David R. Henderson  

Dictating Contract Terms Limits Bargaining Power

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Last month, I pointed out Paul Krugman's Orwellian use of language. In discussing the Obama administration's rules on overtime pay, he had written:

It [government policy] can also engage in what is sometimes called "predistribution," strengthening the bargaining power of lower-paid workers and limiting the opportunities for a handful of people to make giant sums.

He saw those rules as an instance of strengthening power. I noted that those rules do the opposite: they reduce bargaining power. A low- or medium-wage worker who wants to forego overtime pay in order to have more flexibility in number of hours worked over, say, a month will now be less able to do so because the federal government has taken away his/her bargaining power.

There are many other such instances in government policy. Here are four:

1. The minimum wage.
The higher the minimum wage, the less bargaining power an unskilled worker has. To make it worth employing an unskilled worker, the employer needs to trim other components of the pay package, including ones that the worker might want more than higher pay. This bargaining power is gone.

2. Rent controls.
Someone living in New Jersey who wants to move to Manhattan might be willing to pay more for a rent-controlled apartment than the current tenant of that apartment. But rent control stringently limits the potential tenant's bargaining power.

3. Mandated parental leave.
When the government mandates parental leave, even if unpaid, women's wages will tend to adjust downward or not rise as quickly because women are more likely than men to take advantage of that leave. So women who would not want to take advantage of that leave, either because they don't want children or they want children but don't want to take time off, lose their power to bargain for higher wages and no leave.

4. Restrictions on evicting tenants.
The harder the government makes it to evict tenants, the higher will rents be to compensate for this risk. Those tenants who would rather pay lower rents and live with higher risk of being evicted don't have that option.

Question for readers: What are some other good examples of government restrictions that limit people's bargaining power?


Comments and Sharing






COMMENTS (84 to date)
Ben Kenendy writes:

Automobile (or any other product) safety mandates - those consumers that would rather drive more dangerous and less expensive cars may no longer do so

Phil writes:

Veterans Administration mortgages - If a military veteran wants to buy a house using a VA mortgage, the seller is required to pay certain closing costs. Those terms are non-negotiable, ostensibly to protect the veteran. As a result, many sellers avoid buyers who use VA loans, or they raise the price of the house in their counter-offer to compensate.

Any form of professional license - While it may not restrict the terms of a bargain, it restricts the population of people with whom a buyer can bargain.

Matthew Moore writes:

Protections for tenants who violate the terms of their lease.

Verbatim quote from a lettings agent to me after I arrived in NYC with no US credit history:

'Because New York has such pro-tenant laws, you probably won't be able to find anywhere good to live'

Ak Mike writes:

As a frequent negotiator, I have to respectfully disagree with Dr. Henderson. It can be a very useful bargaining tactic for one side to be constrained. "Sorry, I don't have the authority to go below [or above] $X" can get the other side to give more than they intend, and so gives the constrained side a more powerful position.

Of course, it can be dangerous, depending on how rigid the other side is, but I don't think you can simply conclude that bargaining power is automatically reduced when one side is constrained. It just all depends.

ThaomasH writes:

It is otiose to point out that these and countless other regulations reduce someone's bargaining ability, restricts their ability to carry out a transaction that would be to the mutual benefit of the two parties to the transaction. What we need to ask is whether the total costs and benefits and redistributional consequences of the regulation are positive or negative. For that it is not enough to know that someone's bargaining position has been restricted.

Don Boudreaux writes:

ThomasH: It is otiose to point out that policies that produce benefits greater than costs should be adopted and those that produce costs greater than benefits avoided. What we need to ask is how we reliably measure such costs and benefits.

You repeatedly remind us of the putative benefits of cost-benefit assessments (as if we are all oblivious to the benefits of taking any and all steps that create net benefits). But you seem to be unaware of the costs of basing real-world policies on explicit cost-benefit assessments. One such cost is the danger that arises from mistakenly calculating costs and benefits - a danger that is especially likely in a world in which all costs and benefits ultimately are subjective and, hence, unobservable and unquantifiable.

