Last Tuesday was May Day. May Day is the traditional celebration day of International Socialist Movements to celebrate what they see as their achievements in the promotion of worker’s rights. However, we should consider if the rights workers now have are really caused by labour unions and government legislation, or in fact by capitalism itself. This is perhaps best illustrated by looking at minimum wage and worker protection legislation through both philosophic and economic lenses.
Philosophically, why should a worker be disallowed to offer her labour at $8 an hour, and why should an employer be unable to take the worker up on that offer? The only answer can be: “That’s not enough to live on, let’s just bump it up, and the employer can just earn a little less money than he already does.” The problem with this answer is that it assumes that the contract will still go ahead, but what if bumping the minimum wage up actually stops the contract even happening?
No one can seriously contend that the vast improvement in the lives of millions of people in the (what we now call) developed world are as a result of minimum wage laws. If that were the case, we should merely just keep putting up the minimum wage – all of us will get richer surely? But a simple thought experiment destroys this logic. If we put the minimum wage up to $350 an hour, does anyone really think that we would all soon be millionaires? The day after we had finished celebrating our pay rise, almost all of us would find ourselves out of a job. Very few workers are productive enough to be paid $350 an hour, and so the ones who are not productive enough will no longer have a job. The same is true if we increased the minimum wage to $11 an hour. Now you may say: “Brothers in Anarchy, are you really saying that people aren’t worth $11 an hour!?” That is a mistake of confusing a person’s value as a human with the value of their labour to others. We are saying that some people’s labour is not worth $11 an hour to some other people, and if you try and make them pay that wage they will simply not employ them.
When anyone thinks of the minimum wage increasing, they usually have a particular job in mind. They think that their friend at McDonalds will get a 50c an hour pay rise, and that will be great, because McDonalds is greedy and they would prefer their friend to get the 50c extra an hour rather than McDonalds. I agree that McDonalds is greedy; all they are is a profit making machine.
That’s what their stockholders want them to do; they were never asked to be a charity. But what happens when we try to make them into a charity? They do not change their fundamental greedy nature, they just find ways to minimise any increased costs. Maybe they’ll get a machine to do a job they were paying someone $10 an hour to do. Maybe they will just not expand their workforce, depriving some workers from getting a job who otherwise would have. Maybe McDonalds will simply become much less profitable, stop opening stores and no more workers will face the degrading shame of earning $10 an hour; they’ll just be unemployed. This is a standard first year economics lesson, but one that is seldom truly learnt.
The same mistake is made with regards to something like worker protection laws. Some readers might think that this is a good thing that workers cannot be fired easily.
Unfortunately, worker protection laws have much more insidious effects than the ones we can easily see. If an employer knows that she cannot fire someone easily if they do a bad job, they will never take risks by hiring “risky” people. Who are risky people? Some are people who have a previous conviction. Some might be those who do not speak English very well. Employers will discriminate.
If we “protect” workers even more, by perhaps making it illegal to ask if someone has convictions for certain offences, we harm these “risky” people even more. Now an employer cannot ask if a worker has any criminal history, so what does the employer do? Well the employer has looked at the statistics available on www.stats.govt.nz, and noted that some races are more likely to have criminal convictions than others and will no longer employ people of those races. If this is far fetched, if you think it’s ridiculous that someone would discriminate based on race, then why do we have a law against that sort of discrimination? (Which is, of course, impossible to enforce)
So what has increased workers rights and living conditions? Human Ingenuity and Capitalism. People consistently find ways to make each other more productive with better education, better tools, better ways of doing things. The profit motive of firms makes workers more productive and contributes to their higher wage. To quote Adam Smith who over 200 years ago said, “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.”
Similarly, we cannot expect charity from employers, but we can expect self-interest. It is this self-interest that ensures that workers have access to higher paid and safer jobs. Thanks Capitalism!