Poverty, Equality, and Capitalism

**Liberalis** · May 29 2012, 04:07 PM

Originally Posted by Reiver

Already have! You've adopted a dogma that cannot even apply supply & demand (as it necessarily leads to the conclusion that a minimum wage can increase wages and employment)

You most certainly have not, and now you are being dishonest. The reality that price controls lead to surpluses is no misapplication of supply and demand but the very heart of it. It is you who needs to make the case that supply and demand does not apply to wages like it does to all other prices. You have not done so.

A crass fib! I've referred directly to both orthodox and heterodox theory. The monopsony case is an interesting one as it only requires that we adopt (or try to adopt) a reservation wage strategy. This is simply a decision rule which equates marginal benefits and marginal costs of job search, such that your behaviour is motivated by maximising expected income. The effects on supply & demand conclusions are straightforward: We get consequences such as wage dispersion that is independent of human capital characteristics.

Maybe you think you have, but you have not. You may be referring to some vague notion of a theory, but you are doing nothing to explain any of them whatsoever. Take your string of statements above.

1. The monopomy case requires that we adopt a reservation wage strategy.
2. Therefore we get wage dispersion that is independent of human capital characteristics.

As anyone can see, you did not connect those two strings of thought in any way. You just assumed it. Furthermore, your first statement is does not do anything to explain why such a strategy is a requirement.

Perhaps you're not aware of what you've typed? Read back

The fact that labor originates from a human being has no bearing on the cost of labor. Feel free to make that argument though (and by argument, I mean something with premises and a conclusion that follows from the premises, not restating one premise ad nauseum)

This is just repetition of error. Unit labour costs do not necessarily increase. Again your opinion is merely inconsistent with valid economic comment

Because you say so. Once again, you provide no argument. As I said before, I am referring to the price of labor. The entire purpose of minimum wage is to increases wages. To say that minimum wage does not result in an increase in the price of wages is silly.

You're suggesting that human beings, rather complex beasts don't you know, can be simply compared to tubs of lard. Again you show a dogma that is inconsistent with valid economic comment. We've seen, for example, that just the admission of asymmetric information will destroy your position.

I'm not suggesting that at all.

I'm supporting my position with evidence. Note that, in contrast, you've given naff all. For analysis into monopsony try something like Bhasker and To (1999, Minimum Wages for Ronald McDonald Monopsonies: A Theory of Monopsonistic Competition, Economic Journal, Vol. 109 Issue 455, pp. 190-203). Perhaps you can inform me what you've read on the subject? I hope you're not another victim of mises.org

Throwing around the names of studies without actually providing anything contained in the study is not sufficient evidence in an argument. If that study is so definitive, it should be easy for you to provide me specifically with the information to disprove everything I am saying. Trying to use an appeal to hypocrisy is equally unacceptable.

Again, you show your innocence. Austrian economics is childlike in its understanding of the labour market. Pick up a labour text (which, compared to other dismal science texts, can be much more interesting as there is often comparison of schools of thought as the orthodox position is critiqued by reference to heterodox approaches) and note the lack of reference to the Austrians.

Another fallacious argument. You use petty emotional attacks against Austrian economics, and then state that because a labor text book does not include a discussion of Austrians that makes them wrong. With all due respect, you simply are not providing any arguments at all.

A poor attempt! You won't be able to refer to entrepreneurship to understand how the visible hand replaces the invisible hand. You do get attempts to try and integrate the 'Coasian firm' (where hierarchy is used as part of an effort to minimise transaction costs) with Hayekian information problems. However, that certainly isn't a coherent theory of the firm. That is just a realisation that the Austrians are a side issue, showing that its not just influence costs and agency costs that impinge on the boundaries of the firm. Once we switch to an institutionalist approach we automatically have to consider coercion and conflict (e.g. the rejection of the orthodox economies of scale approach to firm growth will assuredly lead to discussion over market power)

A firm is a collection of resources in the end, meant to maximise returns on investment in it to its owner. It's thus a hub for an entrepreneur. The entrepreneur is central to Austrian economics. You may disagree, but it would be incorrect to say no theory of the firm exists.

Here is a list of journals the Austrian schools has published articles in (excluding journals run by the Austrians) referring specifically to the theory of the firm.

Boettke, Peter J. 1998. "Coase, Communism, and the Black Box of the Soviet-Type Firm." In Steven Medema, ed., Coasean Economics: Law and Economics and the New Institutional Economics. Boston: Kluwer, pp. 193-207.

Boudreaux, Donald, and Randall Holcombe. 1989 "The Coasian and Knightian Theories of the Firm." Managerial and Decision Economics 10: 147-54.