You seem also to be unaware that one of the explicit rationales for relying upon private property markets, voluntary contracting, and the market prices that emerge within that institutional setting is precisely the inability of government officials to measure accurately the full costs and benefits of specific, alternative courses of actions or allocations of resources. With each individual property owner free to reject or to accept bargains, and to offer (or not to offer) bargains to others, the strong presumption is that each change in resource allocation generates net benefits, for no one is forced into any change in the physical use of his or her resources. (And economics shows quite convincingly that, under rather ordinary and plausible conditions, preventing forced changes in the physical use of resources, while allowing changes in market values to follow voluntarily expressed consumers demands, generates net benefits, at least in the form of an increase in the market value of total output over time).

That is, you seem to be unaware that one of the utilitarian rationales for relying upon private-property markets is precisely the understood inability of government officials to reliably conduct cost-benefit assessments for each and every proposed or prospective change in resource allocation. Put differently, sober and deep reflection upon the limits of human knowledge, as well as upon the propensity of human beings to abuse power, leads wise people to understand that the costs of relying upon cost-benefit assessments of the sort that you frequently call for are likely far greater than whatever benefits might be produced by relying upon such assessments.

David R. Henderson writes:

@Matthew Moore,
Because New York has such pro-tenant laws, you probably won't be able to find anywhere good to live
Beautiful. Thanks.
@ThaomasH,
What we need to ask is whether the total costs and benefits and redistributional consequences of the regulation are positive or negative.
I’m taking as given that the costs of such measures, measured in dollar terms, exceed the benefits. Absent externalities and/or monopsony power, that’s a good presumption. Also, I don’t know what you mean by “redistribution consequences” being “positive or negative."

David R. Henderson writes:

@ThaomasH,
Plus, what Don Boudreaux said.

James writes:

ThaomasH:

Do you know of any person or organization with a track record of accurate cost and benefit forecasting? Do you even know of any person or organization that produces cost benefit studies and for each study the perform, they go back after a time and measure and report the difference between predicted and realized net benefits?

JK Brown writes:

Mandatory breaks and meal times - Stringent enforcement denies those who would rather leave work an hour early from being able to negotiate working through with their employer. Also, the employee must be watched like a child to ensure they leave their desk and do not do any work during breaks and meals since even a violation by employee choice results in a penalty for the employer.

Toby writes:

David,

I have to disagree with you here that some of these restrictions necessarily lower the bargaining power of employees.

Imagine if you will that I wish to be home by six to have dinner with my family and put my children to sleep. I, however, also want to provide well for my children and fulfill some of my ambitions. Deciding whether or not to work overtime is a trade-off between having a better family life at home and being able to provide more for my family and fulfilling some of my ambitions.

It’s for this reason that I might wish to agree to a restriction on working overtime if this means that my colleagues are also not allowed to work overtime. Similarly, my colleagues, provided that they’re similarly inclined, might agree to this restriction if this means that I am not allowed to work overtime. We could all be better-off if we don’t have to compete with one another on that margin.

How does this relate to bargaining power? Well, if our employer would ask me to work overtime, then I can point to the restriction and say that I am not allowed to do so. And I can do so without hurting my career prospects.

Without this restriction the following might occur. I might refuse. The next colleague asked might refuse. Another colleague might refuse. This would leave our employer with fewer and fewer alternatives raising the bargaining power of each subsequent colleague asked. The last colleague asked might very well agree to work overtime and lower my and my colleagues bargaining power. Now our refusal means giving something up, whereas before our refusal did not differentiate us from one another.

I, therefore, don't think it simply follows that such restrictions necessarily lower the bargaining power of employees.

Toby writes:

Don Boudreaux,

I would like to point out that your argument against basing such restrictions on (explicit) cost-benefit analyses is itself a cost-benefit analysis. You're arguing in favor of not doing something because the benefits of inaction are exceeded by the costs of that course of action.

Now what I would like to ask you here is how do you know that this is the case?

Economics doesn't tell us anything of the sort. If Coase is to be believed, then either such restrictions are irrelevant for the final allocation of resources, or that such restrictions should be carefully evaluated upon their merits.

And if this knowledge is based upon empirical evidence, such as the historical track record, then I would like to ask you why empirical evidence can be used against every using cost-benefits analyses, but not for conducting such a cost-benefit analysis?

Finally, I would disagree with you that cost-benefit analyses necessarily lead to bad outcomes. If anything, having to conduct a cost-benefit analysis restrains political actors from pursuing irrational policies by placing an additional hurdle in their way. Good empirical work is very hard and it confronts you with how limited your knowledge really is.

