Make Money Like a Capitalist: the Labor Market

I'm a big fan of Peter Schiff. I can think of better people to be Senator, but I definitely like him over Dodd.

In his latest vlog, Schiff talks about how an increase in the minimum wage is bad for everyone, and I agree. But he only tells half of the story, probably because he's an employer.

If you really want capitalism to work, you have to have mobility in the labor market. If you are "loyal" to your employer, you're not making the most amount of money for your work, and you're depriving a company who values your talents more - i.e. can make more money from your work. This is a suboptimal situation for all parties (except for your employer who had a monopoly on your labor).

When people (en mass) forget that they can switch employers, all sorts of bad things happen: wages fall, unions form, and people start talking about implementing or increasing a minimum wage.

This is how it works: You're making $10/hour from your employer making widgets. The widgets you make in one hour are worth $30, but your employer needs sales staff, etc; and he's not very good at running his company, so he only ends up making $1 from your labor. His competitor is better at running a company and can sell the widgets you make in an hour for $40: he offers you $20 an hour and you both make more money. Eventually your old employer figures out that he needs to pay his employees more to keep them, or they'll all go over to the competition, so he gives them a 75 cent raise, starts running his company more effectively, and the friend that you left there can now afford milk for his baby daughter.

So you see, it's in your interest, and better for the market as a whole, to shop your skills every 3 to 6 months.

Other notes: job cartels can form to artificially push down labor costs - like if the two employers I mentioned start working together to avoid price competition. If you read my previous posts, imo government needs to step in, otherwise, a union is in order.