The Labour Market
Where the goods market(where the goods are sold or purchased) is conspicuous and most visible part of the economy, the labour market is often failed to be perceived as such, and the poor financial market has to sometimes answer questions about validity of its own existence, thanks to christian-islamic traditions that condemn charging interests as usury. In a free market capitalist economy, labour is the ingredient which is the most important stage in production of a commodity. Even the machines are actually a concentrated form of labour. However, it can not be said, as has been widely claimed in various circles that it is the labour which creates value in an economy. To believe it would be tantamount to believing the labour theory of the value. Whereas, as diamond-water paradox clearly reveals, value has only one meaning, the value in exchange. Without exchange a thing has no intrinsic value at all. The only factor which is material is the price. Price is a quality which is an indication of an existing demand.
So, the crux of the matter is that no sooner do we consider labour as a commodity in a free market, we realize that it is governed by the same laws of supply and demand which govern any other commodity. The quantity demanded of labour is inversely proportional to its price which in common parlance is known as wage. Similarly, number of people actually willing to supply their labour increases which the increase in wage. As with goods, the supply of the labour and demand thereof is not related to increase or decrease of wage. Wage effects quantity of labour demanded and supplied. Wage does not effect the supply and demand itself. Supply and demand of the labour is a relation between the price and the quantity. Demand of labour may increase with overall industrialization leading to setting up of various labour intensive industries. Supply on the other hand may increase because of overall increase in population of able bodied workers or cultural change which may infuse huge amounts of women workers in the economy.
Labour is different from the other goods in a very significant aspect. Whereas other goods are inanimate and are capable of being consumed without any repercussions upon a person, labour is intimately linked with the physical self of a person. Low equilibrium price may cause a the price of a good to fall below its production value and may cause severe loss, but extremely low equilibrium wages are capable of threatening the very sustenance and existence of the person. To leave the price of labour left to the market is tantamount to leaving the life and family of one person to the profiteering of the other. This is the ultimate insolvable contradiction of the capitalism which on the one hand as a philosophical system proclaims the equality of man with man and as an economic system treats the life and future of many individuals as a commodity in the market. In economic sense, the task of balancing this contradiction falls upon the shoulder of the government. State does the balancing act and fixes a minimum wage below which no derogation can be either expected or allowed. The minimum wage and fixed working hours are not only an economic and political necessity intended to save the system from the dissatisfied labour force and to save the labourers from the evils of a capitalist system but is also a philosophical and political act intended to balance the mutually contradictory moral and economic demands. Any approach to this problem tilted heavily on any side is a wrong way to approach the problem.
Enough on these ‘boring’ philosophical issues. Like any other price floors, the minimum wage is shall tend to increase unemployment because the price of the labour is set above the equilibrium level. However, unlike other goods, the labour has a sustenance price. If the price is lower than sustenance price, it would be impossible to keep people working in absence of any other options. Labour unions, typically do this function and they put a check upon the arbitrary lowering down of the pay of the labour. Conditions of the labour in the companies with a labour union is significantly better than the companies where they are absent. However, better working conditions for the labour means, inevitably a lower profit. Which means that the entrepreneur will lack the will to produce more in a situation where the labour laws are many and are strictly enforced. Lack of incentive means that it will be more difficult to set up more factories and further industrialise the nation as the people willing to invest their capital are few. Lack of industrialisation will make it impossible for the demand of the labour to increase and thus their wages to ever rise above the minimum wages. Thus minimum wage is a kind of self fulfilling prophecy which makes the real wages always below the minimum wages. The solution is thus to intervene in a way so as to not allow the labourers to be impoverished and at the same time encouraging the capitalist for production. This can be done by government support in cases where the minimum wages fall below the poverty line or by starting an employment guarantee programme where people would be employed in case they fail to get an employment elsewhere. Government could also impart skill to the labourers to decrease the number of unskilled labourers and thus increase their wages.