The Fundamentals of the Labour Market

Ravening Pity


NZ Initiative has been producing some excellent pieces on the fundamentals of economics, markets, employment, production, consumption--that is, articles about what consumes the majority of the average citizen's time, effort, and attention.  These pieces, therefore, have a good deal to say about life and living. 

The philosophical approach of NZ Initiative draws heavily upon Adam Smith, and can be categorised as representing the classical liberal ideological corner.  This is a strength.  Adam Smith and his intellectual colleague, John Locke have much to teach us.  Moreover, much of what is wrong with the dominant mindset of the day with respect to economics--that is, the majority of peoples' lives and focused attention--is due to them having never learned or having forgotten what the classical liberal scholars have taught.

From the Christian perspective, Smith and Locke have taken some constructs of the Scriptures, but wrenched them out of the biblical narrative, and settled them within a deistic framework.  They made property rights the fundamental construct of a mechanistic world set in place by a god, but left to run as a self-perpetuating machine.  Without a true foundation and a biblical construct, the world-view of Smith and Locke cannot be sustained--which is precisely what has happened with the downstream developments and effects of classical liberalism.  By making property right an absolute, Smith ironically set in place the destruction of property rights by subsequent generations--which is where we are now.

Nevertheless, Smith has much to teach the modern world--with necessary qualifications and reconstruction notwithstanding.  NZ Initiatives piece on "L is for Labour Market" provides a powerful illustration of that.

'L' is for labour market

‘The labour market’ refers to all the places where firms look for people to hire, and where workers look for job opportunities. It exists because firms need workers and workers need jobs.

Employers need workers who will do the work at an affordable wage, while workers need jobs that pay an acceptable wage to meet their needs.

So both sides need to search for what they want, and employers have to compete with other employers while workers have to compete with other workers.

The labour market is thus like any other market.  It consists of thousands upon thousands of people wanting to sell their labour (their blood, sweat, toil, energy, creativity,  insights, etc.) to thousands upon thousands of employers owning and operating business enterprises.  Once this is granted, all the impersonal economic forces and constructs of a market are recognised as being in play: supply, demand, price, elasticity, equilibrium--and so forth.   But, if this is not granted, the economic forces of the labour market remain in play, but inevitably the participants and the authorities seek to work against the dynamics of a free labour market to exploit or protect their own position, to the detriment of everyone else. 

The employment contract is a deal between a willing employer and a willing worker about what the worker will do for the employer, and what the employer will do for the employee. The agreed wage is part of the deal, but as with any market, the outcomes of labour markets offend some notions of virtue and fairness.

The outcomes of all markets offend some people all of the time, and all people some of the time.  That's because notions of virtue and fairness differ.  One man's bargain is another man's rip-off.  Moreover, notions of what makes up a "fair society" are theological and philosophical in nature--and, therefore, will be as diverse and divergent as the number of philosophies and theologies operating in any society at the time. 

The scarcer a worker’s skills relative to society’s willingness to pay, the bigger the pay check. Luck also plays a big role, particularly in one’s country of birth. The lower the quality of a country’s economic institutions, the poorer the job opportunities.
To illustrate, according to ESPN, Kobe Bryant’s salary for the 2013-14 season with LA Lakers is US$30 million. Yet, the United Nations reports that 1.2 billion people, about 20 per cent of the world’s population, live on less than the equivalent of US$1 per day.
Views about the labour market are often intensely ideological. Marxists believe that government involvement is necessary to stop fat cat capitalists from exploiting workers. Firms are rich and powerful, while the worker is weak, and regulation is necessary to offset this imbalance.
This view ignores the power that competition between employers confers on workers. Would anyone pay Kobe Bryant $30 million otherwise? Johnny Paycheck’s 1977 country classic: “Take this job and shove it, I ain’t working here no more” epitomises the liberating power of choice.

"Choice" is a loaded term.  If by "choice" we mean the power of perpetual contrary choice, we are fools indeed.  Johnny Paycheck could choose to work elsewhere, but if there were no other job available, the liberating power of choice to "shove" his current job would merely be a path to deprivation and beggary.  In such a circumstance, Johnny Paycheck really has no choice but to continue to work at a job he detests.  His choices are so limited no alternative exists.  Thus, at that moment he has no "liberating power of choice".  

But at another level, Johnny does have a choice.  He can choose willingly to continue to work at a job he detests, and seek to improve his market advantage, gaining market leverage.  He could choose to upskill, to excel in diligence, reliability, honesty, integrity, and encouragement of fellow workers.  He could choose to work at improving his employer's business.  All this, too, represents a liberating power of choice.   Over time, in the ordinary course of divine providence, his value to the firm and thus his bargaining power over wages will increase.  His wider marketability will also likely improve.

The problem with much of the labour market regulation is that it effectively says that ‘we’, meaning those with jobs, would rather see others unemployed and on welfare rather than in a job that we think is not up to standard.

In New Zealand we have tolerated high youth unemployment because governments preferred to see young people without work than in a job paying less than the adult minimum wage. Just how does that make sense?

A deeper concern with labour market regulation at the expense of the most vulnerable, such as those with few skills trying to get their first job, is that it violates their very being. It is an awful thing to be unable to find a job, to feel that society puts no value on what you have to offer.

Adam Smith expressed this non-Marxist view over 200 years ago:

The property which every man has in his own labour; as it is the original foundation of all other property, so it is the most sacred and inviolable … To hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour is a plain violation of this most sacred property.

Letting people choose freely where they work, respecting their choices, and not imposing upon them our own notions and prejudices as to what constitutes a "fair wage" or  "worthwhile work", is a most respectful attitude toward others.  To attempt to make others conform to our particular notions of what is "good work" or a "better job", or "fair pay" represents high-handed arrogance.  But worse, as Smith points out, it is also an overreaching attempt to enslave another human being--violating one of his most sacred properties--his freedom to work as seems best to him.

In New Zealand we have seen numerous examples of this effete tyranny.  We used to have in this country hundreds of "sheltered workshops" where the physically and mentally disabled could work.  They were  the only places these folk could access to utilise and enjoy their most sacred property.  We used to see them getting on the buses at the end of a day's work.  They clearly were enjoying the dignity of labour, the pleasure of co-labouring with other human beings, the society of working together, and so forth.  But, they were paid much, much less than fully capable people.  The tasks were usually repetitive and menial--and, therefore, degrading to the haughty eyes of some.  The arrogant and condescending began to pour scorn upon such arrangements.  Such people "deserved" to be paid the minimum wage.  Laws were passed to that effect.

The result?  Sheltered workshops went out of existence.  They could not pay the legislated minimum wage because their staff were insufficiently productive.  Thousands of disabled people lost their jobs, and went on the dole.  Their lives were ripped apart.  Their most sacred property had been violated, stolen, torn up--by the arrogance of intolerant, condescending fools. 

In the hands of the perverse the concept of legislated "fairness" inevitably destroys lives.