The bog-standard classical (and, yes, “libertarian”) answer is that wages work exactly the same as all other prices—prices for candy bars, gasoline, houses, lawn mowing services, plumbers, and milk.
That’s to say, supply and demand (sellers and buyers) set prices, same as with everything else. If buyers don’t like the price, they shop around some more, settle for a lower-quality “product” that’s cheaper, or offer more to get what they want. If sellers don’t like what’s on offer, they look for another buyer who’ll pay more, try to improve the “product”, or settle for what buyers are willing to pay.
Generally speaking, price controls (a minimum wage is a price floor on labor) make things worse for pretty much everybody—laws that make mutually-advantageous trades illegal are generally a bad idea. Plenty of countries don’t have any minimum wage (last I checked, those included Denmark, Iceland, Norway, and Sweden—all pretty decent places to live).
There’s a whole academic field dedicated to studying and understanding this called “economics”.
It seems like all the countries you named have gvt enforced worker’s rights, and strong gvt support for the unemployed (as well as strong non-gvt collective bargaining). That seems like a big factor to me in determining the wage equilibria, and isn’t a standard part of the libertarian model, right? So my question is, what are the principles underlying what determines these equilibria.
Realistically, wages aren’t like other prices because they are “sticky” in both directions. Employers will rarely offer a substantial increase to the remuneration of someone they’ve already got, and also won’t reduce the salary of anyone with seniority , even if they have declined in productivity.
Wages are also unlike other prices , because there is a natural minimum wage, an amount below which you can’t literally survive on.
Exactly. And if you can’t survive, you stop participating in the market. Which means that reasoning based on equilibria of immortal agents may or may not apply. And it seems plausible that in fact, in practice, employers basically threaten workers with starvation as a negotiating tactic.
...but only because things are rigged to favour employers. Employment is almost always a buyers market, but everybody sees that as a fact of nature. In the rare periods during which workers can bargain up their wages, that’s the demon of inflation...
If a job takes up all the time you have available to work,there’s a natural minimum wage. Otherwise you are saying that two half jobs can add up to one job, which is true but uninteresting. In terms of hourly rates , there’s a natural minimum hourly rate, whether you get it from one job or two or three.
Yes, but not everyone. You’re basically giving up on the idea that everyone has a right to life...a practical right to life. Libertarianism isn’t the best system if a few low-productivity manage to survive, because almost any other system does better regarding low productivity people.
What are you trying to maximise? What are your values, and why are they the true values?
Of course. Politics is downstream of ethics. So is economics, more surreptitiously. An economist can tell you how to get more of what you value, but shouldn’t be telling you what to value.
Those things seem like they apply to many types of trade.
Most prices are sticky—neither producers nor consumers tend to change very much, except by changing the product (different brand, features, etc. analogous to changing jobs or employees). And there’s no natural minimum wage any more than there’s a natural maximum cost of a carrot—the proof is that $0 is the wage for many activities, and a significant subset of any population currently seems to still be alive with no legible (minimum-wage-applicable) job at all.
$0 is the wage for many activities, and a significant subset of any population currently seems to still be alive with no legible (minimum-wage-applicable) job at all
Since it is impossible to live with no income, they have an income. Since they are not generating an income, they are getting money from somewhere else. That can only be a voluntary transfer, from charity/family, or an involuntary transfer from the tax-and-welfare system.
Libertarianism strongly opposes the tax-and-welfare system, so low productivity people would have to find private charity in libertopia. If you are below a certain level of productivity, you cannot sustain yourself in libertopia by getting a job, even if jobs are more available in libertopia, because the libertarian wage is what you are worth to an employer, not what you need to survive.
Libertarianism strongly opposes the tax-and-welfare system
I don’t think this is true, though it may not be false either—I haven’t surveyed formally, and I don’t think Libertarianism is coherent enough to make such statements.
The lowercase-l libertarians I know (and was once, though I currently identify as “other”) are quite mixed on what to do about the small or not-so-small portion of humanity that can’t fully take care of themselves. I know of literally none who advocate for starvation. They’re pretty universally against the insane complexity of the current tax-and-welfare system which picks and chooses based on arcane and unsupportable divisions. But there’s a lot of interest in UBI or much simpler and non-judgmental subsidies, paid for by simple tax regimes.
