Labor Day and Unemployment

Since today is Labor Day, it is a great opportunity to talk about unemployment.  Back in March, I had a post discussing unemployment.  I said that in a truly free market system that unemployment would be close to zero.  I did acknowledge that it would not be zero because there will always be some people in between jobs and a very tiny percentage who are unable to work.

After my post, there were a couple of statists who commented.  The first person did not write much and did not write anything intelligent enough to respond to.  The second person wrote more and I thought I would respond, not to convince that person, but just for the benefit of everyone else.

In my original post I wrote that I would be willing to pay someone $1 a day to be my personal assistant.  The commenter wrote, "I would find this funny if you weren't being so serious."  Of course, he left out the part right after that where I said, "I'm sure someone else would be willing to pay someone at least $20 per day to be their assistant."

This person obviously doesn't understand a reductio ad absurdum.  I said "$1 a day" to make a point.  The point is that without a minimum wage, there would be jobs available.  I could use a reductio ad absurdum on the other end of the spectrum too.  If the minimum wage is so great and doesn't cause unemployment, why not make the minimum wage $100 per hour or more?  Why be so stingy?

Next, the commenter says, "Abolishing the minimum wage and other 'restrictions' might create a few more jobs- but the jobs created will be paying very low wages and likely offer a lack of job security."  So he concedes that abolishing the minimum wage "might" create a "few" more jobs.  These are just word games to put spin on the whole thing.  But to his point about the jobs being low wage, he would like us to forget about history.  19th century America, while not perfect, was more free market than virtually anywhere else in history.  During this time, real wages for Americans rose dramatically and Americans saw a dramatic increase in their standard of living.

Next, the commenter writes, "Unemployment benefits also would be abolished in a true Libertarian economy."  Correction - government unemployment benefits would be abolished in a true libertarian economy.  In a free market, there is nothing to stop employers or outside insurers from offering unemployment insurance.

Next, the commenter says, "So what you would get is a situation where a bunch of people are forced to work hard for low wages.  They would have to work their butts off because they could be easily replaced and yet their wages may be so low they could be in poverty."  First, nobody would be "forced" to work for low wages.  Nobody would be forced to do anything in a free market economy.  Right now, you are forced not to take a job at certain wages.  You might want to get a job right now for $7 per hour, but a voluntary contract between you and a potential employer cannot take place because you want to hold a gun to the employer's head.  My scenario is not force.  Your scenario is force.  As for the latter part, you are again ignoring economics and history as real wages go up in a free market environment.

Next, the commenter says, "I also use the word 'might' create jobs- because you do not consider that existing jobs might simply lower wages instead, in order to increase the wages of employers."  This is such a foolish comment.  If this were the case, why don't all employers simply lower all wages right now to the minimum wage?

He concludes this post saying, "Yeah.... that sounds like a GREAT system you've thought up there."  Oh, you mean like the system of the late 19th century that created the greatest growth in history?  How is your system working out right now with over 9% unemployment?

In a second post, the commenter is back.  He says, "Please point to a single real world example where this has been the case, to prove that your claims are backed by solid real world evidence."  First, his request is not necessary to make my point.  All you have to do is study economics a little and use a little rational thought.  While it is impossible to find a real world example because there are no truly free markets, we can still see a correlation.  While there are not really unemployment statistics for 19th century America, it is reasonably well known that unemployment was not really an issue at that time.  And, of course, there were no government unemployment benefits or minimum wages.

For a more modern example, I think it is useful to look at Hong Kong.  Compared to the rest of the planet, Hong Kong has had a relatively free market economy.  From 1982 to 1997, the unemployment rate there averaged only 2.5%.  I think this shows a pretty good example of a relatively free market economy producing very low unemployment rates.

The commenter then says, "Can you please explain how 'Labor laws cause unemployment'."  This is exactly what I have already done.

To wrap up, the commenter writes, "Certainly in the UK, there has been no proven connection between the minimum wage and unemployment.  In fact, unemployment was much higher in the 1980's under the 'free market' policies of Margaret Thatcher and went DOWN after the minimum wage was introduced."  This is more leftist garbage.  The UK was anything but a free market in the 1980's.  Just like Reagan, Thatcher spoke in favor of liberty, but the policies did not usually represent free markets.  This last sentence by the commenter was just a partisan attack on Thatcher without any specifics on her supposed free market policies.

In conclusion, it won't matter what you say for some people.  They will never understand economics properly and they really don't want to understand.  This is what we are dealing with.  Fortunately, I think the majority of people are more logical than this guy.