Foss, Kirsten and Nicolai Foss. 2000. "Economic Organization in a Process Perspective: an Explorative Discussion." In Jackie Krafft, ed. The Process of Competition. Aldershot: Edward Elgar.

Foss, Kirsten and Nicolai Foss. 2002. "Coase vs Hayek: Economic Organization in the Knowledge Economy." International Journal of the Economics of Business 9: 9-36.

Foss, Kirsten, Nicolai J. Foss, and Peter G. Klein. 2007. "Original and Derived Judgment: An Entrepreneurial Theory of Economic Organization." Organization Studies 28, no. 12 (June 2007): 1893-1912.

Foss, Kirsten, Nicolai J. Foss, Peter G. Klein, and Sandra K. Klein. 2002. "Heterogeneous Capital, Entrepreneurship, and Economic Organization." Journal des Economistes et des Etudes Humaines 12, no. 1: 79-96.

Foss, Kirsten, Nicolai J. Foss, Peter G. Klein, and Sandra K. Klein. 2007. "The Entrepreneurial Organization of Heterogeneous Capital." Journal of Management Studies 44, no. 7: 1165–86.

Foss, Nicolai J. 1993. "More on Knight and the Theory of the Firm." Managerial and Decision Economics 14: 269-76.

Foss, Nicolai J. 1999. "The Use of Knowledge in Firms." Journal of Institutional and Theoretical Economics 155: 458-86.

Foss, Nicolai and Jens Frøslev Christensen. 2001. "A Market Process Approach to Corporate Coherence." Managerial and Decision Economics 22: 213-26.

Foss, Nicolai J., and Peter G. Klein. 2005. "Entrepreneurship and the Economic Theory of the Firm: Any Gains from Trade?" In Rajshree Agarwal, Sharon A. Alvarez, and Olav Sorenson, eds., Handbook of Entrepreneurship: Disciplinary Perspectives. Norwell, Mass: Kluwer.

Foss, Nicolai J., and Ibuki Ishikawa. 2006. "Towards a Dynamic Resource-based View." To appear (in a slightly revised version) in Organization Studies.

Langlois, Richard N. 1995. "Do Firms Plan?" Constitutional Political Economy 6: 247-61.

Langlois, Richard N. 2002. "Kirznerian Entrepreneurship and the Nature of the Firm." Journal des Economistes et des Etudes Humaines 12, no. 1.

Lewin, Peter. 1998. "The Firm, Money and Economic Calculation: Considering the Institutional Nexus of Market Production." American Journal of Economics and Sociology 57, no. 4: 499-512.

So please. Enough of this nonsense. It is a pathetic attempt to discredit a theory due to your own inability to provide valid arguments.

Unlike you I bothered to read up on the labour economics required to derive a supportable conclusion.

I would have no way of knowing for you have done provided much reason or empirical evidence. You just keep linking to other sites expecting me to do all the work for you. It is your job to bring forth the ideas you want me to either consider or reject.

There was no error. You simply do not understand what I said because you do not understand the economics used. Its not complex stuff mind you so ask any questions you need!

The error was the obfuscating nature of your sentence, which can hardly be deciphered in the English language. It is full of ambiguities, and is a run-on sentence at best. My only question is why are you not providing detailed arguments of your views?

Already done! Given you cannot discount the importance of monopsony, will you apologise for the erroneous remarks that you've made? It would be the decent thing to do.

I cannot discount the importance of monopsony because you have yet to explain that importance or how monopsony exists in the real world labor market.

There are plenty of other people on this site who I disagree with but at the very least provide arguments which can be discussed. If your next response does not contain arguments, I will not bother to continue this discussion with you as it is a fruitless waste of my time.

**Reiver** · May 29 2012, 05:11 PM

Originally Posted by Liberalis

You most certainly have not, and now you are being dishonest.

A ridiculous claim. You’ve peddled a simple view based on a bogus understanding of supply & demand. You didn’t realise that, as asymmetric information is the norm, supply & demand actually rejects your position as nothing more as non-economic dogma. You’ve coupled that error with ignorance of all other approaches used in the economic analysis of minimum wages, as summarised by your failure to understand that productivity is found to be endogenous. Rather than debate the source of that endogeneity you replied with low brow dodge. There has been no attempt, for example, to compare the likes of shock theory with the more general analysis used within the efficiency wage literature. If you bothered with economics (which you haven’t) you’d first have appreciated the fundamental welfare theorem that the attainment of Pareto efficiency is argued to be independent of any aspect of equity. This is quite distinct from the institutionalist approach that demonstrates an innate link at both microeconomic and macroeconomic level. See, for example, Kaufman (2010, Institutional Economics and the Minimum Wages: Broadening the Theoretical and Policy Debate, Industrial & Labor Relations Review, Vol. 63, pp. 427-453:

