There are many reasons neoclassical economics should be abolished. One of them is the neoclassical theory of the labor market.
According to neoclassical economists, the market-clearing equilibrium in the labor market means that workers are paid a wage exactly equal to their marginal contribution to production. Therefore, low wages signify that workers have low productivity. And they know that because capitalists are rational decisionmakers who will pay workers exactly what they’re worth. Thus low-productivity workers will receive appropriately low wages unless and until there’s an unwarranted intervention into the labor market—like a federally mandated minimum wage.
It’s exactly that neoclassical theory of the labor market that informs both sides of the current Forbes debate about the minimum wage. On one side, Adam Ozimek suggests that conservatives “should favor the minimum wage more than they do,” or at least “oppose it less.” On the other side, there’s Stephen Bronars, who argues that the minimum wage is responsible for high youth unemployment and should simply be abolished.
While Ozimek and Bronars disagree on their ultimate recommendations, they operate with the exact same set of assumptions: poor people are poor because all they have to offer is “inexperienced and inefficient labor,” which is currently rewarded (because of unwarranted government intervention) with a wage that is simply not low enough.
Now, I could pick through and deconstruct the logic of this argument. I do so on a regular basis when I teach the principles of microeconomics. But, this time, let me outsource the appropriate response to the comments on the Ozimek and Bronars pieces.
First, to Jennifer Ball Keller:
think your Conservative think group is wrong about people that only make minimum wage. I come from a single parent home and grew up poor because of the minimum wage. Living in poverty has many disadvantages such as hard time being able to pay your bills and unable to provide for your children what they need. I resented my mother for not trying to better herself so that she could provide better for my sister and I. I always put my best efforts forward to make myself better so that my children would not have to grow up in poverty. I am the first of my family to graduate from High School. After High School I went to Army Basic Training at Fort Sill, OK. I received multiple injuries throughout my body during my training and have suffered with the pain of those injuries for 13 years. Because of my injuries and I wasn’t getting proper care at Fort Sill, I decided to get out of the Army and come home and get a job so that I can provide myself with a car and home. I have worked since I got out of the Army and married and have two children. While doing this I also attended college full time and received my Bachelor’s Degree in Business Administration. I’ve been done with my schooling since December 2010 and still have no job in my field of study. I have a home of my own that I have 27 more years of mortgage payments on. I drive a 2011 year model car in which I have 6 years of payments to make and I am a delivery driver for Pizza Hut which is only paying $0.29 per mile. I work hard for my family every day. I don’t make much money and I’m not interested in staying on food assistance for a long period of time. I just want to be able to make enough money to pay off my debts that my husband and I have incurred so that we can provide better for our children. It doesn’t matter how hard or little that I work either because Pizza Hut told the delivery drivers that they will “Never” get a pay increase no matter how much cross training is done unless the Federal Minimum wage was to increase again. My husband has no GED and has a hard time keeping work so I am the main income for my household. We don’t have wealthy family member that can pay all of our bills for us like many of the wealthy families’ kids do. We have to work for everything and our pay should be coincide with our work.
And, second, to “elboku”:
Did it ever occur to you that maybe the reason people leave low-paying jobs is that- gasp- they are low paying? If a company wants good, solid employees who remain after training maybe they should, oh I don’t know, pay them a livable wage to encourage their loyalty to the company? Does the phrase “You get what you pay for…” ring a bell?
Now, I realize that to maximize profits, companies would love to pay everyone 10 cents an hour and have them work 10 hours a day. great for the company. But fi [sic] no one has any money, who buys your product? And what kind of service from your employee do you expect at ten cents an hour?
Do any economists ever work in the real world of low wage jobs?
That’s why neoclassical economics should be abolished—and the minimum wage increased.