Ho Say Peng
In this article, I argue against minimum wage laws from a moral and praxeological perspective.
For a market economy to function seamlessly and prosperously and continuously, one principle, above all, must be held sacrosanct: the principle of each individual’s right to his (or her) own property—property rights.
A property right is a causal offshoot of the right to life, the source of all rights. If a man has a right to his life, he should, by extended logic, have a right to the products procured by his own effort which are used to sustain his life. A man who has no right to the products of his effort has no means to sustain his life.
For the right to life means the right to engage in self-generated self-sustaining action, and property rights mean the rights to procure, keep, consume, sell, rent, exchange, transfer, dispose and destroy material or intangible entities—actions employed for essentially one ultimate end: one’s own life—property rights are the implementation of the right to life. A man who is denied of his property rights is ultimately denied of his right to life.
The market economy cannot function without first recognizing, implicitly or explicitly, the sanctity of property rights. It has been demonstrated by logic and historical evidence that a society’s well-being correlates to its cognizance of property rights.
Under minimum wage laws, government dictates, through coercion and compulsion, that the minimum wage an employer can pay his (or her) employee is a certain amount. Minimum wage laws are a violation of an employer’s property rights.
The employer has a right to charge any amount he wants for labor. He may determine it arbitrarily or reasonably. Whichever the case, government has no right over the employer and his business, which is his property, to coerce and compel him to charge an amount for labor in which he has no say.
The proper role of government, an agency with the monopoly of coercion and compulsion, is specific and delimited: to secure the freedom of action of and enforce the rights of each individual citizen via the police, army, and courts of law.
Charity and humanitarian goals are not part of the legislative purposes of government. If it should ever attempt to do so, then government, as James Madison wrote, “is no longer a limited one possessing enumerated power, but an indefinite one subject to particular exceptions.”
The goals of economic equality and social equality are, indeed, two of these many “particular exceptions”. Property rights are then treated as merely a hindrance to be swept aside in the pursuit of these noble ideals—if property rights are considered at all, which is often not.
Minimum wage laws are one such manifestation of these ideals.
The goal is to reduce the poverty of, attain income equality for, and improve the general welfare of the least able members of society. It surely is a noble and socially appealing goal; and if minimum wage laws are passed into law, it cannot be denied that the group of people who was earning below minimum wage would benefit, even if it is only in the short-run.
But what are the other consequences—the often unseen and unintended long-term consequences.
In my first article, “Rights: The foundation of a free society”, I wrote: “The principle of rights is a moral concept . . . that defines and sanctions man’s freedom of action in a social context.” That sentence was written from a moral perspective. Here, I will re-write the sentence from a different perspective.
Ludwig von Mises, who was the fountainhead of Austrian economics, defined economics as the “science of the means to be applied for the attainment of ends chosen”. Lionel Robbins, who was an Austrian economist before he turned Keynesian, defined economics as the “science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
Economics is as such not merely a study of inanimate goods and services. It is in fact a branch of a broader subject called praxeology, the science of human action. Economics is a specialization of praxeology; it is essentially a study of human action. (History is also considered to be a specialization of praxeology.)
From a praxeological perspective: The principle of rights is a praxeological concept that defines and sanctions man’s freedom of action in an economic context.
The perspective has changed, but the essential meaning has not: Man must be free to act.
The market economy is an abstract describing essentially a vast multitude of interrelated human exchanges, which all of us are part of. All participants of the market economy—or economic agents—are acting men. If no economic agents are free to act, the market economy would collapse.
What would happen if a few economic agents—employers, in this case—are not free to act—are not free to negotiate their employees’ wages? It would be naïve to claim that there would be no negative consequences.
Some might be bold enough to suggest that whatever negative effects minimum wage laws will incur, the price to pay is worth it, if such laws “protect workers from exploitation by employers”. Slavery is also a term quite readily bandied around.
Just as I defend the employer’s freedom of action, I also defend the employee’s freedom of action. The employee is free to choose his employment. He is neither coerced nor compelled to work for any employer.
