When the business lobby (and their economists) do and do not embrace the law of supply and demand

Travis Fast

British Columbia and now Alberta have removed restrictions on the employment of teenagers under the age of fifteen. In both cases, it was business lobby groups that demanded, and got, the changes to the provincial labour standards acts. In order to put these changes into context we need to rewind the clock to when youth unemployment was double the average rate and wages for the hourly paid labour force had been stagnant for the better part of two decades: the mid 1990s.

Back then business lobby groups and their brain trust (your garden variety economist) were arguing that the solution to unemployment was to lower UI eligibility and benefits and reduce welfare payments. People were unemployed because these two programs in combination forced the reservation wage above the minimum wage. That is, such policies were said to be interfering with the proper operation of the forces of supply and demand. The coercion of labour markets needed to be liberated.

Fast-forward a decade, now the forces of supply and demand are working, in some small degree to labours advantage, and our good business people and their associated lobby groups and economists have successfully argued that the solution to labour shortages is not to raise wages to induce a greater supply of labour, but, rather, to manipulate supply by bringing in foreign workers on special limited term contracts and to lower the legal age of employment; that is, let us be clear, to legalize child labour.

Don’t expect economists to get all upset about this as they tend, like business people, to worship the forces of supply and demand when they are working in the interests of owners and shun them in favour of the big corporate nanny state when the forces of supply and demand are working in the favour of labour; kind of like their attitude towards monopoly pricing.

Labour market coercion apparently is only natural when it lowers wages not when it raises them. And this gives the lie to all the neoliberal rhetoric about free markets. It appears labour will not even be allowed to have the last of the summer’s wine from this bull market.

3 thoughts on “When the business lobby (and their economists) do and do not embrace the law of supply and demand

  1. On the business side you can go to the various web sites of the major lobby groups and see for yourself which economists they have on the payroll. For those not directly on the pay roll you can listen to the deafening silence of the regular suspects and infer what you will.

    Just flip the script and assume that the government was intervening to cut the supply of workers by say increasing access to and the benefit level of EI. I am quite sure the defeaning silence of many economists would turn into vociferous uproar.

    But while you are here, what do you think of the manipulation of supply to help keep wages in check?

  2. Really, if Stephen is only interested in having a “properly-functioning labour market”, one that responds nimbly when demand exceeds supply (by inducing workers to move), then I don’t see why he would have an objection to allowing child labour. In so far as child labour in Alberta isn’t likely to lower wages, just depress their rate of growth, what objection does he have to extra supply soaking up demand at lower rates? If Alberta’s (I wish I could say Canada’s) terms of trade continue to improve, and demand exceeds the supply of adult + child labourers, then wages will start to rise again, and voila, the phantom inducement to pick-up and move will return. The objection to be raised is a moral objection (and a theoretical one about the (in)consistency with which neo-classicals apply their own logic. Of course, I may be being a little unfair to you here – perhaps the discipline of having people move their lives across the country is what you seek? We should let the Lonely Economist know – we may have found a solution to native-canadian poverty – market-based inducements to move. Actually, didn’t we try that already?

    Anyhow, the long and short of it is that legislating against child labour is good because it prevents children from labouring. And rising wages are good because that means that workers are, if only temporarily, realizing a larger portion of the profits that they produce. In this case, moving maybe a necessary evil, not something in which we should rejoice and take comfort.

  3. On a less snide note. Archie you do raise the question of what is the “natural” supply of workers and clearly both labour and immigration legislation which limit that supply could be declared as un-natural. But then if we follow this logic so is all legislation. This points to one of the normative problems at the heart of neo-institutional economics: where does a good juridical (natural) order begin and end?

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