The Non-Universal Laws of Supply And Demand

The NYT has a good story illustrating how no amount of wishful thinking can overturn the laws of supply and demand:

Robert G. Mugabe has ruled over this battered nation, his every wish endorsed by Parliament and enforced by the police and soldiers, for more than 27 years. It appears, however, that not even an unchallenged autocrat can repeal the laws of supply and demand.

One month after Mr. Mugabe decreed just that, commanding merchants nationwide to counter 10,000-percent-a-year hyperinflation by slashing prices in half and more, Zimbabwe’s economy is at a halt.

Of course, we all know that the laws of supply and demand can be expected to work in Zimbabwe. But as we seem to keep hearing all the time, they don't really apply in the U.S. labor market: A minimum wage increase does not reduce employment, and an increase in immigration does not lower wages.

Comments

[jimbino]

It is contended that wages will increase with economic growth, fueled in part by a growing workforce. Prolific breeding by Amerikans to satisfy that workforce need is supported by our tax and other laws.

Now, we either need more workers or we don't. If we don't, we need to stop encouraging the breeding. If we do need more workers, we can get already potty trained workers from Mexico and even more productive workers from other countries.

In any case, there is no justification for the level of breeding in the USSA.

[jimbino]

It is contended that wages will increase with economic growth, fueled in part by a growing workforce. Prolific breeding by Amerikans to satisfy that workforce need is supported by our tax and other laws.

Now, we either need more workers or we don't. If we don't, we need to stop encouraging the breeding. If we do need more workers, we can get already potty trained workers from Mexico and even more productive workers from other countries.

In any case, there is no justification for the level of breeding in the USSA.

[Richard A.]

"and an increase in immigration does not lower wages"

Wage depression will occur in those sectors of the labor force that expand faster than the overall labor force -- and if the MSM takes notice of any wage deflation brought about by immigration -- it will put the blame on something else (usually free trade).

[tom]

When merchants in Zimbabwe raise their prices, Mugabe accuses them of profiteering. When retail gasoline merchants raise their prices in the US, Congress accuses them of profiteering. Not much difference between politicians here and there.

[Richard A.]

"A minimum wage increase does not reduce employment"

While increasing the minimum wage does cause job loss (law of demand) -- whose job is being lost? I strongly suspect that the minimum wage serves as an indirect barrier against the employment of illegals and unskilled guest workers.

[Half Sigma]

You're making the mistake of assuming that the price of labor is based on bargained-for prices following a model of a free-market with perfect competition.

The price of UNSKILLED labor sinks to the cost of keeping the workers alive in a manner deemed acceptable by society.

This doesn't change unless there is an especially big change in either the supply or the minimum wage.

Labor is not unique, other commodities are priced the same way.

[Patrick R. Sullivan]

...an increase in immigration does not lower wages.

An increase in immigration brings both an increased supply of labor AND an increased demand for labor. Which force is stronger isn't a matter of theory.

[Half Sigma]

An increase in immigration brings both an increased supply of labor AND an increased demand for labor.

Unskilled immigrants earn very low salaries, so they can't cause much of an increase in the demand for labor.

What's happening is that the economy can absorb an increase in people willing to work for subsistence level wages. They can be used as a cheap substitute for labor saving machinery. And they supply luxury services for the upper middle class who would otherwise do without: such as housekeeping, landscaping, laundry, etc.

[Hafiz]

That same thing is true in Malaysia. The government seems to have the idea that the law of economics does not apply in Malaysia.

[Robert Hume]

It's constantly said that in the previous period of mass immigration the anti-immigration people claimed that immigrants took jobs away from natives.

The implication of this remark is always that those folks were racist and were wrong, so the current anti-immigration folks must also be racist and wrong.

Has anyone ever done a study as to the effects on wages of natives of the previous wave of immigration?

I think that one must take into account the possibility that natives left cities favored by immigrants and hence lost access to the accumulated social capital (education, culture) in those cities. I read that in 1890 NYC was about 80% foreign-born ... or something like that, whereas in 1850 it was almost 100% of native and of English descent.

Also in the great wave of immigration, immigrants of English, etc. descent bypassed NY and settled in the interior, also losing out on the educational benefits of the city.

Also, when jobs were scarce, poor folks from the interior were unlikely to look for jobs in the big cities.

Because of the internet, probably the loss of access to the city is not so serious a handicap today.

[Robert C]

The gap between blogger and posters seems to be increasing. The good professor pointed out in a sarcastac/ironic tone that minimum wage increases do not increase unemployment...All research shows that this is the case. As for Robert Hume's comment yes there have been scads of research on the questions you ask. Egad, posting on the blog of the most eminent labor/immigration economist and none of you seem to be even vaguely familiar with his work or the basics of supply and demand. George, eres un santo chico por aguantar a estos pendejos......George please get some Harvard undergrads to post here......

[George Weinbaum]

Does mankind ever learn? I remember reading a book titled "Forty Centuries of Wage and Price Controls". These have failed for 4000 years. Mankind, grow up.