If an employee does choose to work under an employer, it is because the employee values the salary or other non-pecuniary benefits offered by the employer more than the time and effort he would have to expend working the job or because he values the job offered more than the alternative of other jobs or of being unemployed; and if the employer hires the employee, it is because the employer values the services offered by the employee more than the services offered by other employees or the money he would have to expend as labor costs.
As such when the employee chooses to work for the employer and the employer chooses to hire the employee, it is only because both parties find it preferrable to not making such a decision on their part. The relationship between employer and employee is therefore voluntary and mutually beneficial.
Neither party is exploited; neither party is a slave. Such spurious views reflecting Marxist tendencies to think in terms of “surplus profits” due to the exploitation of labor is based on the flawed labor theory of value, which has been thoroughly and critically refuted and discredited.
Furthermore, no one, except the employee, is in a position to judge whether his wage is too low or too high. Each individual has his own subjective valuation of the price of his labor. It is for the employer to try to meet the expectations of the employee, while ensuring the wage he offers stays within budget, if he wishes to employ the services of the employee. A central plan to fix the minimum wage at some universal amount must be completely arbitrary and based not in reality but in fantasy.
It is not the purpose of this article to spell out the negative economic consequences of minimum wage laws. The economic arguments against such laws have been made excellently and succinctly by the likes of Henry Hazlitt and Thomas Sowell. However, I did demonstrate that the implementation of minimum wage laws would not come without a price—whatever the price is.
In this article, I merely want to argue from a moral perspective, which I find to be sorely lacking on the side of those arguing against minimum wage laws and other laws of such a nature, and thereby allowing the opposition to capture a moral high ground. I also offer a praxeological perspective to my argument: to demonstrate the link between the moral and the practical, and that there is no dichotomy between the two.
Property rights must be respected and upheld as an absolute principle. It is the sine qua non of a successful market economy. Austrian economists have demonstrated that whenever government interferes in the market (implying a violation of property rights), economies suffer—either from slower growth, lower standards of living, unemployment, or recessions—meaning that ultimately people suffer. More than that: Because property right is a corollary of the right to life, violation of the former is in effect a violation of the latter; and the violation of the right to life will lead to more than just lower growth, unemployment, and economic calamity. Societies have collapsed because their governments do not respect the fundamental right to life of each individual citizen.
Your argument carries the assumption that the power relationship between employers and employees acting individually is more or less balanced or equal, and that if an employee is unhappy with his wages, he is ‘free’ to leave at anytime and find another occupation with a wage level he/she finds more commensurate with the amount of effort expended. This really abstracts things away from the social reality in Singapore. The most economically vulnerable have no leverage to determine wages and they are low across the board for that level of employment. You argue the case for small government, saying that charity and interventionism should be beyond the scope of government. However in the Singapore case, the government employs hybrid policies. Banning union action ( an act of larger interventionist government ) has to be balanced with a basic protection of workers through wage laws. Alternatively the government should allow limited collective bargaining and take a hands off approach to employer restrictions.
The right to life also includes the right to human dignity and the dignity of labour, ( the determination of the value of one’s labour is a property right ) the most economically vulnerable in singapore are literally finding it hard to make ends meet. Beyond the issue of social justice there is the pragmatic consideration of social stability that justifies an intervention to reduce the widening income disparity, and raise living standards. Unfortunately individual self-interest is often too short-sighted to consider that it is within long-term self interest to ensure that exploitative practices are kept at bay. History has vindicated this time and time again.
Lastly your argument really descends in your last two lines where, using a very selective pro-business definition of a ‘right to life’ ,you claim that….”the violation of the right to life will lead to more than just lower growth and economic calamity. Societies have collapsed because their governments do not respect the fundamental right to life of each individual citizen.”
Are you seriously suggesting that a minimum wage will necessarily lead to economic calamity? Surely at least some kind of feasibility study can be conducted before we jump to that conclusion or draw erroneous and selective parallels with other systems that have before.
Your arguments are too abstract, simplistic and divorced from reality. Most economic theories are moderated in practice by policies that take into account realities on the ground. Can you name me a truly “free’ market economy where everyone’s ‘property rights’ are fully respected without carefull balances and compromises? One that hasn’t been characterised by cyclical depression?