Of course, bad empirical work might be used as a cover and might convince you that you know more than you really do. However, if bad empirical work is used as a justification, then at least this can be pointed out and an argument can be had. Political actors cannot be held accountable if the justification for the policies that they pursue is not tied to any ground rules. The same way that an argument cannot be had if logic is disregarded.

Forcing political actors to use cost-benefit analyses means that economic logic and the logic of statistics is introduced into the policy process. This means that logic is introduced into politics and an argument can be had and one can disagree with political actors based on something else than mere intentions and emotions.

michael pettengill writes:

How about regulations making it difficult to kill workers and customers and bystanders?

The regulations requiring mines be ventilated, coal dust suppressed with chalk are extremely burdensome because miners are going to die young from black lung anyway, so it's cheaper for them to die in mine explosions.

Regulations requiring equipment lockout that hinder workers continuously feeding matures into stamping machine or crawling into running machines to fix jams cut production, and workers who get limbs cut off or who die can be readily replaced while keeping production going.

Regulations requiring the removal of lead paint are burdensome, and brain damaged kids can be employed in mines and factories as disposable workers.

Regulations on waste ponds of mines and power plants are too burdensome, and the only people killed are the working poor who can easily be replaced with new poor living in shacks built on top of the dead and their shacks.

Regulations to stop Ohio valley coal burning plants sending SOx, NOx, and mercury into the upper atmosphere to fall in New England damaging the forest with acid rain and polluting the streams and lakes with mercury, because they are all liberals who should suffer from knowing why the forests dying and why eating fish is harmful.

michael pettengill writes:

Republicans in a couple dozen States are working incredibly hard writing regulations on family planning and obgyn care, pages and pages of costly regulations.

mattb writes:

Toby: your argument regarding overtime is essentially: "I don't want to work overtime so I can spend time with my family. Since I don't want to work overtime, no one else should be able to".

You then go on to theorize that using the force of government to prevent other people from advancing their careers ahead of yours by working overtime will work out better for you. Of course it will work out better for you, but you got ahead by removing options/bargaining power for other people, namely your co-workers. You might be better off, but everyone else who wished to work overtime is worse off.

Andrew Hofer writes:

California made non-compete agreements illegal. The equilibrium in other states is that they are legal but difficult to enforce, meaning exiting employees get paid to sign a non-compete, but can generally go ahead and compete. In CA, they don't get the payment.

I would also add scalping and usury laws to the list, and possible the new DOL Fiduciary rules.

Nathan W writes:

I perfectly well understand the econ 101 arguments against these things, but:

Minimum wage: I've never had a minimum wage job with other benefits. And employers who pay the minimum wage almost never offer overtime once overtime rates kick in (in fact, most will get very angry at any decision maker who allocates additional hours in a way that leads to overtime premiums). I cannot think of a single minimum wage position I've ever worked in where I'd suffer from a higher minimum wage.

Rent controls: I've rarely lived somewhere long enough to benefit from rent controls. However, a few times I've moved into an up and coming neighbourhood, and benefited from 1-2% max rent increases at times when rents were increasing by 10-20% yearly in the neighbourhood. Since that would have made it unaffordable for me, and would clearly have been a windfall for the owners, rent controls saved me from having to move house at least twice. I don't see why we should protect windfall profits for owners at a cost to long-term renters. The notion that rent control limits tenant bargaining power could only be made by a landlord, someone who doesn't rent, or someone who has always had plenty of cash to throw at whatever rent is charged and couldn't care less who is driven out to satisfy the combination of windfall gains for landlords and the desire of monied people to displace current tenants.

Mandated parental leave: First, parental leave is an option, not mandated (although it'd be silly not to take it for at least a few months if you have the option). My view is that the cost of child bearing should be roughly equally distributed across genders. If this requires regulations, so far as limited witch hunting against employers who systematically discriminate (regardless of whether economically rational to do so in an absence of regulations), then so be it. In fact, these policies work against me. I'm single, male, and do not expect to have children. But they are the obviously correct thing to do.

