Wednesday, March 08, 2006

If the left wants to raise wages for the lower class, they need to choke the supply:

People on the left always love to attack businesses and lobby the government to find a way to get wages for the lower end of the labor force higher. The problem with their efforts is that the same market forces that affect the higher end, supply and demand, decide wages for the lower end. The reason doctors in this country command such salaries and charge what they do, is because the supply of them to the rest of the population is small. The medical association doesn’t allow new medical schools to be built and fills any holes with doctors from overseas. The effect it has is similar to that of OPEC with oil. By having a tight control on supply, they are able to keep prices high.

When looking at the lower end of the pay scale, the causes are no different. Today it is being reported that a new survey has found that the U.S. is currently taking in almost 500,000 unauthorized immigrants a year, brining the total number to almost 12 million.

The search for labor by businesses and what they pay is determined no differently then the price of oil. The bigger the pool they can pull from the lower they can pay. The large supply of these immigrants over the years has kept prices low as they take every unskilled job imaginable, many of which people in this country wont do.

If the left really wants to see wages rise for the lower class the best thing they could do is try and choke the supply of immigrants coming into the country. If the number of unauthorized immigrants were cut to even 300,000 from 500,000 wages would most likely increase, as the pool of unskilled labor would shrink, creating competition between employers. For proof that this would work, we can look to China. Most of the economic activity and growth that has taken place in the country has come in its large economic zones like the Guangdong Province. The Chinese government grows these zones with labor that migrates from the inner countryside. To move from the countryside to the city to work you must get approval because of various reasons including healthcare. Though hard to believe, in the last couple of years there has been the problem of actual labor shortages in China. These shortages have occurred because the flow of migrant workers to the economic zones has not been enough to keep pace with labor demand. The result unsurprisingly, has been an increase in wages and a lot more help wanted signs as manufacturers are being forced to compete for workers.

It all comes down to market forces. If the left really wants to raise wages the best solution is not to raise minimum wage or impose ridiculous taxes but instead to lower the labor pool that our unskilled businesses are picking from. Do that and you will se how fast wages will go up.

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