Tag Archives: Minimum Wage

New Age Equilibrium Wage

The study of economics has a tendency to assume consumers, producers, workers, and/or any other agent, has a mechanical nature about them. With regard to the issue of minimum wage, such an ideological distortion is definitely problematic. Why is it problematic? The answer is simple. Firms always look for, or are at least open to, ways to lower costs. One of those ways is to lower variable costs, which means slashing the compensation of the workers. There is obviously a flip side to this. No worker actually wants to receive lower wages because most if not all workers see themselves as worth more than they really are per hour. However, economics assumes that people will adapt to these market-driven changes in wages or pursue other value producing opportunities. That is clearly unrealistic, and hence, the existence of labor unions. Continue reading

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