It is simply false to claim that minimum wage violates an employer’s property rights. Nobody is forcing an employer to employ minimum wage workers. If he does not want to pay minimum wage, he can choose not to hire those workers. Go set up a business that doesn’t require low-wage workers!
Furthermore, there is no such thing as absolute property rights, anywhere in the world. Taxation is a clear example of the government forcibly taking your money. Zoning regulations for land is another – you are not allowed to develop your land as you please. Even laws against suicide are a form of interference with property rights – you are not allowed to dispose of your body/life as you wish.
The demand for absolute property rights leads inexorably to anarchy – in which case, there would be no property rights in the first place, since people will be free to steal and rob from others.
What good fortune: NY Times has an article today 27 Sep 2010 about the resistance from workers against enforcing the minimum wage in South Africa:
http://www.nytimes.com/2010/09/27/world/africa/27safrica.html?_r=1&pagewanted=all
Efforts Meant to Help Workers Batter South Africa’s Poor
…
In a sign of how acute the long-running unemployment crisis has become, a crackdown on minimum wage violations has been met with protest — from workers.
Comparing Workfare to minimum wage is like comparing a mosquito to a cow!
Workfare is just a simple welfare tool to supplement income. Minimum wage is a multi-faceted economic tool that achieves a lot more.
It is the complete opposition of what Yawning is saying. Welfare is an archaic tool whereas minimum wage is as modern as it is sexy.
Minimum wage:
* helps encourage productivity growth
* attempts to bracket the reserve wage of more Singaporean workers
* create employment for Singaporeans
* changes the labour force participation rate
* changes the proportion of local to foreign workers
* reduces stress on infrastructural demands
* changes cost structure in both short and long run
* solves income disparity through basic earning power
* solves some social problems
* changes the manner in which GDP growth is driven
Minimum wage is borne by employers whereas Workfare is borne by the government and ultimately taxpayers.
The Brotherhood seems to have taken a shine to whole idea of MW. Why?
John:
“Your argument carries the assumption that the power relationship between employers and employees acting individually is more or less balanced or equal. . .”
I think that the balance of power between employer and employee depends a lot on the nature of the industry and the policies of the company in which both parties operate.
For companies such as Google, DreamWorks Animation, and giant investment firms such as Goldman Sachs, the highly competitive and highly profitable nature of their industries compel employers to place great emphasis on the well-being (can be physical/mental or financial) of their employees. I don’t think anyone can doubt that these companies treat their employees very well, and they have to. Employees operating in such an environment have greater say and the balance of power can be said to be tipped slightly to them.
But of course it does not mean that only employees working in Google or Goldman Sachs or industries of a similar nature have greater say. It also depends on the policies of the company. If the employer of a company respects his employee, the employee would have greater say; the balance of power would be about even.
Now—and this is obviously your concern—what about the employee working for an employer of a huge corporation with great financial backing? Wouldn’t the employee’s say be greatly diminished and the balance of power severely titled to the employer?
Yes. It would indeed be so. The individual employee would be more or less powerless in such a scenario. But there is a solution: unions.
A union, a group of employees constituting a majority of the workforce, would undeniably have far greater say and negotiating power than an individual employee. Then, the balance of power would more or less be even. (But I must emphasize that I am speaking of peaceful unions negotiating non-violently with employers. And not the violent mobs you see in parts of the United States and France, which must be stopped by the police.)
“Are you seriously suggesting that a minimum wage will necessarily lead to economic calamity?”
You misunderstood me. Minimum wage laws will certainly not lead to economic calamity a la the recent Great Recession or the Great Depression. Minimum wage laws violate the property rights of a certain group of employers. There would be adverse economic consequence, but nothing calamitous.
What I was speaking of is that if government violated the property rights of all (or most) individual citizens on a massive scale via massive intervention, then it would—must—necessarily lead to economic calamity. If you’re interested as to how it happens, you can read up about the Austrian Business Cycle Theory.
