantly seek new piece work?
Are you against hourly wages, then?
If so, how would you solve the problem of the pizza-delivery joint that needs a phone-answering staff on hand every day for the life of the business? They never really know how many phone calls will come in. If the employee is paid by the call, business costs become very unpredictable. On the flip side of the coin, the phone-answerer has no idea if he will make enough to survive on any given day. Hourly wages serve to smooth out costs and add predictability to certain businesses.
Do you object to the pizza place having a regular staff for this, or should they have to retrain new people periodically?
Published: May 7, 2006 10:25 PM
Cosmin
I step out for a few hours, and that is when the conversation finally gets going... LOL
The reason I didn't want to get into it too heavily, it's because my "vision" attacks many aspects of economics life as we know it. Seen one by one, this may seem absurd, but actually it all makes sense when seen as a whole. I'll take a risk and try to give the short version:
First of all, unemployment is not natural. Unemployment arises naturally only when all needs are met. Since needs evolve constantly, this can never happen. Hence, unemployment is a ploy designed to favor exploitation.
All the situations that lead to unemployment arise from government. These include intellectual property, obligatory licenses and certifications, corporations, and even property, in some ways.
This last one, I might have to elaborate on, since it may scare some of you.
I participated in a vigorous debate about this here: http://blog.mises.org/archives/004849.asp My contention was that property rights are limited by what a person is using. In order for property to be limitless, or for it to be unnaturally exclusionary, it needs government to enforce it.
My opponents in that discussion wanted property rights to be limitless, although agreeing that one person owning all the land in a country and sitting on it to drive others to starvation would be bad, so their assertion was that such a situation "wouldn't happen". This claim was based on the idea that it would be more profitable to exploit the land and feed those people. This, to me is a lack of vision, since it's clearly more profitable to depress wages 1000 times, rather than double your profit by selling twice as much food.
They also wanted property to be exclusionary, as in: a company buys a mountain to extract gold, so I can't ski the mountaintops, even though I'm not interfering with their activity.
Luckily for me, a couple of articles came out later that supported my position: http://mises.org/daily/2106 and especially: http://mises.org/daily/2120 .
To wit:
"A Theory of Just Property: Homesteading
There are two fundamental principles upon which the libertarian theory of just property rests:
Everyone has absolute property right over his or her own body; and
everyone has an absolute property right over previously unowned natural resources (land) which he first occupies and brings into use (in the Lockean phrase, "Mixing his labor with the land")."
I would add that he forfeits right to said property when he stops mixing his labor with the aforementioned resource. (In other words, if he has to occupy it to claim property over it, he has to continue occupying it to maintain property rights.)
This other article I don't agree with: http://mises.org/daily/2108
While arguing in favor of an exclusionary type of property, it uses phrases like: "If all property in the United States were private...". That would be sheer hell! Can you imagine being "nickel and dimed" everytime you went anywhere? And you'd have to nickel and dime everyone else, as well, lest you "fall behind".
While property can naturally be exclusionary when there is simply no room for others, owners arbitrarily deciding to restrict someone else's access to unused resources is not natural and can't happen unless involving government.
Now that this is clear, and there are no obstacles to self-employment, let's tackle profits.
Profits are stupid. They can happen, but in a free and enlightened society, they wouldn't last very long. Profits can exist only when something new appears on the market. Without restrictions, however, competition installs itself quickly, and drives profits down to zilch. What usually happens today (even in a competitive environnement) is that the whole industry settles on a standard, an implicitly accepted profit margin. All industries act the same way. Profits are only of use to huge investors, though! Why? Because small investors eventually want to spend their money on consumer goods. When doing so, they pay more than cost, to cover the profits that go into their and their colleague's pockets. End sum = zero. Those not affected are those who don't use their profits to enable their consumption (usually because they simply can't consume that much). They reinvest this money into other things. This way, they decide which way development is heading. It's all about control at this point.
Now, having investment as the basis for development is idiotic. The investor doesn't necessarily know what's best. He's not an expert in the field. He merely brings money to the table. He will also work feverishly to maintain the status quo - since it is what brought him here - at least untill he figures out a way to exploit the newer (technological or otherwise) developments to his benefit.