Restrictions on evicting tenants: OK, let us know what the social cost is of people in tight spots landing up on the streets, in emergency shelters, etc. Many studies have shown that the cost of such situations can easily run into six figures per person per year. Also, you're basically wrong about the effects on rent, at least for most people. Yes, for the crappiest of crappy apartments, this might be somewhat true. For people who want lower rents and higher risk of being evicted, the options are pretty straightforward - you offer references, proof of employment, and various other ways of demonstrating to a landlord that you will be a reliable tenant. The only people who would be unable to offer such proof, most of the time, would be those who indeed are a higher risk to the landlord. And as much as they might opt in the short-term for less protections to save $50 a month on rent, when the time comes and they find themselves on the street, who actually benefits from such a situation?

Honestly, in each of these case, I feel like the government is indeed bargaining for a very large number of people who would have difficulty representing their situation as individuals or collectively, and the number of those who benefit significantly exceed the number of those who face costs, and also that the aggregate effect on welfare may indeed be positive, never mind what econ 101 says. DH, your focus seems exclusively on costs, not benefits, and on the group of those who lose, disregarding those who benefit. This is not an effective framework for evaluating whether a given policy is desirable.

Toby writes:

@mattb: that's not what I have been saying at all. In the example I gave all employees could be better off by agreeing to a restriction on overtime:

It’s for this reason that I might wish to agree to a restriction on working overtime if this means that my colleagues are also not allowed to work overtime. Similarly, my colleagues, provided that they’re similarly inclined, might agree to this restriction if this means that I am not allowed to work overtime. We could all be better-off if we don’t have to compete with one another on that margin.

This is no different than when two firms agree to a restriction on the quantity of output or on the price at which they'll sell to consumers. Two firms have more bargaining power when they act as one. And it should be no surprise that firms gladly will lobby the government to impose such restrictions on them if this means that their profits will be raised.

Ralph writes:

Here's a question: How about some evidence for these assertions?

Philo writes:

What is "bargaining power"; how might it be measured?

Does the concept apply even to the many transactions that take place without any obvious bargaining? For example, I buy a pound of apples at the supermarket; they are listed at $2.49/pound, and that is what I pay--no bargaining. I *could* tell the manager: I'll buy *two* pounds if you let me have them for $2.39/pound, but I don't bother--I assume he'd just say 'no', annoyed with me for wasting his time. He's the price-setter, I'm just a price-taker. Does that mean his has lots of "bargaining power," and I have none? (But there was no overt *bargaining* at all!) If so, is this somehow bad for me? (I can still just walk away and patronize a different supermarket.)

I hear that in a Middle Eastern markets there is a lot more haggling over price (and, perhaps, over other features of transactions). How is "bargaining power" distributed in such a setting between buyers and sellers? Does one's acting ability affect his bargaining "power"?

Perhaps the concept of bargaining power is explained in elementary economics texts, in which case I apologize for my ignorance.

Don Boudreaux writes:

Ralph: I assume that your request for "evidence for these assertions" is directed at David Henderson.

If my assumption is correct, I have a non-rhetorical question for you: Do you really need - in order to accept the "assertion" that, say, rent control limits the ability of a potential tenant to bargain for rental units - empirical evidence that rent control limits the ability of a potential tenant to bargain for rental units? Is not the very point of rent control to limit the ability of people to bargain for rental units by preventing them from offering rents above the legislatively-stipulated maximum? Is not the very point of minimum-wage legislation to prevent workers from competing for jobs by offering to work at wages below the legislatively set minimum?

But perhaps you're asking instead for evidence that forcibly stripping people of bargaining chips makes people worse off. The world being a complex place, I am aware that fanciful scenarios can be imagined in which preventing Smith from using one of her bargaining chips makes Smith better off. But why should the burden of proof or persuasion be on David Henderson to show empirical evidence that stripping people of the right to use some of their bargaining chips reduces people's bargaining power and thereby makes them worse off? Shouldn't the burden of proof and persuasion be on those who assert that if Smith starts with bargaining chips A, B, C, D, and E, and then Jones forcibly prevents Smith from ever using bargaining chip E, that Smith's bargaining power - and Smith's welfare - are thereby reduced? Isn't it this latter assertion - the one that asserts that reducing Smith's bargaining power enhances Smith's prospects for striking bargains that suit Smith better - for which evidence should be demanded, and assessed, before we accept the notion that the likes of rent control, minimum wages, and mandated employee leave improve the welfare of those whose bargaining power is so reduced?

