On Wages Minimum and Maximum
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Two items of note crossed my aggregator this morning:
First, we have George Will, in an otherwise perfectly excellent piece trashing the stupidity, hypocrisy and irrelevance of a federal minimum wage, sloppily knocking a foul ball down the right-wing line:
Not to sound too much like an old Econ 101 TA, but "when the price of something goes up," the quantity demanded for it goes down, not the demand for it. That may sound like mere semantics, but it's an important distinction to economists.
But that wasn't that my point anyway. Will also misdescribes all downward-sloping demand curves as "elastic." That is an important error that distracts from Will's overall thesis.
To review: Since the laws of economics, including the law of demand, are not subject to repeal by any legislature, raising the minimum wage above the free-market equilibrium wage (i.e., creating a price floor) will inevitably result in a surplus — quantity supplied will exceed quantity demanded. Which, in labor markets, has a name: "unemployment."
But let's say, as liberal-progressive-socialists often do, that you care more about "the poor" than you do about "poor people." It's a subtle but important distinction. It means that even though some ultra-unskilled workers ("poor people") may lose their jobs as a result of progressive "compassion" for them, the ultra-unskilled who don't lose their jobs ("the poor") will be earning higher wages. So while some "poor people" suffer because they are now unemployable, perhaps "the poor" as a collective might be better off because, in the aggregate, they will be earning more money.
That is where the notion of "elasticity" comes in — not, as Will errs, in simply noting that demand curves slope downward.
Economists call the total wages paid to labor the "wage bill." It's simply the sum of all wages paid to individual workers. If government imposes an artificial, equilibrium-disturbing price floor (i.e., minimum wage) on the ultra-unskilled, then their wage bill may increase, decrease or remain unchanged. It is a simple trade-off between "the poor" (i.e., people who don't lose their jobs and therefore earn more wages) and "poor people" (i.e., those who do lose their jobs and therefore earn zero wages). Some gain, some lose — but is the gain greater than the loss, or the other way around?
There's no way to tell without more real-world information about how responsive — how elastic — the demand curve for ultra-unskilled labor is. The more elastic the labor demand curve is, the more the wage bill will decline, making not just "poor people" but also "the poor" worse off.
The presumption of liberal-progressive-socialists is of course that demand for ultra-unskilled labor is highly inelastic — that employers will not lay off too many ultra-unskilled workers after the minimum wage rises and that the gains to "the poor" will therefore exceed the losses of "poor people." Whether that presumption is valid (i.e., whether ultra-unskilled labor demand is elastic or inelastic) is of course a question for empirical economists.
Libertarians, meanwhile, reject this entire analysis outright. We don't make arrogant distinctions between "the poor" and "poor people." We are too modest to pretend that we can "fine-tune" the labor markets as though they were an iTunes playlist. We believe that competent consenting adults should be free to enter into voluntary private labor contracts for mutual gain. We believe that forbidding such voluntary contracts is an unconstitutional violation of due process.
And we tend to be very inelastic in our thinking.
More thoughts at Liberty Papers.
(*Gollum, "LOTR.")
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Second, we of course can't talk about the minimum wage without concurrently discussing the "maximum wage" — CEO compensation:
First of all, see my discussion, supra, about voluntary private labor contracts. If Home Depot wants to pay a semi-competent CEO a brazillion dollars to run the company into the ground, then that's, literally, their business. Who the hell is Barney Frank to say otherwise?
As for shareholders, they already have all the "say" they need over what CEOs make: they have the power to sell their shares any time they choose. If you think that Nardelli's compensation is "egregious," then don't own the stock. How is this a difficult concept?
Incidentally, if "only the rich own stock" (a classic lie told by liberal-progressive-socialists), then why do those same liberal-progressive-socialists care one way or the other about "egregious" CEO pay? So what if "the top 10%" crowd loses a bit of money on their Home Depot stock because its "overpaid" CEO ran the company into the ground?
Of course, in reality most stock is owned not by the rich but by pension funds representing the middle class and working poor. This includes labor union and, more importantly, government pension funds (e.g., the massive California pension fund, CalPERS, with $223.5 billion in assets). The bureaucrat portfolio managers of these public funds (and the politicians who oversee them) often seek to achieve "socially responsible" goals via their portfolios (i.e., via other people's money). Therefore, to "empower shareholders" is to empower government (and also labor unions). Behold Barney Frank's ulterior motive.
The original framework of corporate ownership was the correct one, and should not be "improved" upon by activist politicians or regulators: Stockholders, in exchange for limited liability, have limited control over the corporation they own shares in. And they are free to sell their shares at any time if they no longer find the investment appealing (or the company a "good corporate citizen"). What could possibly be more "progressive" than that?
(Via DealBreaker.) More thoughts at Point of Law.
First, we have George Will, in an otherwise perfectly excellent piece trashing the stupidity, hypocrisy and irrelevance of a federal minimum wage, sloppily knocking a foul ball down the right-wing line:
The problem is that demand for almost everything is elastic: When the price of something goes up, demand for it goes down.It burns us! It freezes! Nasty Will twisted it.*
Not to sound too much like an old Econ 101 TA, but "when the price of something goes up," the quantity demanded for it goes down, not the demand for it. That may sound like mere semantics, but it's an important distinction to economists.
