Many workers, especially in low skilled jobs, demand a certain level of job security and the offer of job security itself has proven to be a strong incentive for attracting job seekers to specific employers and industries. One of the main challenges to achieving a higher level of job security has been the recent turbulent nature of the business cycle in Western economies. Many low skilled workers aim to maximise their job security even at the expense of higher wages and benefits, and to do this they must insulate themselves from the volatility of the business cycle in the macro-economy. One of the time tested and simplest ways of doing this, is to get a job in the public sector. Thus, when there exists no minimum wage and nominal wage rates fluctuate freely in the market according to supply and demand, workers will attach a premium to public sector jobs and demand them more than for private sector job creation. Thus, the private sector would need to offer a higher relative wage rate plus benefits relative to equivalent jobs in the public sector for a given level of skill, risk and commitment. If they do not do this, then they will indirectly become reliant on public sector output and spending in the form of private business contracts and fiscal stimulus packages to local areas in order to stimulate employment and inflation in a Keynesian style for the private sector. In this case, the public sector competes with the private sector for labour supply unfairly, since private firms cannot assure their workers of stable and constant employment in the same way the tax-sucking public sector can.....this forces the domestic private sector to become more efficient and, over time, more capital intensive relative to the public sector, due to the productivity and labour cost differential between the two employing sectors. Thus, we come to two conclusion from this brief analysis: 1 - in a country without a minimum wage and freely fluctuating wage rates plus benefits, the private sector must either lift its wage rate plus benefits in order to equalise supply of labour between the two sectors, or 2 - the private sector must increase productivity at a faster rate than the public sector in order to increase the marginal efficiency of capital (return), attract capital and then reduce the private sectors reliance on human labour inputs. Thus, the minimum wage distorts capital allocation into feeding greater amounts of capital than required into low skilled industries, exacerbating unemployment in the regions that rely on those industries, and exacerbating the formation of monopsonys and cartels who try to hedge against high labour costs. The existence of these monopolies and cartels then helps further enrich the minority that owns and controls them, while further impoverishing the workers who couldnt get jobs in the private sector but are now stuck in increasingly complex industries making them more obsolete by the day. This sensed obsolescence then breeds a sense of contempt for the employers and the wealthier class, thus enflaming class consciousness and friction. Workers become more reliant on secure government employment and support, and less trustful of the private sector which has now formed a conspiracy to replace workers with machines and computers. This is how the minimum wage actually increases economic inequality and antagonises class consciousness rather than dissipate it. What a modern Liberal society needs is not higher minimum wages (and thus more redundancies and private sector monopsonys), but a Guaranteed Minimum Income program much like the Friedman NIT concept, that allows nominal wage rates plus benefits to fluctuate according to private sector demand, and also guarantees a minimum socially optimal standard of living for low skilled workers.
Posted on: Sun, 16 Mar 2014 11:05:01 +0000
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