Why the world should adopt a basic income

It's is incorrect to say that firms can dictate wages.

 

At the market level, yes.

And it's incorrect to say that firms can dictate wages.

 

Here's the question again...

What impact does asymmetric information (ie job search frictions) have on the firm's labour supply schedule?

 

It has no impact. There is no such thing as any exchange that doesn't involve asymmetric information on the part of both parties.

And we've established that firms don't have price-fixing power. If they did, we'd all be working for $0.01 per hour.

 

So what happens if a firm reduces it's wage? Do workers instantaneously leave and join other firms?

 

No, not instantaneously.

If firms had price-fixing power, we'd all be working for $0.01 per hour.

 

Back to the hypocrisy aren't we? You're again admitting that there is elasticity in the labour supply. Of course this is all modelled in job search analysis, deriving a dynamic form of monopsony.

Wrong again! The firm would set wages according to profit maximisation criteria (where marginal cost of labour equals the marginal revenue).

 

Then why aren't we all working for $0.01/hour? That would maximize profits for the firm.

 

You're confirming that you don't understand supply and demand. The firm sets labour where marginal costs of labour equals marginal revenue product of labour. That profit maximises, by definition. The wage is then determined by the supply curve (the average cost of labour).

 

So are you saying that firms can’t set wages?

 

No, I'm saying that you have shown zero understanding of supply and demand. Job search frictions ensure monopsonistic power. To model that you'd need to adapt a game theory approach. However, to simplify it down for you, I've shown how the wage and employment decisions are made within the context of marginal and average costs of labour.

 

So firms, because they can set wages, should be able to set all our wages to $0.01/hour right?

 

Your questions continue to make no sense. The point is simple. The firm will have no incentive to set wage as $0.01. It will set wages according to profit maximisation criteria. That criteria, however, will necessarily involve underpayment (because of the distinction between marginal cost of labour and average cost of labour; a distinction created by wage making power and therefore an upward sloping labour supply)

 

A wage of $0.01/hr would produce more profit than any other higher wage, which would reduce profitability.

 

Firms do not set wages, the market sets wages (at least in an ideally free market where there is no government coercion such as minimum wage, etc)

Just ask anyone who is self-employed.

/Thread

 

Wow, you dont know about the relevance of marginal revenue equalling marginal cost do you?

 

I sure do.

So you're abandoning your argument that firms have wage making power?

 

Then how on earth did you derive the $0.01 nonsense?

You made that very argument when you said firms faced labour supply elasticity. It's just a shame that you did that by error. That the firm has wage making power cannot be disputed. The idea of a market wage is rejected by the empirical evidence, reflecting the consequence of monopsony. Moreover, supply and demand only derives wage taking behaviour in a textbook ridiculous world where there are no job search frictions.

 

I'll take that as a yes, that you're abandoning your argument that firms have wage making power.

 

I can't abandon real world economics, unlike the utopianism demonstrated by the fake libertarians. To suggest firms have no wage making power is neither consistent with the empirical evidence or any credible understanding of supply & demand.

 

Given that you think firms have wage making power, you have yet to explain why we aren't all working for $0.01.

 

Actually I have explained it in full. You just haven't understood how supply and demand operates, a standard outcome amongst right wingers pretending The quantity of labour demanded is determined where marginal revenue product of labour equals marginal cost of labour. The wage consistent with that profit maximising demand decision is then determined by the supply curve, itself the average cost of labour. $0.01 would be inconsistent with profit maximisation as there would be no workers.

 

Why would there be no workers?

 

Surely you understand how supply works? The firm neither faces a perfectly elastic labour supply (as it has wage making power) or perfectly inelastic labour supply (as workers will provide less labour as wages fall).

All a bit bleedin obvious.

 

So firms can't actually set wages if they actually want workers to agree to work for them.