Wednesday, 13 February 2013

In which Matt gets it right

Over at TVHE Matt Nolan has a good rant and gets things right in the process. He writes,
Let me start this by underlying everything with a certain point – living wages are idiotic if our concern is to make sure that the worst off in society have a sufficient income. By imposing a “price floor”, you are ensuring that there are a group of people who can’t get jobs and will get hurt – unions don’t care because they don’t represent the unemployed, but I find it morally abhorrent. You want a minimum standard of living for societies worst off – have a minimum income, it’s as easy as that.
One point worth emphasising is that demand curves slope downwards. Yes even labour demand curves are downwards sloping, unless you think labour is a Giffen good. You can set a living wage at any level you want if you are willing to accept the unemployment that will follow if the wage is above the equilibrium wage. The higher the living wage the higher the unemployment it will cause.

1 comment:

Horace the Grump said...

Yet it seems that many many people understand the basic concepts of supply and demand but completely lose any thinking on the matter when it comes to labour markets...

Its almost as if you need to get every policy wonk there is and tattoo 'demand curves slope downwards!' on their foreheads... at least it would obscure the word 'f**kwit' that for many of them is already tattooed there!