Perhaps you are both right… in the sense that most libertarians do not want to see people starve… but would oppose any forceful coordination e.g. via taxation… and would fail to coordinate otherwise… so at the end, many people would starve, and many non-starving people would say “this is horrible and I don’t want this, but I don’t have enough money to solve this problem alone, so currently my priority is to get more rich, and after I become a trillionaire then I will be able to address the problem of starvation”.
Big-L libertarianism is axiomatic. If the primary axiom is that everything is voluntary, everything else, including the right to life, has to shuffle down.
Voluntariness is a nice applause light, but calling it an “axiom” I am not sure if that even makes sense logically.
If I desire to steal your property, but you threaten to shoot me, so I give up… does it make sense to say that I voluntarily decided to not steal your property? Because if you extend the definition of “voluntary” to include things done under threat of death, then if I threaten to shoot you unless you give me your property, and you don’t want to die so you give it to me, then under the extended definition you also gave me your property “voluntarily”.
As far as I know, the usual definition is “do not initiate violence”, and even that has a lot of gray area around what “initiate” and “violence” mean exactly. If I create negative externalities (for example my factory polutes the air), at which moment does it become a violence? Are smokers violently attacking other people by their smoke? Sick people by breathing? Is it violence to violate someone’s intellectual right? (Some libertarians say “obviously yes”, others say “obviously no”.) Is lying a violence? Is libel? Without exact definition of violence you also can’t have an exact definition of initiation, because if one party does something that is maybe-violence-maybe-not-violence, and the other party responds by clear violence, which one of them was the “initiator” of violence?
tl;dr—most libertarians way overestimate the axiomatizability of libertarianism
Lots of other prices are “sticky” like that. It’s a psychological thing—nothing special about wages.
The question was about wages, not how to survive. Lots of people who earn wages don’t live on them. Lots of people don’t sell their labor at all. Children, disabled people, retired people, people in business, etc. don’t live on wages.
How to get enough money to live is an entirely separate question from how “wages work”. There are lots of other ways to survive that don’t involve wages—making and selling things, telling stories and writing books, gifts from family or friends or charitable organizations, making art, receiving grants, spending money previously saved or invested, welfare payments from governments, etc., etc. (A lot of talk lately about “Universal Basic Income”, too.)
Really “how wages work” and “how to get money to survive” are two entirely disconnected subjects. Mixing them together only leads to confusion (and I’m sorry to say, misery).
My question is specifically about the game theory of employee/employer relations, with wages as a key example, not generally “how to get enough money to survive”. But of course the need to survive affects that game theory, right? Because, for example, equilibrium reasoning assumes agents with a comparable ability to coordinate (whereas managers are fewer than workers), and it assumes immortal agents (which humans aren’t).
Managers are fewer than workers but there are thousands of firms in every country (as well as millions of workers) so in either case we’re well into the law of large numbers. There’s no practical way for thousands of entities to form stable cartels (without government backing).
If you worry about employers in a city forming a cartel to keep wages low, shouldn’t you worry even more about supermarkets doing the same to keep grocery prices high? There are a lot fewer supermarkets than firms that employ workers.
And all other prices are set by dealings between mortal entities.
I don’t think there are good reasons to treat worker-employer relations as any different than seller-buyer relations for any other goods or services.
I think you’re complicating things needlessly by treating the labor market as different from all other markets—cartels and unions are the same thing. Scabs and those who undermine cartels are the same thing. Price controls are price controls.
In general price caps (say, rent control) are bad because they cause shortages, blunt incentives to provide more supply and improve quality, and prevent people from buying things at prices they’re willing to pay. Price floors (say, minimum wages) are bad because they create gluts (unemployment), reduce incentives to create jobs, and prevent people from selling stuff at prices they’re willing to accept (esp. the labor of the least-skilled workers).
In general. There’s nothing terribly different about the labor market vs. other markets.
> so in either case we’re well into the law of large numbers.
