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View Diary: Where Adam Smith Was Wrong (121 comments)

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  •  So you make two basic points (0+ / 0-)

    First, the issue of valuing labor by the output of that labor rather than market prices for labor is a good point. In the scenario you describe, minimum wage laws can be used to transfer wealth from the ownership stake in a company to its lowest paid laborers. However, at the higher wage rates, you are going to be left with excess supply of people wanting to do those jobs, and you will see unemployment rise. The increase in supply will come both from the unemployed and those employed in more lucrative, but more demanding jobs. Considering that these people are probably more qualified for the positions, they are likely to get them - which puts at risk the rate of technical advancement and the rate of standard of living increases. How it all plays out at a macro level is what's interesting.

    Your second point is much less interesting. Primary effects are much greater than secondary effects. For a particular firm, paying laborers, say, 10% higher wages results in a significant cash outflow for the company. Very little of that returns as an inflow to the company because the laborer has more money to spend on the firm's product offerings. That's the micro view. The macro view is that ultimately, money is just a proxy for facilitating trade of products and services. If you try to just start paying people more, you're saying their labor is worth more than a bunch of other goods that it was worth less than yesterday. That just throws the whole system out of wack.

    •  Whack the system (3+ / 0-)
      Recommended by:
      wsexson, Saint Jimmy, zedaker

      From the first point:

      at the higher wage rates, you are going to be left with excess supply of people wanting to do those jobs, and you will see unemployment rise.
       This is begging the question.  The notion that imposing a minimum wage will lead to any significant increase in unemployment is exactly what is at issue, and I see no good evidence that it will.

      From the second point:

      If you try to just start paying people more, you're saying their labor is worth more than a bunch of other goods that it was worth less than yesterday.
       This is also begging the question.  In what way is a worker "worth less" when they are paid less?  My argument was that we must question this idea of a worker's "worth," and recognize that the wage a worker can garner on the market often fails to capture what he or she is really "worth" to an employer.
      That just throws the whole system out of wack.
       Too bad.  Looking at the history of this country, including the conditions that workers faced before safety laws, child labor laws, minimum wages, etc., I'd say the unrestrained free market needs some whacking.

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