What do I see as the basis for development? Consumption, by its limitless nature, will continuously spur on production. A great article on this topic is here: http://mises.org/daily/2079
To enable production to keep up, one only needs to have a money system that allows workers to spend money (for tools as well as personal consumption)before completing the produce their are selling. Such a money system needs no government intervention. Simply let them print ahead of time money, the value of which will be equal to the total amount of products that will come out in a given time interval. People will accept this money if they know they will want the finished product upon completion.
Which brings us back to our labourers. If some workers feel they must be remunerated more than others for the same amount of work, free competition and the free market will bring them back into line. Without restrictions on self-employment, workers would be getting a wage close to what they could get by starting (or joining) another company that would compete in the same market space. There would be no need for minimum wage laws, since there would be no artificial situation depressing wages in the first place.
I guess that's the gist of it. There's more to it, but I have to get some shuteye...
Published: May 8, 2006 1:13 AM
M E Hoffer
Fred,
"If so, how would you solve the problem of the pizza-delivery joint that needs a phone-answering staff"
There are many professional "phone-answering" firms extant (just ask your local M.D.)
I would think the local pizzeria would overjoyed to have his, once-fixed, costs go variable, more closely tied to his revenue production.
As well, there exist, in many areas, centralized
call-centers that take orders for a number of restaurants, pass them on to appropriate one, pick the order, and delivery the goods to the customer.
The idea that each and every "businessperson" needs their own bureauacracy is nothing more than State-induced mania.
Published: May 8, 2006 4:27 AM
Peter
Cosmin: you really, really, need to read Man, Economy, and State, and learn a little bit of economics.
Published: May 8, 2006 8:15 AM
Cosmin
Sure thing. It's on my to-do list. How is that relevant to anything here anyway? Are you saying it contradicts what I've been saying? 'Cause if it does, it's wrong! :P
Published: May 8, 2006 9:57 AM
Fred Mann
M.E. Hoffer,
I am aware of call centers, so that may have not been the best example. But I worked at a pizza place as a delivery boy for many years, so I can probably provide some insight as to why NONE, repeat NONE, of the major pizza chains take advantage of these call centers.
For one thing, someone needs to be on-hand to take walk-in orders. The phone-answerers are ideally trained for this task as well. In addition, walk-in customers like to deal with a real live person, so this task may not be outsourcable. Also, the phone people occasionally do various minor additional duties (labelling boxes, replenishing the food on the "make-line", etc.). Also, some customers want pizzas that are so highly customized and/or need to give such specific directions for delivery, that it is easier to have people on hand for this communication.
A similar case could be made for the delivery driver. An on-site delivery person can get the pizza out the door immediately after it finishes cooking, thereby meeting a delivery time guarantee, for example. Also, the delivery driver gets very familiar with that store's particular delivery area and its regular customers, thereby speeding up the process even more.
And this is just one example from one business ...
While I agree that there is a lot of persistent brainwashing by the State, I find it hard to believe that this business model is an example of that type of brainwashing. Employers are COMPLETELY free to use your model. The state does not require that businesses have a heirarchy or use hourly-wage-based labor. If it was truly a superior system, many of the businesses that currently use the "heirarchical model" would have switched to your model LONG LONG LONG ago. Again, they are free to do so. The fact that the business model I described persists, suggests that there is a very good reason for its existence.
Published: May 8, 2006 1:30 PM
Vince Daliessio
Cosmin said;
"I say government ideally shouldn't impose a minimum wage. When it does, it impacts, as this article and most of you have pointed out, on the supply of jobs...
...Government impacts on the demand of jobs very much by limiting the opportunities for self-employment. It does so in many ways, like, for example, intellectual property laws, or enforced certification...
...A real solution, though, would be for government to butt out completely.
Cosmin, that's the coolest thing you have said here yet!
But I have to agree with those who point out that the way to level the playing field for the disadvantaged is not to break the legs of all the other competitors, but for the government to refrain from breaking anyone's legs in the first place...
Published: May 8, 2006 2:48 PM
Cosmin
Vince, that's not only the coolest thing, but also the first thing I said!
