Saturday, February 22, 2020

Raising Unskilled Wages

Few things in micro-economics are better understood than the nearly ironclad inverse relationship between supply and demand and the consequent influence on price of goods sold. Hold demand constant and increase supply, price goes down; hold supply constant and increase demand, price goes up.

Applied to labor and its price (wages), if you hold demand constant or raise it, while lowering supply then wages should rise. This happens as employers bid up the wage for scarce workers.

Defending our borders, Trump has reduced the supply of illegal immigrants and, mirabile dictu, wages for low-skill workers have increased. Gardeners, nannies, and pool boys cost more to hire, these are exactly the people wealthy Democrats like to hire cheap.

See a snarky treatment of this relationship at Power Line, comparing it to the sarcastically named “Fox Butterfield” effect where a NYT writer was amazed that as incarceration went up, crime went down. As though locking away career criminals wouldn’t reduce instances of crime, which of course it does.

Much of what is wrong with socialism is its blithe ignorance of supply and demand. Rather than let market demand tell producers what and how much to produce, central planners make these decisions and, more often than not, make them incorrectly.