Toby writes:

@Philo: one way to think about bargaining power is to think about how the surplus of an exchange is divided between two parties.

For example, if I wish to buy an apple from Alice that costs 50 cents to produce and I value this apple at 200 cents, then the potential surplus is 150 cents. If I pay 100 cents for this apple, then Alice earns 50 cents (100-50), and I earn 100 cents (200-100).

Based on this example you could say that I have more bargaining power than Alice because I have obtained a larger proportion of the surplus from this exchange.

The reason for this might be that Bob down the street is also selling apples that costs 50 cents to produce for Bob and he is willing to sell these apples at 98 cents. I, however, value not having to walk down the street at 3 cents and so I purchase the apple from Alice. If Bob would drop the price to 90 cents, I'll walk down street. Similarly if Alice would raise the price to 110 cents, then I would go down the street to buy an apple from Bob.

Bargaining power can, therefore, be understood as having alternatives. If Bob and Alice have both long lines of customers who all wish to purchase an apple and these customers are identical to myself, then they might very well charge 199 cents an apple. In this case Alice and Bob have plenty of alternatives to me as a customer.

This is anyway how I've learned it and it makes sense as a concept to me in this way.

David R. Henderson writes:

@Philo,
What is "bargaining power"; how might it be measured?
That’s a very good question. Toby has quite a good explication of one type of bargaining power, and it is the type that is normally talked about in economics texts: the power to extract a bigger part of the surplus created by trade.
With my examples, I have in mind a different, and not necessarily less important, type of bargaining power: the power to adjust various parts of a complex transaction. The apple example is relatively simple. The examples I gave above are relatively complex because there are so many margins on which to adjust. In all the examples I give above, both sides can be better off because they have the various margins on which to adjust.
I hope that helps and there’s no need to apologize for asking a question when my original post should have made that clearer.

Toby writes:

@David: correct me if I am wrong, but the terms of these complex transactions will be chosen by the parties to maximize the joint surplus of the transaction. The price is then chosen to divide the surplus. Provided, of course, that transaction costs are zero.

What I mean to say by this is that both parties to the transaction will choose the same terms as both parties will wish to maximize the potential gains from trade. Bargaining power seems irrelevant here: they'll act as a single entity. When it comes to the price, however, each of the parties would like to be able to appropriate the whole surplus if possible.

Though, if transaction costs are not zero, then I think we can speak of bargaining power when it comes to terms of the transaction. But, then it does not necessarily follow that both sides can be better off because they have more margins to adjust on. Restrictions, then have the potential to make the parties better off by creating situations which the parties would have agreed to if transaction costs would have been zero. Restrictions can then change the structure of the games that we play.

ThaomasH writes:

Professor Boudreaux,

You make a number of unwarranted assumptions about what I am aware of. I have spent most of my professional life in international development arguing with officials that I thought were underestimating the costs of trade restrictions, interest rate caps and other interferences with price-setting in markets.

I suppose I should not be surprised, as I feel you also make unwarranted assumptions about being able to make a judgment on economic policy without looking at the results of that policy, results some of which may be good, “benefits” and some that may be bad, “costs.” I am more than aware that estimates of the results of policy, their costs and benefits, are uncertain. That uncertainty exists whether one makes policy after attempting to foresee consequences, or not or indeed whether the policy is adopted or not.

I will re-affirm, because I do not think anything you have said refutes it, that it is not enough to know that a specific regulation prevents a non-coerced transaction between two parties to conclude that that regulation is undesirable.

Professor Henderson,

Clearly, monopsony, monopoly and externalities are part of cost benefit analysis. By “redistribution” benefits (or costs) I mean that one might judge that the redistribution effects – say the value of the income lost by those who fail to gain employment, because they are the least skilled or perhaps otherwise disadvantaged workers (and possibly losses to consumers of the good produced by minimum wage workers and owners and suppliers of firms), is greater than the value of the income gained by those whose income rise because of a minimum wage - makes a minimum wage undesirable.

What I was rejecting was the implication that because a regulation reduces the bargaining power of someone that it is necessarily undesirable, even necessarily from the point of view of the person whose bargaining power is restricted. I say, (as we used to joke in graduate school) IDOTE, “it depends on the elasticities,” in other words, it depends on the balance of effects.