We all seem to agree that government should refrain from breaking anyone's legs. That part is settled. But what happens when it doesn't refrain? If it breaks someone's legs, must it let the second individual run around the now crippled one, free to stab him from all directions? Or must it break his legs too, to even the playing field? This part of the debate rages on...
Published: May 8, 2006 3:28 PM
Fred Mann
P.S. - for those of you who find the task of reading the books on the Mises site daunting, may I suggest the following:
Purchase a premium text-to-speech program with "AT&T Natural Voices". Then copy the text of these books into the program and create an MP3 file. Then you can listen while you drive or work around the house. I even bought wireless headphones for late-night and outdoors listening (they were only $35 including shipping!).
Now I'm "reading" free Mises.org books (i.e. "For a New Liberty" and "Man Economy and State" are available in PDF for free here) and articles all the time. Multitasking.
Published: May 8, 2006 3:44 PM
Fred Mann
Cosmin,
I think you are confused as to whose legs are being broken here.
When the government raises the minimum wage, EVERYONE suffers. The entire population is deprived of the capital (goods and services) that would have been produced had this unemployment not taken place.
Employers are harmed somewhat, in that their business models are limited to using only certain types labor, i.e. labor that costs more than $X.
Employees are harmed if the minimum wage price exceeds their productive ability. They are fired.
As I attempted to show above (see my posts from May 8, 1:30PM, and May 7, 10:25PM), hourly-wage earners and the heirarchical structure that you and M.E. Hoffer don't seem to approve of, is likely to persist for some time. I believe it is a logical business model for some businesses.
Given that situation, the necessary effects of a minimum wage are undeniably bad for everyone.
Universal leg-breakage.
Published: May 8, 2006 4:14 PM
M E Hoffer
Fred,
That's a cool idea re: AT&T Natural Voices & Articles, et al.. I know, for myself, too much screen time doesn't improve "anything".
As far as the Emps/Cannon Fodder/Consumers are concerned, I still think they're a grave risk to Liberty, or the return thereof. Past that, they can organize, or be herded, any which way they care to be. Their brand, though, I won't wear.
Cosmin, above, states, well, ideas very similiar to my own.
The State corrupts. It is so prevalent, it corrupts us all. Nick, above, asks when do we Do something about it? A fine Q. That so many of us fear losing, that which is in direct contradiction to one of the basic tenets that launched the original experiment of Liberty: "No taxation without Representation", our current "wealth", nothing but a burlesque of debt for those who have yet to arrive, should give us pause.
Others of us, who attempt to quiet the disquiet of their quietude, in pretending they're some latter-day Gen. GW, cagey in their calculated retreat, miscalculate how near their cage is: They/We are in it.
Others of us, suggest, that if but for a mere rock upon which Freedom can reign, conviently forget that such rocks, already passed over, probably see no rain.
This Q, for some reason, has come up a couple of different times fairly recently. Mr. Preston has spoken, I believe, with knowledge, about those who are most likely to take serious the cause of disobedience to, and the contraception of, State power.
Who here can make palatable the injustice that we all see? Who here gets their crank turned earning Federal Reserve Not(e)s? We know the nature of that beast, do we not feel defrauded?
Are we realy, really, afraid that a double-coincidence of wants is actually more difficult to solve than differential equations? Get Real, Purdue, right now, could replace 5% of the demand for Bernanke's Buck with it's own Cluck.
Truly, I think we fear that we have Too Much to gain.
Vince, what's your take ?
Published: May 8, 2006 5:00 PM
M E Hoffer
Clarifier,
The Nick, I referred to was posting on the "to rule is to destroy" thread, my error.
Published: May 8, 2006 5:13 PM
LionHeart
But raising the minimum wage RAISES the going market rate. Remember, supply and demand are only part of the equation. Government can force a minimum wage, and therefore force minimum wage shops to choose to raise their prices or go out of business, and be replaced by someone who does raise their prices. Either way, if there is a demand for the product at the going price, people will buy it, if not, then they will purchase less raw materials, and the price of raw materials will go down, making the entry level price to open a business go down. Supply+Demand+Government=happy people
Published: September 29, 2009 12:50 AM