Jeremy Corbyn has felt
buoyed recently - his better than expected election vote-share and the cult of
personality that's surrounding him are giving people amnesia about the fact
that his policies are complete economic lunacy and would bring about the worst
recession this country has faced in decades.
But this latest bit of publicity
- insisting that teen
workers should get £10 an hour by law - so comprehensively exposes his
ignorance and carelessness that even many dyed-in-the-wool lefties are now
saying "What the heck is he playing
at?". Because you would have to
be so wilfully uninformed about even the basics of supply and demand curves to
even think of such a ludicrously counter productive policy, let alone publically
declare it as a policy on your wish list.
Being completely clueless
about the negative effects of price floors is one thing. But what's truly bizarre
about it is that when you analogise it to a topic that isn't jobs but goods or
services no one has any trouble seeing how silly the principle is. Suppose the government
made it illegal for anyone to sell bathroom suites for less than £10,000. It is
obvious who would be hurt by such a policy; those that cannot afford bathroom
suites of £10,000 or more, and those trying to sell bathrooms below £10,000.
Such a silly law wouldn't
help people in the market suddenly be able to afford a bathroom suite, and it
wouldn't help the firms trying to sell them either, because the law won't make
less expensive bathroom suites suddenly worth £10,000. Anyone who can see the
logic of being against a £10,000 minimum price of bathroom suites but cannot
see the same logic for minimum wage laws is not being consistent.
If you still cannot see
this, let me put it another way. Suppose you support Labour's plans to raise
the teen living wage to £10 or £11 or even £12, thinking how wonderful it'll be
for low teenage earners to now get a 'fair' wage. I'd have to ask, why don't we
make a law that gives them an even 'fairer' wage - say £20 an hour or £30 an
hour or even a 'super-fair' wage of £40 an hour?
I don't think there is
anyone in the country who thinks a £40 an hour living wage is a good idea,
because anyone can see the problems that would occur with it. So you'll note
that that means even die-hard Corbynites can agree in principle that there is a
living wage law that would be too high to implement because it would do lots of
damage in skewing the marginal value of labour, particularly in the teenage
labour market where inexperience and additional risks are built into the
employer's decision about whether to hire.
What isn't clear is why
they can see it's a bad idea for £40 an hour, or £30 an hour, or even £20 an
hour, but they cannot see it for £10 an hour. You may come back with the
argument that it's obvious that £40, £30 and £20 are too high, but there comes
a point when the number is just right. But that doesn't hold, because if you
can see the logic that a price floor hurts both buyers and sellers, whether it
is for bathroom suites, cars, labour or any example you'd care to mention, then
the price floor is going to hurt more people than it helps at any level where
it interferes with the real value of prices determined by supply and demand.
Suppose the living wage is
set at £10 an hour. In the labour market, if a worker can produce £7, £8, £9 or
£9.50 per hour worth of output to his (or her) employer he will be hired for a
wage rate that's below the marginal value of his output. This means that a
living wage law of £10 prices out all those people from the labour market - it
makes it illegal for them to provide the firm with the value of their labour,
which is bad enough for adults, but positively asinine if you extend the law to
preclude inexperienced teenagers who are worth even less to prospective
employers, and are keen to break in to the job market.
Equally, it fails to
account for the fact that if a teenager's labour is really worth £10 an hour to
an employer, his salary should climb up to that value purely by market forces. To
see why, suppose you are producing £10 per hour worth of output to your
employer but you are being paid £7.50 an hour. As long as prices are not too
sticky, a competing employer could procure your services for a rate higher than
£7.50 an hour but lower than £10 an hour - and in a competitive market your
wage rate would be bid up until it fell just below £10 an hour.
I hear Jeremy Corbyn and
John McDonnell are scheduled to appear at Glastonbury
