I have finished reading a fascinating book by Truman Bewley called “Why Wages Don’t Fall During A Recession”. It’s an interesting book not only for its topic but also for the way in which the author conducted his research. Unlike most economists who conduct studies based on complicated mathematical models, Bewley did something unusual and interviewed business owners to understand more about how they run their business. Economists traditionally viewed the market as automatically self-adjusting so that wages and prices would easily change to the right level in response to market conditions. However, it has been found that wages are rigid and almost never decline so between 1992 and 1994 Bewley interviewed 336 people in the North East of the United States (the book was published in 1999). The studies were meant to be qualitative and as such are not random or representative. They provide a very interesting insight into the mind of business managers. Continue reading “Why Wages Don’t Fall During A Recession”
Orthodox economics treats labour as a good like any other subject to the laws of supply and demand. However this misses a crucial point that we are not dealing with commodities but rather people. With goods, demand is decided by consumers and supply by producers, whereas with labour, demand is decided by producers and supply by consumers. The entire system is turned on its head yet neo-classical economics claims the results will be the same.
Continue reading “Labour Market In The Real World”
There is a lot of debate over the minimum wage. An internet search of the topic will return with almost unanimous condemnation of it. It is blamed for unreasonably pushing wages too high and causing unemployment. It is decried as a major cause of economic problems rather than the solution. However, these arguments are based upon over simplified ideas and graphs. Now, most of them look nice and are easy to understand, but they should be judged on how well they describe the real world. The simple fact is they don’t really. Continue reading “The Advantage Of The Minimum Wage”