Despite the fact that it really is this simple, self-appointed spokesmen for free labour markets adamantly refuse to say it. For example, Ray Evans, president-for-life of the HR Nicholls Society, writes a fallacious article on rent and union wage rates when he should be saying the above. (Some people seem to think that sounding clever is the same as being clever).

We also had Professor Richard Blandy, an HR Nicholls Society member, expending 1,161 words to tell us that “the result of enforcing a wage that is higher than the market wage is that a job may no longer be available” (The Australian, The benefits of a freer labour market, 1 November 2005). I gotta say it, they don’t come much more wishy-washier than this.

Let me make this absolutely clear: there is no may about it. What Blandy should have said is that when workers’ wage rates are forced above the value of their marginal products unemployment will emerge. The effective minimum wage is proof of this. Now for the minimum to be effective it must be set above the market clearing rate. To set it at or below the market rate would have no affect on the demand for labour.

Yet the HR Nicholls Society never makes this point, invariably resting its case on ex cathedra statements rather than economic reasoning and the findings of economic history. Oddly enough, Paul Samuelson, an arch Keynesian, is not so coy. He stated categorically:

What good does it do a Negro youth to know that an employer must pay him $1.60 per hour, if the fact that he must paid that amount is what keeps him from getting a job? (Economics, 7th edition, 1967)

Professor C. Benham constructed tables* showing the relationship between wages, production and unemployment in Queensland for the period 1916 to 1924. (The Prosperity of Australia, P. S. King & Son, LTD, Orchard House, Westminster, 1928). The following chart is based on those tables and, in Benham’s own words: “It would be hard to find a clearer proof of our thesis [that excessive wage rates cause unemployment]”. He made it plain that by excessive he meant labour costs that exceeded the value of labour’s product.

Chart 2

According to marginal productivity theory, which our rightwing appear to avoid like the plague, there exists a strong negative correlation between excessive wage rates and unemployment, meaning ratio of the value of production to the average wage for those years. The chart clearly reveals this statistical association so that as the ratio falls unemployment rises and vice versa.

This is the kind of economic reasoning that the opponents of labour market reform are unable to deal with. So what does our intrepid rightwing give us? Ray Evans parroting the fallacy of “economic rent”, Professor Blandy suggesting that excessive wage rates may cause unemployment, and the sanctimonious Hugh Morgan mindlessly telling us that the minimum wage is 58 per cent of median, as if the figure had genuine economic significance.

What is it with this bunch? They are oblivious to the union case for wage-fixing, downplay economic analysis and totally disregard economic history while publicly claiming to be experts on labour markets. No wonder they failed to favourably influence public opinion.

*Two of Benham’s tables can be found here]). The

Gerard Jackson is Brookes’ economics editor

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