« Sexual double standard | Main | Higher intelligence causes lower income (for people with bachelor's degrees), part III »

July 16, 2006

Comments

Why is it inefficient to use all the unskilled labor we have? You seem to be suggesting that the value of unskilled labor is so low that we're better off paying some people to stay home and do nothing.

You should know that the "Iron Law of Wages" had long been considered to be economically discredited in the modern world of rapid capital accumulation. It theoretically holds only when the reproductive rate of labor exceeds that of capital. In practice, even then it is only as valid as the
Even in Adam Smith's time, Coal Miners and Coal Haulers were paid 3x-6x the prevailing wage for unskilled clerks and the like. The Iron Law of Wages is a special case of the economic dictum that in a perfect market a commodity is sold for its cost of production. Like all economic dictums, this one is only generally true, and is only true at all respecting the marginal cost of production, not the average cost of production. Also, while labor is fairly commodified, it is not a perfect commodity and the unskilled labor market is quite far from being a perfect market (trivially true from observation of differences in quality of unskilled service in different stores, also suggested by analogy with the skilled labor market and productivity)

If government would just print enough money to hand out everyone 100K/year, just think how high wages would rise!

The Iron Law of Wages is a special case of the economic dictum that in a perfect market a commodity is sold for its cost of production.

The problem, of course, is that this is true in the general case only because producers will produce enough of the commodity to eliminate profits. But (modern) people don't decide to have children just because the child will eventually produce slightly more than it consumes. So the Iron Law of Wages specifies only a lower bound, not an upper bound.

Sorry, Sigma, but the so-called "Iron Law of Labor" only applies where Malthus prediction of the pauperization of the laboring classes holds, in places like rural India for instance. In the West, mirable dictu, we accumulated capital which raises the price of labor far above the bare subsistence level. In developed countries wages are set by the average marginal utility of labor (a function of capital deepening) for the particular skill-market and geographical locale concerned, if I am not mistaken. See Samuelson's textbook Economics for the basics here.

The comments to this entry are closed.