Take Toby’s example of overtime work. The restriction on his and his colleagues’ ability to bargain over overtime benefits him and those who have a similar valuation of on job income and off job time. (For simplicity, let’s assume that the employer will adjust by lowering wages) It harms those with a higher value of income over off-job time. With no sense of the magnitudes of how many people feel one way or the other and of by how much employers will need to reduce wages, one cannot know whether it is a good idea in this case to override the presumption that setting wages and working conditions is best left to bargaining among the parties.

David R. Henderson writes:

@Toby,
correct me if I am wrong, but the terms of these complex transactions will be chosen by the parties to maximize the joint surplus of the transaction. The price is then chosen to divide the surplus. Provided, of course, that transaction costs are zero.
That is correct, given your (which is the standard one) definition of bargaining power.
What I mean to say by this is that both parties to the transaction will choose the same terms as both parties will wish to maximize the potential gains from trade. Bargaining power seems irrelevant here: they'll act as a single entity.
This is where you are wrong. Imagine some government agency, and there are many, tells both sides that they can’t alter one or more of the terms. Then both sides have lost bargaining power. You’re thinking of bargaining power as being solely a conflict situation between two sides of a bargain. What I pointed out in my post above is a different type of bargaining power: both sides being free to alter the terms.

The prohibition against the sale of human organs is a good example.

Toby writes:

@David: thank you, I think that clarifies it.

What you call bargaining power then essentially seems to be all the possible contracts that two parties could make. In which case it seems trivially true that a restriction reduces bargaining power. It's not necessarily true though that this will make both parties worse-off.

I, however, feel that you and Krugman are using the term bargaining power in two different ways then. Krugman seems to argue that restrictions can improve the bargaining power of one party against another. A statement with which I don't disagree given that he seems to be using it in the same way as I am. You seem to be arguing that it restricts the choices parties can make. This is also a statement with which I don't disagree.

Nick writes:

As a sidenote to what Toby is saying, there is a wealth of theoretical and empirical economic literature showing that restricting one's choices can improve one's bargaining power, as the term is commonly used, and as Krugman is using the term.

Don Boudreaux writes:

Nick:

You say that

there is a wealth of theoretical and empirical economic literature showing that restricting one's choices can improve one's bargaining power, as the term is commonly used, and as Krugman is using the term.

Can you share with us what are in your view the top five, or even top three, empirical studies that demonstrate that when party A restricts party B's choices, without party B's direct consent, party B's bargaining power is improved. (I ask for only for empirical studies because it's child's play to draw-up hypotheticals that support the point.)

LK Beland writes:

In regards to parental leave, what is the difference in bargaining power if the (paid) leave is paid for by the government rather than the employer?

That said, your reasoning does suggest that flexible parental leave rules are most likely preferable to rigid ones (and that it should be possible to split the leave in any way the the mom and the dad desire it).

Don Boudreaux writes:

P.S. to my note to Nick in which I ask for cites to empirical studies that offer real-world evidence of Jones improving Smith's bargaining power by restricting Smith's choices without Smith's express permission: I ask also that these empirical studies be of restrictions on choices that are part of, or potentially part of, the bargains that Smith might make. That is, I would regard as irrelevant to David's post a study that showed, say, that Jones improved Smith's bargaining power as an adult by stripping Smith, when she was a child, of the option of dropping out of school. Likewise, I would regard as irrelevant to David's point an empirical study that showed that Smith makes better housing or employment bargains for herself when Jones strips Smith of the option of choosing to use cocaine or heroin.

David's point (he can correct me if I'm mistaken) is that forcefully restricting the range of options that Smith can offer to Williams when Smith and Williams are bargaining with each other is much more likely to weaken, rather than strengthen, Smith's bargaining power.

LK Beland writes:

More generally, you could argue that these rules limit the ability to bargain, but that they also provide better outcomes to those with a limited bargaining ability.

To the extent that these people may be just as productive as others with higher bargaining abilities, you could make the argument that these rules lead to a fair outcome.

Toby writes:

@Don: I am not directly aware of any such studies but let me remark that I did not make the claim that forcefully restricting one's choices could improve welfare.

