The Saddam Times lies about wages and jobs
Gerard Jackson
Bursting with indignation, Alan Ramsey of the Saddam Times, aka the Sydney Morning Herald, expressed moral outrage at the government's move to lower unemployment by letting real wages adjust to market values (Abbott is king of the limbo 8/2)
According to this brilliant economic analyst the whole thing is a wicked plot by which evil capitalists can "protect their profit margins" by keeping "keep the low-paid as low-paid as possible." This is the kind of vulgar Marxist stupidity that passes for economic thinking at the Saddam Times, a paper whose idea of Middle East reporting comes close to cribbing from Iraqi embassy press releases.
In support of his ludicrous claim Ali bin Ramsey basically quotes from trade union press releases. (Whatever would this lot do without a press release?) This is like journalists using Pilger and Chomsky as a source for US government policy. (Gee, that is exactly what these so-called journalists do).
Whenever I write about unemployment I always stress — and I am the only economics writer in Australia who does — that in a free market there is a tendency for every factor of production, including labour, to receive the full value of its product. From this it follows that when the services of any factor are priced above its market clearing value a surplus will emerge. In the case of labour, Mr Ramsey, it is called unemployment.
To put it crudely, it is the ratio of labour to capital that determines real wages. The higher the ratio the lower the wage, and vice versa. What capital does is raise the marginal value of labour's product. Any serious attempt to keep wages below this level would cause labour shortages. (This is what happened in England in the latter half the fourteenth century after the plague wiped out a good proportion of the workforce).
This is also why capital rich countries are high-wage countries. And unions have nothing to do with it, except in the feverish imagination of economic illiterates like Ramsey. From this we conclude that attempting to use effective minimum wages to raise living standards causes unemployment. The following table was constructed by Professor Frederic Benham and demonstrates the connection between excessive labour costs and unemployment.
As Professor F. C. Benham lucidly put it: "It would be hard to find a clearer proof of our thesis [that excessive wage rates cause unemployment]." Benham focused on the observation that unemployment rose as wages rose "relatively to the value produced per worker…" Table 2 shows the correlation between wages and the annual value of output per employee. Once again the connection between the level of unemployment and excessive wages is abundantly clear.
I think I’m going to have to stress that the correlation does not prove the theory: but the theory explains the correlation. If the theory is wrong then there would be no correlation unless some other factor had been at work. But what other factor could there have been? Once again, theory clearly states that if wage rates, meaning gross wages, exceed the value of labour's contribution to the product unemployment will rise. And this is precisely what these tables show.
(Benham's use of these tables avoided the trap of relying entirely on a wage level index which, as Robert A. Gordon pointed out in 1948, leads to "the concentration of attention upon aggregates and upon distressingly broad and vaguely defined index-number concepts — with insufficient attention being paid to those interrelationships among components which may throw light on the behaviour of these aggregates…")
Throughout the 1920s Australian unemployment averaged more than 8 percent, rising from 6.5 percent in 1920 to 11.2 per cent in 1921, and then falling to 8.8 per cent in 1925. If Ali bin Ramsey was right about minimum wages raising living standards for the low paid then how does he explain these figures? As if he would even try.
Natural laws are supposed to be just that — natural laws. That means they apply everywhere. Therefore the law of supply and demand apply as much to the services of labour as it does to the services of any other good, regardless of century or geography. To argue otherwise is to argue as S. G. Shumilin, one of Stalin's pathetic Lysenko economists, did when he declared: "Our task is not to study economics but to change it. We are bound by no laws."
Evidently, Ramsey and his comrades at the Trades Hall Council subscribe to the Shumilin School of 'economics'.
Melbourne: Australia
BrookesNews.Com
Sunday 9 March 2003
Queensland: Wages, Production
and Unemployment
Wages
per worker
1916
1917
1918
1919
1920
1921
1922
1923
1924
60 4
65 5
69 6
78 7
91 6
96 8
93 10
94 2
94 11*
287.60
325.19
316.62
305.40
362.57
338.91
339.84
370.00
424.78
5.8
7.0
9.3
11.1
13.3
15.5
10.0
7.1
6.4
Manufacturing: Wages, Production and Unemployment
Value added
less 10%
Wages
II as %of I
%.Unemployed
1910-11
1911-12
1912-13
1913-14
1914-15
1915-16
1916-17
1917-18
1918-19
1919-20
1920-21
1921-22
1922-23
1923-24
1924-25
40,919
46,133
51,708
55,721
57,016
56,802
57,610
63,035
73,289
89,059
99,391
109,507
118,579
127,118
132,423
23,866
27,528
31,287
33,606
34,104
33,211
33,829
33,618
42,506
52,116
62,932
68,051
71,133
77,279
81,360
58.3
59.6
60.5
60.3
59.8
58.5
58.7
58.1
58.0
58.1
63.3
62.1
60.0
60.8
61.4
—
4.7*
5.5
5.3
8.3
9.3
5.8
7.1
5.8
6.6
6.5
11.2
9.3
7.1
8.9
Gerard Jackson is Brookes' Economics Editor