Research in behavioral and experimental economics systematically shows that when procedural and distributive norms of fairness in the workplace are violated, workers retaliate by reducing work effort, cooperation, and organizational citizenship behavior, thus exacting a reciprocal “price” in the form of reduced profit and efficiency (Falk, Fehr, and Fischbacher 2003; Schmid 2004). Fairness also promotes efficiency and growth at the macro level (Kitson, Martin, and Wilkinson 2000). Societies that have a more balanced income distribution (at least up to a point) show higher growth rates (Gobbin, Rayd, and Van de Gaer 2007)... [The] sense of shared gain and social solidarity helps maintain and expand both a firm’s and a nation’s single most productive asset—a cohesive, cooperative, and lawful institutional order.

The reality that price controls lead to surpluses is no misapplication of supply and demand but the very heart of it.

You again openly fib in order to dodge from the debate and the comments made. This only shows that you’ve allowed your dogma to avoid objective comment. Supply & demand, given asymmetric information, ensures monopsony effects are the norm (once reservation wages exist we know, for example, that the market wage doesn't exist as a firm that reduces its wage will not lose all of its workers; it faces an upward sloping labour supply curve by definition). You cannot dismiss that without attacking the very foundations of supply & demand. Burdett and Mortensen’s model, for example, merely assumes that workers are interested in expected wage and employers are motivated by profit.

1. The monopomy case requires that we adopt a reservation wage strategy.
2. Therefore we get wage dispersion that is independent of human capital characteristics.

As anyone can see, you did not connect those two strings of thought in any way

The problem is that you don’t understand supply & demand. Once we have variation in reservation wages we will destroy the idea of the law of one price (which is actually required for the disemployment result to hold). We’d see, for example, wage differentials across demographic groups reflecting the extent of liquidity constraints, the amount of time expected to remain in post and the extent of geographic mobility (e.g. there is empirical evidence that wage differentials independent of productivity are created just through home ownership). Of course we can also factor in the work of Burdett and Mortensen that I’ve already referenced. Given in-work job search is also available we have reservation wages leading to underpayment (given workers will be willing to accept wage offers below their value to the firm) but with that underpayment falling with subsequent job mobility. This can help us understand the positive relationship between firm size and wages: “As the voluntary quit rate..decreases with the wage offer, larger firms experience lower quit rates. Because workers only switch employers in response to a higher wage offer, workers with either more experience or tenure are more likely to be earning a higher wage”. So monopsony inefficiency is actually more acute in apparently more competitive industries.

The fact that labor originates from a human being has no bearing on the cost of labor.

Again with the ridiculous claim that workers are no different to inanimate commodities. We know that’s not the case. Efficiency wages, for example, would have to be irrelevant (which is clearly a nonsensical claim as the empirical analysis backing up the work by the likes of Akerlof and Yellens is extensive). Once we factor in the complexities of human behaviour (as advertised in the quote about institutionalism given earlier) we can see how marginal productivities are unstable and- in terms of dynamic analysis- can vary significantly. This has to be taken into account to understand labour costs.

As I said before, I am referring to the price of labor. The entire purpose of minimum wage is to increases wages.

This is a particularly uncunning response. Firms are interested in unit labour costs. We can only make simple reference to wage costs if productivity can be assumed to be constant. As shown by earlier references, we know that such an assumption cannot be made (at least with any good sense)

Throwing around the names of studies without actually providing anything contained in the study is not sufficient evidence in an argument.

Why haven’t you given one minimum wage study in support of your position? Please make sure it rejects monopsony, efficiency wages and assumes workers are the same as inanimate objects (all required for your dogma to have any resemblance of empirical validity)

If that study is so definitive, it should be easy for you to provide me specifically with the information to disprove everything I am saying. Trying to use an appeal to hypocrisy is equally unacceptable.

The researchers destroy the notion of the law of one price with an understanding of how monopsony is the norm. Stuff I’ve already provided in detail (which you’ve just dodged)

You use petty emotional attacks against Austrian economics, and then state that because a labor text book does not include a discussion of Austrians that makes them wrong. With all due respect, you simply are not providing any arguments at all.

I’ve referred to the advantage of labour economic analysis. It is, by definition, pluralist and therefore prepared to critique the orthodox. Its arguably the closest sub-discipline to political economy as it is prepared to compare and contrast schools of thought (ultimately leading to rejection and also integration of orthodox and heterodox approaches). Its also factual to note that Austrian economics won’t be considered in any detail. Their understanding of labour is cretinous. That isn’t an attack; that is just a factual statement. You won’t be able to show otherwise so please don’t try and bore me with the bluster.

A firm is a collection of resources in the end, meant to maximise returns on investment in it to its owner.

