RE: Minimum wages, competition and 200 years of success.

[Sanjeev Sabhlok <sabhlok@almaak.usc.edu>]

Charu said:

> If the prime purpose of an employer is to maximize profits (not an
unlikely
> scenario ;-), one way to do so might be to minimize wages. If the
> employer has the power to do so e.g. is unchecked by powers equal or
> larger than employer such as a representative government, a trade union,
> an industry council, local competition for workers, or threats of
> boycotts, the employer will pay less. An extreme example is slavery in
> this country 150 years ago and other places more recently up to the
> present in Sudan or even India.

Let me go through these one by one:
----------------------------------

a) representative govt.: I'll come to this last. 

b) trade union and industry councils: 

I am fully in favor of labor unions (in fact I recommend labor be allowed
to purchase as much of a company as they can/ want to, and that they have
representation on the Board), I am all in favor of local industy councils
which discuss and improve worker conditions.

Bargained wages (through unions) are fully a part of the efficient market.
Negotiated agreements are ideal since wages set this way are those which
the management can support without closing down the businss. Forced
mandates will completely prevent such negotiation. 

c) Local competition for workers: 
	
This is the market solution, clearly. I agree with this. The primary check
on exploitation has to be through market forces of competition. No one in
the computer industry anywhere in the world can complain of exploitation.
Ford actually paid his workers ** much ** higher than market wages to
produce his massively successful T-model cars. Market demand for a product
supports wages and not the other way round. There is no point fixing wages
because it is you and I who actually determine what wage is sustainble in
a particular industry, through our buying decisions. 

The only sustainable fair wage is that supported by the market. If the
market is unwilling to provide higher wages in a particular area that is a
signal for that industry to start shrinking its size. Artificially
propping up a faltering sector is a sure way to reduce the overall return
on capital, and thus promote a dwarfing of the economy.

d) Threats of boycott: 

I agree with this (like child labor goods). This is in a "greater"
interest and specifically designed to force people to remove children from
the production process.

e) Slavery/ bonded labor:

Exploitation, as I mentioned earlier, is not being caused by markets, but
by their absence. The cause of the exploitation of a rural laborer in
interior Bihar is NOT market failure but political exploitation by feudal
landlords. Social problems need social solutions. Let us not close down
markets simply because some caste-ridden fool somewhere is exploiting the
poor. Let us not add to the political failures in India by adding
government intervention in wages, an excellent tool for socialists to grow
fatter and our smartest entrepreneurs to run away to the USA.

Bonded labor in India is not caused by the absence of minium wage laws,
but inspite of these laws. The causes of these non-democratic outcomes lie
in non-democratic causes. Markets are the most democratic economic
mechanism. Let us trust in markets. 

Returning to (a)
---------------- 

The only check on business "exploitation" that I am dead against, is this
first one: government. Let me give some reasons for this opposition and
then throw a challenge (we must do that, else the debates will become too
sterile!). 

One cannot delink a concept with its implementation. If that is done, then
the concept is unimplementable and hence vacuous. Hot air, if I may be
permitted to say.

a) Fixation of min. wage is arbitrary:

I today represent, in a way, the most enlightened section of the
government sector of India. Substantially experienced, highly qualified,
and highly concerned with poverty (that is why I am here: not to gain some
"prestige" through showing off my "knowledge" to a few people on a list). 

Yet I do not know of any training given anywhere (and I was a Professor in
the National Academy of Administration, teaching IAS officers both freshly
recruited and senior upto 16 years in service), which enables me in
government to fix a minumum wage. All such fixations by governement are
arbitrary and political. 

Nobody in the world, and I repeat, no body, has any clue about what is a
"fair" wage, defined the way some discussants have defined it. I am
completely against giving powers to anyone in the world, whose only claim
to this wage-determination status is his or her "goodwill" towards
workers, to decide what is a "fair" wage. 

b) Quality of implementation is clearly riddled with corruption:

At least, trust my integrity when I tell you that I know for sure (after
working for more than 10 years in the field and a total of 16 years now in
the IAS) that the quality of interference by government in India is
completely unsupportable either theoretically or empirically
(practically).

Challenge:
==========

I close my contribution to this extremely critical debate (since it
determines the fundamental underpinnings of the Manifesto) by asking
discussants to propose to me - as a teacher in the National Academy of
Administration - what is the formula or methodology for determining any
minimum wage that you would like me to teach these top bureaucrats. 

Please propose any scientific and mathematical method within one page, and
I will seriously consider your formula to determine a "fair" or a
"minimum"  wage. The formula should be completely context-free. It
should be implementable blindly by a computer by simply feeding in the
data on the independent variables. The formula should also be supported by
a theorem which shows that this formula is welfare enhancing for the
entire society.

I assure you that if persuaded strongly enough, I will abandon this effort
to formulate an alternative manifesto and strategy for India, and will
simply return to my job in the IAS next year, since we have such
"excellent" laws already in place and all we need is the input of such
clever formulae that will eliminate our problems. 

This is the crunch: If you **cannot** propose such a formula that can be
taught by a top quality, Ph.D. qualified IAS officer, to a bunch of select
IAS officers each year, and produce the same results across states and
industry sectors, irrespective of the person using the formula, and
irrespective of the "intelligence" or "goodwill" of the Chief Minister of
that state, then trust in me, 

-----> and accept the result (not mine, but simply the first Welfare
Theorem, formulated essentialy by Adam Smith 225 years ago)  that there is
no way but the market solution, to determine a "fair"  and optimal wage in
** all ** situations. 

Thanks for accpeting my challenge (now the fun begins!).

Sanjeev