Wednesday, June 08, 2005


Ok, folks – are you feeling ignored? Does it look like I’ve been neglecting you, as I promised not to do? Well, the truth is that I have moved house. I am now in the Basford area of Nottingham, and the new house had no broadband hook up for my modem, so I have had to leave you all hanging. Sorry, guys!

Now I am back, and I would like to kick things off with some questions about the minimum wage. I mean, there are plenty of things about the minimum wage that don’t make sense, but here are my points:

1. Why doesn’t everybody earn minimum wage and no more? After all, the logic of the argument for minimum wages was basically that evil businesses, unless prevented from doing so by the benevolent intervention of our rulers, would bid wages lower and lower in perpetuity, until they were barely enough to live on. Surely, then, if this were true, employers must now bid wages down to the legislated minimum. But I know people who earn more than the minimum. I’m sure that the average income is far above minimum wage. So why is this? The answer is that this “bidding down” iron-law-of-wages crap is wrong – it entirely ignores the demand for labour, and labour’s productivity.

2. Why do people who support minimum wages also support petrol taxes and the such? People who usually defend the minimum wages also favour high taxes on polluting petrol (lower taxes on diesel and unleaded), to deter people from buying such petrol. Or taxes on tobacco or alcohol to deter people from smoking or drinking, for another example. The presumption is, surely, that by imposing the tax, the price of the good rises, without demand rising, putting people off buying so much of it. Or in other words, the defense of the “green tax” on petrol is that if you artificially raise prices beyond the market price, consumption falls. And yet they defend the minimum wage, on the grounds that they think the market price for labour is too low and ought to be raised? Their own logic implies that this would lead to unemployment!

3. How come these defenders of minimum wages have any money? They tell us that minimum wages won’t cause unemployment, they won’t result in people buying less labour, but on a behaviourist level, that claim is illogical. I bet these people don’t spend their money on the most expensive towels, or spaghetti, or whatever, they can get when they don’t have to. If Sainsbury’s were to suddenly put their prices up on bread, people would buy less off it. The same goes for labour.

4. Why would anybody ever want to be trapped on a desert island with these people? Defenders of the minimum wage often defend themselves against the above type of argument by saying that buying labour is not analogous to buying bread. When one buys bread, one does so knowing that there are alternatives one can spend one’s money on were the bread to be considered expensive. This, it is argued, is not the case with labour, since all commodities need to have been produced by a worker at some stage. One cannot avoid consuming labour as one can avoid consuming bread. But this isn’t true. There is an alternative to consuming labour, and that is not consuming anything. Save your money. The principle is the same as being trapped on a desert island or in a life boat. Whenever we see such things in movies, we see the characters impose rationing systems, and basically start consuming their meagre supplies much more slowly. By artificially raising the price of labour consumers of labour are put in a similar situation as the survivors on a desert island – labour becomes, effectively, more scarce for them. So they consume it more slowly. They buy less of it. They save more instead. The result is lower growth, a fall in the supply of goods, and higher unemployment.


Anonymous Anonymous said...

I must remember to use your tax on petrol point, the next time I get into an argument with one of these idiots!

3:09 PM  

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