But that wasn't that my point anyway. Will also misdescribes all downward-sloping demand curves as "elastic." That is an important error that distracts from Will's overall thesis.
To review: Since the laws of economics, including the law of demand, are not subject to repeal by any legislature, raising the minimum wage above the free-market equilibrium wage (i.e., creating a price floor) will inevitably result in a surplus — quantity supplied will exceed quantity demanded. Which, in labor markets, has a name: "unemployment."
But let's say, as liberal-progressive-socialists often do, that you care more about "the poor" than you do about "poor people." It's a subtle but important distinction. It means that even though some ultra-unskilled workers ("poor people") may lose their jobs as a result of progressive "compassion" for them, the ultra-unskilled who don't lose their jobs ("the poor") will be earning higher wages. So while some "poor people" suffer because they are now unemployable, perhaps "the poor" as a collective might be better off because, in the aggregate, they will be earning more money.
That is where the notion of "elasticity" comes in — not, as Will errs, in simply noting that demand curves slope downward.
Economists call the total wages paid to labor the "wage bill." It's simply the sum of all wages paid to individual workers. If government imposes an artificial, equilibrium-disturbing price floor (i.e., minimum wage) on the ultra-unskilled, then their wage bill may increase, decrease or remain unchanged. It is a simple trade-off between "the poor" (i.e., people who don't lose their jobs and therefore earn more wages) and "poor people" (i.e., those who do lose their jobs and therefore earn zero wages). Some gain, some lose — but is the gain greater than the loss, or the other way around?
There's no way to tell without more real-world information about how responsive — how elastic — the demand curve for ultra-unskilled labor is. The more elastic the labor demand curve is, the more the wage bill will decline, making not just "poor people" but also "the poor" worse off.
The presumption of liberal-progressive-socialists is of course that demand for ultra-unskilled labor is highly inelastic — that employers will not lay off too many ultra-unskilled workers after the minimum wage rises and that the gains to "the poor" will therefore exceed the losses of "poor people." Whether that presumption is valid (i.e., whether ultra-unskilled labor demand is elastic or inelastic) is of course a question for empirical economists.
Libertarians, meanwhile, reject this entire analysis outright. We don't make arrogant distinctions between "the poor" and "poor people." We are too modest to pretend that we can "fine-tune" the labor markets as though they were an iTunes playlist. We believe that competent consenting adults should be free to enter into voluntary private labor contracts for mutual gain. We believe that forbidding such voluntary contracts is an unconstitutional violation of due process.
And we tend to be very inelastic in our thinking.
More thoughts at Liberty Papers.
(*Gollum, "LOTR.")
---
Second, we of course can't talk about the minimum wage without concurrently discussing the "maximum wage" — CEO compensation:
Home Depot Inc. Chief Executive Officer Robert Nardelli's "egregious" $210 million severance package may be the catalyst for legislation that tries to rein in executive pay at U.S. companies.Oh my goodness.
...
U.S. Representative Barney Frank, a Massachusetts Democrat who is the new chairman of the House Financial Services Committee, said yesterday that he would hold hearings on executive pay and will push for legislation to give shareholders greater say over what CEOs make.
First of all, see my discussion, supra, about voluntary private labor contracts. If Home Depot wants to pay a semi-competent CEO a brazillion dollars to run the company into the ground, then that's, literally, their business. Who the hell is Barney Frank to say otherwise?
As for shareholders, they already have all the "say" they need over what CEOs make: they have the power to sell their shares any time they choose. If you think that Nardelli's compensation is "egregious," then don't own the stock. How is this a difficult concept?
Incidentally, if "only the rich own stock" (a classic lie told by liberal-progressive-socialists), then why do those same liberal-progressive-socialists care one way or the other about "egregious" CEO pay? So what if "the top 10%" crowd loses a bit of money on their Home Depot stock because its "overpaid" CEO ran the company into the ground?
Of course, in reality most stock is owned not by the rich but by pension funds representing the middle class and working poor. This includes labor union and, more importantly, government pension funds (e.g., the massive California pension fund, CalPERS, with $223.5 billion in assets). The bureaucrat portfolio managers of these public funds (and the politicians who oversee them) often seek to achieve "socially responsible" goals via their portfolios (i.e., via other people's money). Therefore, to "empower shareholders" is to empower government (and also labor unions). Behold Barney Frank's ulterior motive.
The original framework of corporate ownership was the correct one, and should not be "improved" upon by activist politicians or regulators: Stockholders, in exchange for limited liability, have limited control over the corporation they own shares in. And they are free to sell their shares at any time if they no longer find the investment appealing (or the company a "good corporate citizen"). What could possibly be more "progressive" than that?
(Via DealBreaker.) More thoughts at Point of Law.
Related Posts (on one page):
- Where are the Activist Legislators?
- The Iraq Minimum Wage War?
- Minimum Wage Hyperbole of the Day
- On Wages Minimum and Maximum
Posted by Kip on
4 January 2007
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