True. But this doesn’t help with the part where a manager can outlast a given worker in a negotiation-war. Say a manager has 10 employees. Given a manager, an employee makes 10 widgets per year. Right now, the manager takes 1 widget from each employee per year. A person needs 7 widgets/year to survive. So the manager goes to the first employee and says, okay, now I’m going to take 2 widgets / year from you. Should the employee quit? They’ll have costs to look for another job, and maybe will have to move, and maybe they won’t even find a job that pays more than 8 widgets / year. Should they bargain, holding out for 9 widgets/year? The manager is already getting 9 widgets /year from the other employees. The employee, though, is starting to starve.
You’re saying that other managers will bid for the employee. They might… but I don’t see why it’s true in general that the managers bidding against each other for employees overpowers the incentive to lower wages. Do you? Can you give an argument, e.g. a toy example? Do you want to make a claim like “most businesses have conditions where managers can’t ‘exploit’ workers” for some appropriate value of “exploit”? For example, it seems like if managers can only manage up to 10 employees (e.g. because it’s hard to manage), then things are bad for the employees. Unless they can coordinate. But coordination might be hard in some cases. We could say, that’s not stable because there could just be more managers… but is that right? It could be a general fact, but I don’t see why, and I’m asking for arguments.
>I don’t think are good reasons to treat worker-employer relations as any different than seller-buyer relations for any other goods or services.
Yeah this really doesn’t make sense to me. Can you expand? Are you saying that you expect the equilibration dynamics to output “roughly the same” result, or “roughly the correct” result, or “roughly the best feasible” result, in most / all markets? Why would that be? It seems like parameters of the market, like asymmetric information, difficulty of collusion for different parties, cognitive costs of computing relevant stuff, transition costs between different options, iterative dynamics (e.g. starving to death, Matthew effect), etc. would make the equilibration look different in different markets, maybe drastically different, and maybe drastically bad / unjust / suboptimal.
>In general price caps....
Ok… but I’m not particularly arguing for any of that. I’m trying to understand what your (/people’s) models of how these things actually go. I wouldn’t guess that you’d agree with the very strong claim “a bunch of individuals making local causal best-responses produces trades that are optimal for long-term flourishing of humankind”, but I don’t know specifically how your models differ from that.
I’m amazed you only have 4 answers so far.
The bog-standard classical (and, yes, “libertarian”) answer is that wages work exactly the same as all other prices—prices for candy bars, gasoline, houses, lawn mowing services, plumbers, and milk.
That’s to say, supply and demand (sellers and buyers) set prices, same as with everything else. If buyers don’t like the price, they shop around some more, settle for a lower-quality “product” that’s cheaper, or offer more to get what they want. If sellers don’t like what’s on offer, they look for another buyer who’ll pay more, try to improve the “product”, or settle for what buyers are willing to pay.
Generally speaking, price controls (a minimum wage is a price floor on labor) make things worse for pretty much everybody—laws that make mutually-advantageous trades illegal are generally a bad idea. Plenty of countries don’t have any minimum wage (last I checked, those included Denmark, Iceland, Norway, and Sweden—all pretty decent places to live).
There’s a whole academic field dedicated to studying and understanding this called “economics”.
It seems like all the countries you named have gvt enforced worker’s rights, and strong gvt support for the unemployed (as well as strong non-gvt collective bargaining). That seems like a big factor to me in determining the wage equilibria, and isn’t a standard part of the libertarian model, right? So my question is, what are the principles underlying what determines these equilibria.
Realistically, wages aren’t like other prices because they are “sticky” in both directions. Employers will rarely offer a substantial increase to the remuneration of someone they’ve already got, and also won’t reduce the salary of anyone with seniority , even if they have declined in productivity.
Wages are also unlike other prices , because there is a natural minimum wage, an amount below which you can’t literally survive on.
Exactly. And if you can’t survive, you stop participating in the market. Which means that reasoning based on equilibria of immortal agents may or may not apply. And it seems plausible that in fact, in practice, employers basically threaten workers with starvation as a negotiating tactic.
...but only because things are rigged to favour employers. Employment is almost always a buyers market, but everybody sees that as a fact of nature. In the rare periods during which workers can bargain up their wages, that’s the demon of inflation...
There’s no natural minimum wage as not all money a person earns comes from a specific job.
People happen to work for other motivation then money as well. Some people take up jobs to increase there skills.
I remember from a YC talk that not paying the founders minimum wage in the beginning is often a source of legal issues.
