Economics lessons for Non-MBAs - Part 2
Posted October 7, 2009 – 4:46 pm in: My writings<Continued from http://blog.raviunravels.com/?p=65 >
Impact of Union Policies:
We often hear about Unions demanding better wages. The persistent notion is that the interests of a nation’s workers are identical with each other, and that an increase in wages for one union in some obscure way helps all other workers.
Is there anything wrong ?
It is at least possible for unions to make their gains in the short run at the expense of employers and investors. The investors once had liquid funds. But they have put them, say, into the railroad business. The railway unions may force them to accept smaller returns on this capital already invested. The investors will not put a cent more into railroads. Thus the exploitation of capital by labor can at best he merely temporary.
Impact of “Minimum Wage” laws:
Minimum wage laws are considered to protect the labour community of being exploited by the industry.
Is there anything wrong ?
By a minimum wage of, say, $2.65 an hour, we have forbidden anyone to work forty hours in a week for less than $106. Suppose, now, we offer only $70 a week on relief. This means that we have forbidden a man to be usefully employed at, say, $90 a week, in order that we may support him at $70 a week in idleness. We have deprived society of the value of his services.
If the relief is $106 a week, for example, workers offered a wage of $2.75 an hour, or $110 a week, are in fact, as they see it, being asked to work for only $4 a week—for they can get the rest without doing anything.
The best way to raise wages, therefore, is to raise marginal labor productivity. This can be done by many methods: by an increase in capital accumulation — i.e., by an increase in the machines with which the workers are aided; by new inventions and improvements.
Tags: economics, economics in one lesson