Kevin Carson recently wrote in support of the Fight for $15 movement. While usually associated with the modern fight for a state mandated minimum wage, Carson rejects that argument and instead turns to other methods by which the labor movement fought for better conditions and wages in the 19th century, such as “information and pressure campaigns against employers” and “direct action on the job.” While I’m glad to see Carson reject the state coercion in a government enforced minimum wage and the emphasize worker empowerment, I’m not in agreement when it comes to aligning with a concerted effort for a national wage floor.
Carson writes that the standard “right-libertarian” critique of raising workers’ wages, that forcing employers to pay above a worker’s marginal productivity will merely result in unemployment of laborers whose marginal productivity is below the minimum wage, rests upon three unwarranted assumptions. But I think Carson’s arguments rely on even more unwarranted assumptions. He writes,
First, it assumes that this is, in fact, a free market. But it is not. We have an economy in which the state has intervened in the market on behalf of capitalists and landlords to make capital and land artificially scarce and expensive, and acted in other ways to raise entry barriers against self-employment, so that wage employers are protected against the need to compete for workers against the possibility of self-employment or employment in worker-owned enterprise. As a result, employers are able to hire workers for a wage less than the full product of their labor; the difference between the free market wage of labor and what is actually paid under capitalism amounts to a substantial economic rent. Hence, an increase in wages resulting from increased bargaining power of labor can come out of this rent.
I believe Carson is generally on point in his analysis, but horribly wrong in his conclusion. Carson is right that state intervention creates barriers to entry into markets that give a privileged class artificial control over capital, which allows oligopolists to extract economic rents from labor. Carson is wrong in thinking that higher wages brought about by increased bargaining power can come out of this rent ceteris paribus. In some cases, increased worker bargaining power might result in higher wages at the expense of rent, but often this isn’t the case because employers usually have the ability to simply fund higher wages through reductions in expenses other than rents like hiring, production, advertising, foregone expansion, etc (this is a reason to let individual exchanges on the freed market determine the price of labor, not a national movement that supports a specific, uniform wage). Given that employers are so institutionally advantaged, why would they pay for these increased wages by reducing rents and not something else?
Carson addresses the second unwarranted assumption, “…that employers have some idea of what the marginal productivity of their workers is.” I agree this is an unwarranted assumption given the massive amount of state intervention that distorts markets and causes calculational chaos even within firms. And Carson rightly deduces, “This leaves bargaining by workers as an important part of the discovery mechanism by which the marginal productivity of labor is determined.” The negotiation and haggling involved in exchange does indeed help discover a worker’s marginal productivity. But how does a concerted effort for a national wage floor, even if brought about through nominally voluntary interactions like union membership and negotiation, help firms discover the marginal productivity of a given worker? That needs to be determined on an individual level between two or more free parties.
Discovering marginal productivity requires information specific to each context. All the details and information involved in a worker and their marginal productivity are special to that case and that exchange. A large-scale, uniform wage floor achieves the exact opposite of the natural entrepreneurial tendency of the market to allow individuals to discover and utilize knowledge available to them. Unless Carson has the knowledge relevant to every single instance of employment in the country to discover everyone’s marginal productivity, there is no reason to think the marginal productivity of every worker is at least $15 and no reason to support an effort for essentially a “voluntary wage floor”. Even if voluntary, the proposals suffer from the same knowledge problems that calls for state mandated minimum wages do. Discovering marginal productivity requires local knowledge available only to the people involved in the exchange, not just any advocate of labor.
Carson’s last “right-libertarian” unwarranted assumption is that, “the demand for labor is highly elastic.” But I’m not sure why this is accused of being unwarranted. The data is in: “”Evidence to date does not support the view that raising the minimum wage will lead to positive employment effects.” Minimum wages do cause unemployment. The demand for labor must be at least elastic enough so that employers can resort to hiring fewer employees because, according to the evidence, that is what they do. Why should we think “voluntary wage floors” would accomplish anything else? The demand for labor is clearly elastic enough so that employers can, at least on net, simply cease hiring to pay for wage increases, whether those wage increases are a result of bargaining or government coercion.
The reason that it’s unlikely for wage increases brought about through increased bargaining power to ever come out of artificial rents is because those rents are the result of institutional favoritism, not individual cases of sub-par bargaining. Even though the problem of artificially low wages is at first glance the result of a bunch of sub-par agreements due to worse bargaining, the root cause of this problem is institutional. There is no way to address the problem without addressing the institutions, which suffer from a lack of competition. Barriers to entry create oligopolistic capital markets without competition and so labor is at an artificial disadvantage in terms of bargaining power and can be subject to artificial rents. But increased bargaining power can’t lower artificial rents ceteris paribus because lack of competition allows employers to reduce other expenses to fund increased wages.
What’s needed is more competition. This is why I do like Kevin’s final suggestion of, “the formation of worker-owned and -managed enterprises by workers on strike.” This is the only solution that affects not the actual bargaining agreement between employee and employer, but the competition to the employer. Competition is what destroys artificial rents. And that’s exactly what a new, worker-owned and -managed firm would introduce. Of course it can be very difficult to do this, which is what makes the lack of competition so devastating.
An across the board, one-size-fits-all, imposed wage floor is not “compatible with anarchist principles” like Carson argues. I believe Carson is guilty of an unwarranted assumption of his own: that advocates of labor are not prone to the knowledge problem as much as government regulators are. This is not only unwarranted but absurd. The spontaneous and unpredictable workings of the market need to be left free to discover opportunities and information, not straddled by misguided economic doctrines. While increased labor bargaining power might seem like enough to aid the laboring class, it won’t accomplish much of anything if not accompanied by a swift destruction of the many oligopolies and introduction of competition and liberty.