If a job takes up all the time you have available to work,there’s a natural minimum wage. Otherwise you are saying that two half jobs can add up to one job, which is true but uninteresting. In terms of hourly rates , there’s a natural minimum hourly rate, whether you get it from one job or two or three.
In reality many people have relationships with other people that allow them to live even if they don’t earn enough money to feed themselves.
Yes, but not everyone. You’re basically giving up on the idea that everyone has a right to life...a practical right to life. Libertarianism isn’t the best system if a few low-productivity manage to survive, because almost any other system does better regarding low productivity people. What are you trying to maximise? What are your values, and why are they the true values?
What you write sounds like you mix questions about whats true very much with question of what you think should happen.
Of course. Politics is downstream of ethics. So is economics, more surreptitiously. An economist can tell you how to get more of what you value, but shouldn’t be telling you what to value.
Those things seem like they apply to many types of trade.
Most prices are sticky—neither producers nor consumers tend to change very much, except by changing the product (different brand, features, etc. analogous to changing jobs or employees). And there’s no natural minimum wage any more than there’s a natural maximum cost of a carrot—the proof is that $0 is the wage for many activities, and a significant subset of any population currently seems to still be alive with no legible (minimum-wage-applicable) job at all.
Wages are stickier
Since it is impossible to live with no income, they have an income. Since they are not generating an income, they are getting money from somewhere else. That can only be a voluntary transfer, from charity/family, or an involuntary transfer from the tax-and-welfare system.
Libertarianism strongly opposes the tax-and-welfare system, so low productivity people would have to find private charity in libertopia. If you are below a certain level of productivity, you cannot sustain yourself in libertopia by getting a job, even if jobs are more available in libertopia, because the libertarian wage is what you are worth to an employer, not what you need to survive.
I don’t think this is true, though it may not be false either—I haven’t surveyed formally, and I don’t think Libertarianism is coherent enough to make such statements.
The lowercase-l libertarians I know (and was once, though I currently identify as “other”) are quite mixed on what to do about the small or not-so-small portion of humanity that can’t fully take care of themselves. I know of literally none who advocate for starvation. They’re pretty universally against the insane complexity of the current tax-and-welfare system which picks and chooses based on arcane and unsupportable divisions. But there’s a lot of interest in UBI or much simpler and non-judgmental subsidies, paid for by simple tax regimes.
The ones I know are exactly the people who say taxation is slavery.
Perhaps you are both right… in the sense that most libertarians do not want to see people starve… but would oppose any forceful coordination e.g. via taxation… and would fail to coordinate otherwise… so at the end, many people would starve, and many non-starving people would say “this is horrible and I don’t want this, but I don’t have enough money to solve this problem alone, so currently my priority is to get more rich, and after I become a trillionaire then I will be able to address the problem of starvation”.
Big-L libertarianism is axiomatic. If the primary axiom is that everything is voluntary, everything else, including the right to life, has to shuffle down.
Voluntariness is a nice applause light, but calling it an “axiom” I am not sure if that even makes sense logically.
If I desire to steal your property, but you threaten to shoot me, so I give up… does it make sense to say that I voluntarily decided to not steal your property? Because if you extend the definition of “voluntary” to include things done under threat of death, then if I threaten to shoot you unless you give me your property, and you don’t want to die so you give it to me, then under the extended definition you also gave me your property “voluntarily”.
As far as I know, the usual definition is “do not initiate violence”, and even that has a lot of gray area around what “initiate” and “violence” mean exactly. If I create negative externalities (for example my factory polutes the air), at which moment does it become a violence? Are smokers violently attacking other people by their smoke? Sick people by breathing? Is it violence to violate someone’s intellectual right? (Some libertarians say “obviously yes”, others say “obviously no”.) Is lying a violence? Is libel? Without exact definition of violence you also can’t have an exact definition of initiation, because if one party does something that is maybe-violence-maybe-not-violence, and the other party responds by clear violence, which one of them was the “initiator” of violence?
tl;dr—most libertarians way overestimate the axiomatizability of libertarianism
Lots of other prices are “sticky” like that. It’s a psychological thing—nothing special about wages.
The question was about wages, not how to survive. Lots of people who earn wages don’t live on them. Lots of people don’t sell their labor at all. Children, disabled people, retired people, people in business, etc. don’t live on wages.