Again you merely ignore the quote and just repeat your dogma. Try again (and this time try and critique):

You won't be able to refer to entrepreneurship to understand how the visible hand replaces the invisible hand. You do get attempts to try and integrate the 'Coasian firm' (where hierarchy is used as part of an effort to minimise transaction costs) with Hayekian information problems. However, that certainly isn't a coherent theory of the firm. That is just a realisation that the Austrians are a side issue, showing that its not just influence costs and agency costs that impinge on the boundaries of the firm. Once we switch to an institutionalist approach we automatically have to consider coercion and conflict (e.g. the rejection of the orthodox economies of scale approach to firm growth will assuredly lead to discussion over market power)

Here is a list of journals the Austrian schools has published articles in (excluding journals run by the Austrians) referring specifically to the theory of the firm.

You’ve managed to refer to some Austrians that refer to the firm? Wowsers! Back to what I said: the Austrians do not have a coherent theory of the firm. Again that is just a factual statement. Rather than bluster with copy and paste try and suggest otherwise by rebuking the ‘try again’ quote.

The error was the obfuscating nature of your sentence, which can hardly be deciphered in the English language

Again there was nothing complex in the statement and you just can’t respond to any of the analysis applied.

I cannot discount the importance of monopsony because you have yet to explain that importance or how monopsony exists in the real world labor market.

You’ve been given theory, empirical evidence and multiple references. Perhaps you struggle because I haven’t used mises.org?

**stevenswld** · Jun 27 2012, 05:50 AM

Don't you have an ounce of common sense? An influx of Chinese to the U.S. would drive down wages. Any influx would lower wages because the supply of workers would be greater than the demand. This is basic economics. I can't believe anyone can be so ignorant as to say otherwise.

**Reiver** · Jun 27 2012, 06:03 AM

Originally Posted by stevenswld

This is basic economics.

Basic economics would have to refer to ceteris paribus. We don't have that with labour mobility, given productivity is no longer a constant. Bit obvious really!

**Anders Hoveland** · Jul 02 2012, 09:18 AM

Originally Posted by Reiver

We don't have that with labour mobility, given productivity is no longer a constant.

Labour mobility? What mobility?! More and more university graduates are finding themselves stuck in low wage service jobs. Engineers and scientists have a high un- and underemployment rate, and their salaries are not very good considering all that school they went through. Lawyers are forced to work as low paid legal assistants because there are too many of them. And now everyone is expected to get a university degree to compete with all the other potential job applicants for the limited opportunities available. Just what do you expect everyone to do?!

Do you know what I think? Economists generally refuse to recognise severe problems in the labour market until budget cuts are finally made in the public sector and long-established economists begin to lose their jobs.

**Reiver** · Jul 02 2012, 12:08 PM

Originally Posted by Anders Hoveland

Labour mobility? What mobility?! More and more university graduates are finding themselves stuck in low wage service jobs.

You'll find that the rate of retun from education in tertiary education is still significantly positive. You peddle myths in order to support an economically irrational result, nothing more

**Not Amused** · Jul 06 2012, 04:13 AM

Originally Posted by Reiver

The empirical evidence shows that the minimum wage has no significant impact on prices. There's no point in pretending otherwise as the evidence is rather extensive

Exactly how much could the minimum wage be increased without increasing prices?

What would happen to the existing employees doing work not worth that amount?

**Reiver** · Jul 06 2012, 05:38 AM

Originally Posted by Not Amused

Exactly how much could the minimum wage be increased without increasing prices?

What would happen to the existing employees doing work not worth that amount?

There are numerous aspects, ranging from 'shock' (where employers are forced into greater efficiency) to productivity effects (such that unit labour costs do not rise. We do know that underpayment increases as we move down the wage distribution. We can therefore also just get redistribution effects, where economic rents are driven back to the worker

**Not Amused** · Jul 06 2012, 06:07 AM

Originally Posted by Reiver

The empirical evidence shows that the minimum wage has no significant impact on prices. There's no point in pretending otherwise as the evidence is rather extensive

Originally Posted by Not Amused

Exactly how much could the minimum wage be increased without increasing prices?

What would happen to the existing employees doing work not worth that amount?

Originally Posted by Reiver

There are numerous aspects, ranging from 'shock' (where employers are forced into greater efficiency) to productivity effects (such that unit labour costs do not rise. We do know that underpayment increases as we move down the wage distribution. We can therefore also just get redistribution effects, where economic rents are driven back to the worker

Why the difficulty in answering such a simple question?

Employers could increase efficiency, or competition could have the company close to optimum. Increase wages, then what?

Does increasing wages automatically increase productivity? Does automation increase speed with the operators wages?

When you increase unskilled wages by lower executive salaries, what happens to executive productivity?