I merely said that restricting one's choices could improve bargaining power and/or make individuals better off and the example I used was where individuals could, albeit hypothetically, agree to this.

I can imagine though that there are plenty of studies that show that collusion raises prices, and that restrictions imposed by government on industries has raised prices and profits of firms.

I believe Mueller's Public Choice III will have some examples of that. It's probably in Chapter 15 on rent seeking if memory serves me right. Otherwise the Industrial Organisation literature is bound to have some examples.

Maximum Liberty writes:

I'm not sure if this one fits.

Obamacare's insurance mandate on individuals to buy insurance forces the individual to pay for a policy that might not fit their needs, absorbing the resources with which they could pay for the policy that they want. In particular, I'm thinking of the "no caps" part, which drives up the cost to a young, health person who might prefer a minimed policy.

Don Boudreaux writes:

Toby:

Thanks. My question, though, was aimed at Nick and not you. (I don't say this with ingratitude for your answer; I say it merely to let you know that the specific claim that prompted my earlier question came from Nick.)

I fully agree that individuals can, and do, often make choices that restrict their own choices. Heck, the very purpose of contracting is to do just that: I agree to bind myself in the future to do Y for you in exchange for you agreeing to bind yourself to do X for me. And I agree also that one useful function of political constitutions is to solve the time-inconsistency problem. (At the Center for Study of Public Choice here at George Mason University there hangs a drawing of Odysseus bound to the mast.)

My question to Nick is to solicit real-world evidence that individuals can have their bargaining power improved vis-a-vis other individuals (rather than vis-a-vis those individuals' future selves) when third parties, without those individuals' consent, use or threaten to use force to reduce the number of bargaining chips that each of those individuals has to offer.

David R. Henderson writes:

@Don Boudreaux,
David's point (he can correct me if I'm mistaken) is that forcefully restricting the range of options that Smith can offer to Williams when Smith and Williams are bargaining with each other is much more likely to weaken, rather than strengthen, Smith's bargaining power.
You are not mistaken.
@Toby,
I am not directly aware of any such studies but let me remark that I did not make the claim that forcefully restricting one's choices could improve welfare.
I would remind Toby that whatever claim he made, my post was about forceful restrictions. That’s what government restrictions are.

David R Henderson writes:

@Mark Cancellieri,
The prohibition against the sale of human organs is a good example.
Great example. Thanks.

john hare writes:

Re the back and forth on preventing overtime.

I have talked to many people over the years that have worked two and three jobs because one was not enough to pay the bills. The vast majority would have been much happier working one job with overtime than several without. Whether it is the company, union, general agreement, or government regulation preventing the overtime, the individuals I have known suffer. It is not just working for straight time instead of time and a half, it is also scheduling multiple obligations and often having to choose which employer to annoy. There is also the dead cost of travel to multiple locations, and often multiple uniforms to maintain.

I have a very low opinion of restricting overtime for the convenience of a few that don't happen to need the money.

Nick writes:

@Don Boudreaux

Toby mentioned collusion in industrial organization, which is a good example. In that vein, a used car salesman might be delighted if the government caps the number of used cars which may be sold, since his bargaining power with each buyer is improved, even though the actions he can take have been restricted. Think about things like restrictions on store hours in European countries, or on the number of taxi medallions in a city. There are lots of examples from the public choice literature of firms lobbying the government to impose regulations on their industry for reasons like this.

Further on that, we voluntarily submit to forcible restrictions on our behavior to improve our bargaining power in everyday life, through contracts. Think about marriage contracts, or labor contracts. If I know you will be thrown in jail if you renege on an agreement with me, your bargaining position may be much improved, because some of your choices have been forcibly restricted.

Otherwise, the standard example is the empirical literature on minimum wages and bargaining. See here for example, which finds evidence that the minimum wage improves the bargaining power of low-wage workers.

As for the slight caveat in your question -- "with their consent", it is in fact the case that most low-wage workers support the current minimum wage.

I happen not to support the minimum wage, but I also don't support bad economic reasoning, and it is simply not true that forcibly restricting someone's options reduces their bargaining power, in fact, that the opposite is often true is one of the key insights of economics and game theory.

Toby writes:

@David: I don't agree that a government restriction is necessarily a forceful restriction. It might very well be considered voluntary.

