Economics 101: Wages
Congress recently broke an arm or two patting itself on the back for raising the minimum wage. About a month later, Chrysler announced the approaching cuts of 13,000 jobs. Are the two events related? What does it mean that now, as Chrysler cuts jobs, Toyota's car factories are increasing their output and hiring more workers? The answer to the first question is "yes." A higher minimum wage enables unions to negotiate higher wages for their skilled workers. The fundamental difference between Chrysler jobs and Toyota jobs begins with a U: unions. Toyota's flourishing factories are powered by non-union workers, whereas Chrysler's labor is largely unionized, especially in the Detroit area. The car industry in Detroit is declining in part because unionized labor refuses to go the way of the horse and buggy. At the root of this problem are the most basic elements of economics.
In high school, we learn that capital is made of goods and services. Those two commodities are the sources of all value. Land, gold, cars, and clothing are goods. Farm labor, grass cutting, house work and industrial work are services. In the free market, goods are worth what people will pay for them. Labor is worth what a boss will pay for it.
What do union bosses always (and I mean ALWAYS) ask for? "A living wage," is what they want, right? If I've heard it once, I've heard it a thousand times: wages must increase to match rates of inflation and costs of living. Is labor a service? Of course! Labor is a unit of capital that is worth what a boss is willing to pay for it. What should wages for labor have to do with the cost of living? In the free market, nothing. Toyota pays market wage, and manages to fill its employment rolls with workers. Because Toyota pays market wage, they have no worries about a minimum wage hike, whereas Chrysler will be hamstrung with huge increases in the costs of production due to wages getting raised artificially. The economic lesson in all of this is clear: market labor is beating union labor in competition. The days of industrial labor unions are numbered, as their decline continues.
To be fair, Chrysler has multiple problems aside from labor costs. They need to produce more desirable cars and might consider cutting some salaries, but those are decisions for the company to make internally. By raising the minimum wage, the government raises the price of labor artificially, which will only hurt the ability of American workers to compete in a global market.
In high school, we learn that capital is made of goods and services. Those two commodities are the sources of all value. Land, gold, cars, and clothing are goods. Farm labor, grass cutting, house work and industrial work are services. In the free market, goods are worth what people will pay for them. Labor is worth what a boss will pay for it.
What do union bosses always (and I mean ALWAYS) ask for? "A living wage," is what they want, right? If I've heard it once, I've heard it a thousand times: wages must increase to match rates of inflation and costs of living. Is labor a service? Of course! Labor is a unit of capital that is worth what a boss is willing to pay for it. What should wages for labor have to do with the cost of living? In the free market, nothing. Toyota pays market wage, and manages to fill its employment rolls with workers. Because Toyota pays market wage, they have no worries about a minimum wage hike, whereas Chrysler will be hamstrung with huge increases in the costs of production due to wages getting raised artificially. The economic lesson in all of this is clear: market labor is beating union labor in competition. The days of industrial labor unions are numbered, as their decline continues.
To be fair, Chrysler has multiple problems aside from labor costs. They need to produce more desirable cars and might consider cutting some salaries, but those are decisions for the company to make internally. By raising the minimum wage, the government raises the price of labor artificially, which will only hurt the ability of American workers to compete in a global market.
posted by Bountyhawk at 10:05 AM
1 Comments:
Preach it, brother: there's no reason the teenager behind the fast food counter at his summer job needs "a living wage."
Raising the minimum wage isn't some magic way of creating economic value from nothing.
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