[lbo-talk] Re: Internet left, minimum wages

Daniel Davies d_squared_2002 at yahoo.co.uk
Thu Jan 18 05:49:06 PST 2007


Re: Internet leftitude.

Max, Dennis, why not emigrate to the UK political blogosphere? It is much less frustrating, the "grown up liberals" are an embattled minority and the newspapers are in general more interesting. I am semi-serious. The only change that either of you would need to make would be that Dennis would need to change his blog title to reflect the fact that "red" means "Labour" over here. In general there should be more blogular migration. I am thinking of moving mine to Africa for the weather and more interesting newsflow.

Re: minimum wage annoyance.

Hullo Jason! The problem with the general run of the mill of minimum wage argument is that they don't realise that they're implicitly working from zero-profit models. If a company's making zero profit (or just enough to cover the return on its capital), then a minimum wage might have roughly the consequences they suggest. On the other hand, if the company's making an economic profit, then the incidence of the minimum wage is likely to be close to 100% on profits. So if someone was making a 20% return on capital in their business, and the effect of a minimum wage was to reduce that to 19%, then what do they do? They can't reduce the amount of labour they employ, because then they'd probably be looking at less than 19% return, and they can't close the whole business down and put the money in the bank, because that would make much less than 19%, so in the end they probably end up just wearing it. Since the case in which firms make profits is the normal one, the empirical results are less surprising than anyone thinks. In the well-beloved "Economics 101" view of the world, all firms only earn their cost of capital ("because if they earned any more, other companies would enter the market and drive prices down"). But it should not be hard to credibly maintain the point that this does not, in general, happen.

Another useful tactic is to demand that anyone talking about "the demand for labour" has to be absolutely clear about what they mean. Labour isn't consumed; it's an input to a production process. Production processes are *not*, in general, smoothly downward sloping, and there is therefore no reason to believe that labour demand will be either.

best dd

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