When I wrote “Because property right is a corollary of the right to life, violation of the former is in effect a violation of the latter; and the violation of the right to life will lead to more than just lower growth, unemployment, and economic calamity. Societies have collapsed because their governments do not respect the fundamental right to life of each individual citizen”, I meant that if there is a total abolition of property rights, it is essentially a total abolition of each individual citizen’s right to his life. When violations of such severity happen, involving all (or most) citizens, the result is societal collapse.
“Can you name me a truly “free’ market economy where everyone’s ‘property rights’ are fully respected without carefull balances and compromises? One that hasn’t been characterised by cyclical depression?”
There is, currently, not a single market economy that is truly (as in completely) free and that fully upholds property rights. They uphold property rights in most occasions but not all, which explains the occurrences of recessions (or depressions), or in less severe cases, collapse of companies; Blockbuster is a case in point. Antitrust laws are another example of property rights violation.
Thanks for your input.
Is it true that property rights is driving the market economy seamlessly, prosperously and continuously? Surely the freest economies MUST fail periodically due to economic cycles.
In the writer’s world, nothing could possibly exist except property rights because everything else would meddle with property rights in one way or another, including traffic lights, NWC, taxes, subsidies, etc.
When property rights are taken to the extreme (the worker either take it or starve in deference to the property rights of employers), then foodcourts can sell prawn noodles without the prawns and HDB can sell flats without toilets.
Economists talk about comparative advantage and boundaries because even they never thought total free movement of labour was possible. A Global Village won’t materialise, otherwise you can throw away your passport.
Economists write about reservation wages because every worker is selling his/her labour for a price. Even sex workers have minimum prices. Broken pots/pans at Sungei Road Flea Market too have reservation prices. Surely reservation price is of greater importance to the writer who thinks property rights is a matter of “life” (and death).
Surely Austrian economists or Thomas Sewell never considered a situation whereby workers lose their jobs on LOCAL SOIL due to the importation of foreign workers.
When economists write about the effects of minimum wages like “unemployment and slower growth”, they are based on textbook equilibirum. Here, we are talking about an already shifted labour supply curve and GDP growth driven by foreign inputs (labour and investments). Textbook models never consider things like tax haven, EDB, OHQ, FDI, etc. In those days, air-travel was not even invented yet. Today, there are agents/moneylenders/training centres which help bring farmers/fishermen into Singapore as skilled workers.
If minimum wage is objectionable based on the principle of property rights, then base on the writer’s reasoning, foreign workers levy must be banished, higher foreign worker levy is criminal; and NWC deemed a pain the neck.
AA:
“Is it true that property rights is driving the market economy seamlessly, prosperously and continuously? Surely the freest economies MUST fail periodically due to economic cycles.”
Property rights do not drive an economy to prosperity—entrepreneurs do. But for entrepreneurs to be able to do so, property rights must be instituted and secured. Property right is the foundation of a sucessful market economy. The free market economy—as in an economy that is completely free from government intervention—does not fail; it does not experience boom and bust cycles; it does not suffer recessions or depressions. Boom and bust cycles are characteristics of the mixed economy and are caused by government intervention. The Austrian Business Cycle Theory explains how government intervention causes boom and bust cycles. If you’re interested as to how, you can check out this article I wrote a while back.
“In the writer’s world, nothing could possibly exist except property rights because everything else would meddle with property rights in one way or another, including traffic lights, NWC, taxes, subsidies, etc.”
This sentence of yours makes me wonder if you really understand the concept of property rights. Why would nothing exist in my world? There would be traffic lights but it would be privately-owned traffic lights. There would be roads but it would be privately-owned roads. (Hope you’re not going to give me the lame argument that the companies who own the roads would start banning people from using them.) In fact, there would be everything, more things than you can imagine. You have no idea about the millions of things you could have had were it not for government regulations.
Yes, there would be no subsidies. There would be taxes, but it would be voluntary.
“When property rights are taken to the extreme (the workers either take it or starve in deference to the property rights of employers), then food courts can sell prawn noodles without the prawns and HDB can sell flats without toilets.”
