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| INTRO TO LIBERTARIAN ECONOMICS |
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WORKERS AND CONSUMERS |
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One obvious result of the basic model is that the greater the wages paid to employees, the greater the cost of the goods and the less competitive the company. This, according to many, means that only the wealthy will eventually be the beneficiaries of this system, while the workers are placed in what amounts to slave labor with wages insufficient to purchase the necessities of life.
The first point which must be considered is that when workers are paid more money, the price of the goods they produce increases. When the cost of producing those goods increases, then the price to other consumers increases as well. This is so because, according to the model, unless the producers are engaged in a monopoly, the producer is already producing the individual units at the lowest necessary profits to keep him involved in production yet prevent competitors from decreasing his market share by underselling him. Thus, the wage increase benefits a small group of workers to the eventual detriment of others, unless the wages of all the other workers increase as well. If the other producers do not increase wages for their employees (due to threats of labor strikes, etc...), unless the increased wages led to increased unit production, the other companies will increase market share by underselling the producer who increased wages, resulting in bankruptcy for the latter, and unemployment for his workers. If, on the other hand, the competitors raise the wages of their employees, there are several possible results: (1) the product is necessary and there are no suitable, cheaper alternatives - in which case they will have to pay higher prices for those goods and have to forgo other, albeit less necessary, goods, decreasing their standard of living and causing a reduction in the demand of those less necessary goods. The effect will be that as demand in other industries declines, the producers have to cut back on employment so that persons are put out of work. Those persons then becoming unemployed will not be able to afford to buy essential and/or desirable goods, causing a chain-reaction of decreasing demand and unemployment; however, the workers who received pay increases in the initial industry will benefit and be able to buy more of other goods, increasing demand in some areas to balance the decrease in demand from others. Essentially, then, most people would be worse off because they could less afford to buy the goods they wanted or needed while the workers who had raises benefit from the others' losses; (2) economic injury to the workers in areas outside that in which raises occurred causes a decrease in worker production in those fields and enlightened employers realize that an increase in |
wages may well increase job satisfaction and increase per-person production [likely to be limited to only those fields in which such a raise will probably have the desired effect];
(3) where the product is non-essential or a cheaper alternative exists, (assuming only those employees in the particular market had wage increases), the consumers will turn to the cheaper alternatives, resulting in lower demand and, thus, reduced employment throughout the particular market; (4) the producers move all or part of their production out of the country; (5) further mechanization is found to be viable, even necessary, in order to increase market share or compete with other companies either engaged in mechanization, or which have moved some or all stages of production to (or exist in) nations in which some portion of the production costs are lower - the result of which is job loss in the nation concerned; or (6) the law and/or protected striking forces the producers to increase wages, a new balance occurs, so that all the workers are earning more - and paying more! Some will find themselves worse off, some marginally better off. Thus, the result of increasing wages typically has a negligible or injurious effect on consumers and/or Workers!.
Similarly, to some degree, incremental decreases in wages decrease the prices of various goods and services so that a balance is reached [due to some competitors dropping the per-unit price by roughly the amounts saved in reduced wages in order to increase market share, causing their competitors to do the same in order to protect or gain back the market share lost. Reduced wages therefore will result in reduced costs. These reduced costs make the products more competitive at home and abroad. Further, these reduced prices have a chain effect by decreasing the cost of energy, extraction of raw goods, earlier stages of refinement, etc... Thus, there is less fear of increased mechanization or job loss to other nations. Finally, when one company sees an employee being paid a certain amount of money and decides that hiring him at a slightly higher price will increase the overall production for each dollar spent, it will be willing to hire the worker away [this is also true where training costs will be avoided]. Further, the same company, wanting to keep an employee, will offer him approximately the amount of money they estimate another company would pay in order to employee him for itself. Thus, companies will offer increased wages where they are beneficial to its productivity, but they will not keep employees at wages which will reduce overall production for a specific amount of dollars spent. |