How to get enough money to live is an entirely separate question from how “wages work”. There are lots of other ways to survive that don’t involve wages—making and selling things, telling stories and writing books, gifts from family or friends or charitable organizations, making art, receiving grants, spending money previously saved or invested, welfare payments from governments, etc., etc. (A lot of talk lately about “Universal Basic Income”, too.)
Really “how wages work” and “how to get money to survive” are two entirely disconnected subjects. Mixing them together only leads to confusion (and I’m sorry to say, misery).
My question is specifically about the game theory of employee/employer relations, with wages as a key example, not generally “how to get enough money to survive”. But of course the need to survive affects that game theory, right? Because, for example, equilibrium reasoning assumes agents with a comparable ability to coordinate (whereas managers are fewer than workers), and it assumes immortal agents (which humans aren’t).
Managers are fewer than workers but there are thousands of firms in every country (as well as millions of workers) so in either case we’re well into the law of large numbers. There’s no practical way for thousands of entities to form stable cartels (without government backing).
If you worry about employers in a city forming a cartel to keep wages low, shouldn’t you worry even more about supermarkets doing the same to keep grocery prices high? There are a lot fewer supermarkets than firms that employ workers.
And all other prices are set by dealings between mortal entities.
I don’t think there are good reasons to treat worker-employer relations as any different than seller-buyer relations for any other goods or services.
I think you’re complicating things needlessly by treating the labor market as different from all other markets—cartels and unions are the same thing. Scabs and those who undermine cartels are the same thing. Price controls are price controls.
In general price caps (say, rent control) are bad because they cause shortages, blunt incentives to provide more supply and improve quality, and prevent people from buying things at prices they’re willing to pay. Price floors (say, minimum wages) are bad because they create gluts (unemployment), reduce incentives to create jobs, and prevent people from selling stuff at prices they’re willing to accept (esp. the labor of the least-skilled workers).
In general. There’s nothing terribly different about the labor market vs. other markets.
> so in either case we’re well into the law of large numbers.
True. But this doesn’t help with the part where a manager can outlast a given worker in a negotiation-war. Say a manager has 10 employees. Given a manager, an employee makes 10 widgets per year. Right now, the manager takes 1 widget from each employee per year. A person needs 7 widgets/year to survive. So the manager goes to the first employee and says, okay, now I’m going to take 2 widgets / year from you. Should the employee quit? They’ll have costs to look for another job, and maybe will have to move, and maybe they won’t even find a job that pays more than 8 widgets / year. Should they bargain, holding out for 9 widgets/year? The manager is already getting 9 widgets /year from the other employees. The employee, though, is starting to starve.
You’re saying that other managers will bid for the employee. They might… but I don’t see why it’s true in general that the managers bidding against each other for employees overpowers the incentive to lower wages. Do you? Can you give an argument, e.g. a toy example? Do you want to make a claim like “most businesses have conditions where managers can’t ‘exploit’ workers” for some appropriate value of “exploit”? For example, it seems like if managers can only manage up to 10 employees (e.g. because it’s hard to manage), then things are bad for the employees. Unless they can coordinate. But coordination might be hard in some cases. We could say, that’s not stable because there could just be more managers… but is that right? It could be a general fact, but I don’t see why, and I’m asking for arguments.
>I don’t think are good reasons to treat worker-employer relations as any different than seller-buyer relations for any other goods or services.
Yeah this really doesn’t make sense to me. Can you expand? Are you saying that you expect the equilibration dynamics to output “roughly the same” result, or “roughly the correct” result, or “roughly the best feasible” result, in most / all markets? Why would that be? It seems like parameters of the market, like asymmetric information, difficulty of collusion for different parties, cognitive costs of computing relevant stuff, transition costs between different options, iterative dynamics (e.g. starving to death, Matthew effect), etc. would make the equilibration look different in different markets, maybe drastically different, and maybe drastically bad / unjust / suboptimal.
>In general price caps....
Ok… but I’m not particularly arguing for any of that. I’m trying to understand what your (/people’s) models of how these things actually go. I wouldn’t guess that you’d agree with the very strong claim “a bunch of individuals making local causal best-responses produces trades that are optimal for long-term flourishing of humankind”, but I don’t know specifically how your models differ from that.