Is there only one way for wages to go up?

While I have followed Vox Day for several years, and respect him and his work, a recent post of his shows that he has an incomplete understanding of economics.

Putting together the post’s title and its beginning, he argues thusly:

The only way to raise wages [i]s to reduce the supply of labor. American workers can only benefit from the elimination of labor visas, increased limits on immigration, and stepped-up deportation, as evidenced by the response of Maine businesses to a “shortage” of H-2B visas.

Before addressing the article to which Day refers, I want to address the categorical manner in which he says wages can be raised.

Why do wages go up?

I agree that the methods Day cites will raise wages for American workers. For example, there has been increasing evidence that American companies have abused foreign worker visa processes to bring in lower-cost workers, at the expense of qualified yet higher-cost American workers.

However, I would like to think Day recognizes that this is not the only way to raise worker wages. In fact, through free markets, capital accumulation and higher wages go hand in hand. As Ludwig von Mises explains in Human Action:

In the capitalist society there prevails a tendency toward a steady increase in the per capita quota of capital invested. The accumulation of capital soars above the increase in population figures. Consequently the marginal productivity of labor, wage rates, and the wage earners’ standard of living tend to rise continually. But this improvement in well-being is not the manifestation of the operation of an inevitable law of human evolution; it is a tendency resulting from the interplay of forces that can freely produce their effects only under capitalism.

In other words, in the near term, it certainly makes sense that restricting the supply of labor will lead to its price going up. However, as time passes, there is a symbiotic relationship between capital accumulation, labor productivity, and wage rates. The less interference to that relationship, the better for everyone involved.

Now that I’ve discussed how wage rates go up, I turn to the article to which Day is referring.

Maine businesses scramble for seasonal workers

Day points to a Daily Caller report, indicating that Maine businesses are scrambling to find local workers because of a shortage in foreign guest workers.

Businesses in Bar Harbor, Maine are turning to locals to make up for a shortage of foreign guest workers that normally fill summer jobs in the bustling seaside resort town.

Because the H-2B visa program has already reached its annual quota, Bar Harbor’s hotels, restaurants and shops can’t bring in any more foreign workers for the rest of the busy summer tourist season. Like hundreds of similar coastal resort towns, Bar Harbor has for many years depended on the H-2B visas for temporary workers. The program allows non-agricultural companies to bring in foreign labor if they are unable to find suitable employees domestically.

Now they are coming up with creative ways to attract local labor, reports the Bangor Daily News.

The Bar Harbor Chamber of Commerce will hold a job fair Saturday in an effort to recruit significant numbers of workers from the region. Just about every kind of business in the town is looking for help, says chamber executive director Martha Searchfield.

“All types of businesses — retail, restaurants, the tour boats, all the trips, everything. All types of workers are needed,” she told the Daily News.

The shortage is so acute that companies are sweetening incentives for local workers. Searchfield says some businesses are offering flexible schedules that might appeal to older workers who might be interested in working only a day or two each week. And other companies have gone so far as to offer higher wages to entice locals.

Day, of course, applauds the situation.

That’s not a problem, that’s an indication of a solution. As long as tens of millions of Americans remain unemployed, there is absolutely zero net benefit to the economy or to American workers from immigration. All immigration accomplishes is to increase income inequality to the advantage of very large US corporations and the financial class that caters to them.

While I do not necessarily disagree with this, I also think that Day’s analysis is incomplete.

In addition to immigration, another key reason for high unemployment has been the disastrous drive across the country to raise the minimum wage.

Fortunately for Maine residents, its legislature developed some common sense and withdrew a previously-passed increase:

Last November, the Maine State Legislature voted to raise the minimum wage for restaurant servers. Then in mid-June, they voted to lower it back down.

And lots of Maine’s restaurant workers were thrilled.

The minimum wage for tipped workers in Maine is half that of the state’s regular minimum wage ($9). It’s called the “tip credit” rule, as it allows employers to take a credit of up to 50 percent from their employees’ wages, because servers will generally make that money back (and hopefully more) in tips. If tips and wages, together, don’t equal the state’s minimum wage, employers are required to make up the difference.

State Senator James Dill, a Democrat who initially voted to raise wages, told the Washington Post that after the Nov. referendum passed, he received “hundreds” of calls and emails from servers who were worried about their livelihood.

As a result, Dill threw his support behind a Republican measure to return the “tip credit” rule. After passing through the Senate on June 7, the bill was brought before the House on June 13, where it passed with a vote of 110-37.

Maine Governor Paul LePage signed the bill into law last week. It will go into effect 90 days after Legislature adjourned, reports the Bangor Daily News.

Restaurant workers wanted to retract the increase for two reasons.

[S]ervers were worried about the ramifications of the new laws for two reasons: first, that it would force employers to raise prices on their menu items, which could affect their current tips; and second, and perhaps more importantly, that employers might be forced to cut servers’ shifts as a result.

Preventing the minimum wage from rising encourages businesses to hire unskilled workers. Combined with competing with fewer foreign workers, lower-skilled Maine residents should have had a better shot at finding a job this summer:

Firms faced with minimum wage laws often substitute skilled for unskilled labor. In a report for the Show-Me Institute, labor economist David Neumark offers an illustrative example: Suppose that a job can be done by either three unskilled workers or two skilled workers. If the unskilled wage is $5 per hour and the skilled wage is $8 per hour, the firm will use unskilled labor and produce the output at a cost of $15. However, if we impose a minimum wage to $6 per hour, the firm will instead use two skilled workers and produce for $16 as opposed to the $18 cost of using unskilled workers. In the “official data” this shows up as a small job loss — in this case, only one job — but we see an increase in average wages to eight dollars per hour in spite of the fact that the least skilled workers are now unemployed.

This summer, it’s looking good for Maine residents who were otherwise prevented from working. Immigration abuse and a lower minimum wage is allowing them to find jobs.

In the long run, however, an unhampered free market allows capital accumulation and higher wages to coexist.

 

2 thoughts on “Is there only one way for wages to go up?”

  1. Speaking as a chef living in a state requiring an absurdly high wage to be paid to servers ($10/hr), I can in fact confirm that all the concerns raised by the waitstaff in Maine are valid. If you go to a restaurant up here, the service is always slow, because it’s not affordable to put enough waitresses on the floor. This, then, leads to lower sales and lower tips, which makes it even more difficult to afford the servers in the first place.

    A friend of mine who runs a different restaurant has recently switched to a “non-tip” model and just applies an 18% service charge to all checks, which is then divided among all the staff according to some complex rubric. This is to level out the crushing effect of the government’s wage mandate. Nobody actually likes it, but it’s the only way she can afford to have enough staff to keep the doors open.

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