Do you understand the concept of property rights at all? “Property rights mean the rights to procure, keep, consume, sell, rent, exchange, transfer, dispose and destroy material or intangible entities…” So using your prawn noodles example: When a fisherman sells his prawns to the hawker, the fisherman willfully renounces ownership of the prawns to the hawker who has willfully bought it (thereby gaining ownership of the prawns). Such an exchange is a perfect example of property rights in action. So you can rest assured that in a free market economy, your prawn noodles will still come with prawns.
“Surely reservation price is of greater importance to the writer who thinks property rights is a matter of “life” (and death).”
Nothing is more important to an economy than property rights. I think you take property rights for granted. Just take a look at the world around you: Compare Singapore where property rights are respected in most occasions to countries where there is no institution of property rights at all, such as North Korea. Can you honestly say it is not a matter of life and death?
“Surely Austrian economists or Thomas Sewell never considered a situation whereby workers lose their jobs on LOCAL SOIL due to the importation of foreign workers.”
Of course they did, and, as economists, they would tell the local workers matter-of-factly that cheaper or skilled foreign labor is beneficial for the companies that hire them and for the general economy. But, obviously, that is not your point. You meant whether they had considered such a situation emotionally.
“If minimum wage is objectionable based on the principle of property rights, then base on the writer’s reasoning, foreign workers levy must be banished, higher foreign worker levy is criminal; and NWC deemed a pain the neck.”
Yes, in a free market, no levies would be charged by government and NWC would not exist.
Thanks for your input.
I wonder if you guys know how to draw demand and supply curves. It is ‘A’ level economics!!!!!!!
Please draw normal demand and supply curve where wage is determined at the intersection. Now, shift the supply curve to the right due to an influx of foreign workers (as a result of Singapore’s policy of preventing employers from shifting to low wage countries since early 2000s). Even a blind man can see wages will be depressed and employment rise.
Now draw a horizontal line below the normal equilibrium wage to indicate minimum wage reflective of a First World economy.
The fall in employment is due to replacement of foreign workers which minimum wage is set out to achieve to raise productivity. BUT employment is still higher than normal employment.
Far from distortion, wages is moving closer back to normal market determined rate.
Once you introduce minimum wages, lots of PAP policies have to change. This affects their immigration, housing, manpower and other policies. I would say will have a profound affect on them. Also will loosen their pro business influence. Just like the housing bubble, they will never admit it until proven otherwise and they did so grudgingly.
AA on September 30, 2010 at 16:49:
Oh come on.. why should there be protectionism for domestic labour? Such protectionism skews not only the behavior of firms, but also that of employees. For starters, firms have no reason to differentiate workers’ wage based on their productivity / ability and just pay everyone the same. Protectionism simply skews people’s incentive to work and be productive, whether as entrepreneurs or as workers.
Dear Say Peng,
I commend you on an excellently written article and well considered arguments.
I would like to highlight an underlying assumption though, that is that the market is entirely free in the way we understand a genuine free market economy to operate that is, adjusting according to supply demand other market forces. John may be on point when he raised his concern about the power/relationship balance, if the corporations through laws or a lack thereof, or a multitude of choices where low wages translate into substantial ones on the “big mac index”, whole countries may be forced to accept lower wages to their detriment. now the free market argument will step in and compel the country to either improve or face competition, but this runs contrary to the function of government, one of which is to look out for the rights of the very people who abrogate their rights to the government in the very first place with the view that as a collective, the right to life (which is very closely related to the right to good life, based on your analysis) being the foremost priority.
Also, assuming your argument about the co-relation of property rights and its intrusion by government hold, can this not be said for most facets of government business where an individual’s right to something, may have to been encroached upon so as serve the ‘greater good of society’ or some other equivalent maxim?
S
Hi Say Peng,
what is your thoughts on this portion of John’s input, which I see you have not replied to yet?
“You argue the case for small government, saying that charity and interventionism should be beyond the scope of government. However in the Singapore case, the government employs hybrid policies. Banning union action ( an act of larger interventionist government ) has to be balanced with a basic protection of workers through wage laws. Alternatively the government should allow limited collective bargaining and take a hands off approach to employer restrictions.”
Care to share, sir?