Take the model in the Calculus of Consent for example. Reasonable individuals can agree that we need less than an unanimity agreement to impose rules on ourselves because we believe that the costs of agreeing are outweighed by the benefits of preventing external costs. Provided that we can agree to this, then we are consenting to the rules imposed on us under this mechanism. How can we speak of forcefully restricting our choices then when we've consented to the procedure through which these will be imposed? The coercion we impose on ourselves is voluntary in this example. A government restriction is, therefore, not necessarily a forceful restriction.

Now this model, of course, does not describe the US. Today's citizens never were part of such a constitutional stage and live in a post-constitutional world. However, if a citizen would happen to agree with the restriction imposed on her and would even to have happened to have voted in favor of such a restriction, then we cannot speak of a forceful restriction for that citizen. I suppose that you agree with this?

Furthermore, if a citizen has not agreed to such a restriction, but has voted, directly or indirectly, for another restriction to be imposed with which she does agree, then I find it hard to argue that the restriction is forcefully being imposed on her. She seems to be a more than willing participant in the system.

Finally, in a democratic polity such as the US I find it hard to believe that more than a small minority of citizens actually has restrictions imposed on them forcefully. By far most of the citizens seem to agree with such policies. Public opinion rules as Dicey would have observed. I, therefore, find it inaccurate to say that government restrictions are forceful in general as far as the US is concerned.

The restrictions might still be bad, the same way that consuming large quantities of sugar is bad for you, but I find it difficult to call it forceful. Today it seems that the worst things people do is to themselves, and they do this entirely voluntary.

Toby writes:

@Don: Thanks, understood! I think that consent or at least a hypothetical consent by reasonably informed individuals is necessary. I just seem to differ with you and David on how I view certain situations.

jon writes:

Automobile (or any other product) safety mandates - those consumers that would rather drive more dangerous and less expensive cars may no longer do so
The same holds for food safety mandates - those consumers that would rather buy melamine infused, but less expensive, pet food and baby formula may no longer do so.

Philo writes:

Thanks for the clarification, which suggests that the term 'bargaining power' is a misnomer (so let me just call it 'bp', which has no misleading overtones). If the supermarket is making (say) ten cents a pound in selling these apples, while I, the customer, value them at one cent a pound more than I paid for them, then the supermarket has much more bp than do I; while if I value them at thirty cents more than I paid, I have a lot more bp than does the supermarket.

I prefer the term 'bp' because no *bargaining* took place.

Philo writes:

That was Toby's "bargaining power," which is readily quantifiable. David Henderson's "bargaining power" is more difficult to quantify. Maybe I could get the supermarket to bundle some service together with my purchase of apples--maybe they would deliver them to my door for an extra fee. I have the "power" to negotiate such agreements with them, power which is reduced if the government forbids some of these possible agreements. But this power seems unmeasurable.

David R. Henderson writes:

@Toby,
By forceful, I mean that the government uses force. Even if people vote, that doesn’t mean that the government’s force is not force. And I think you also fell into the trap of saying that the fact that someone votes means that he or she consents to everything that the government does.

john hare writes:

Land use restrictions via zoning.

I had a piece of commercial property once that could have been a profit center except that I couldn't legally rent sections of it to people that wanted space for RVs and boats. Or build the shop I wanted as small and cash built. Lost it in the construction downturn.

jon writes:

But why should the burden of proof or persuasion be on David Henderson to show empirical evidence that stripping people of the right to use some of their bargaining chips reduces people's bargaining power and thereby makes them worse off? Shouldn't the burden of proof and persuasion be on those who assert that if Smith starts with bargaining chips A, B, C, D, and E, and then Jones forcibly prevents Smith from ever using bargaining chip E, that Smith's bargaining power - and Smith's welfare - are thereby reduced?
No, it should not. Because the latter scenario is the current status quo, and Henderson's position is not. If he wants change, the burden is on him to show why that change is beneficial.

jon writes:

1. The minimum wage.
So, would it be accurate to say that your position on this is that the minimum wage guy operating the fryer at McDonalds or the minimum wage gal cleaning toilets at Motel 6 would have bargaining power against those giant corporations if only they didn't have that pesky minimum wage guarantee? As a young lad, I worked a few minimum wage jobs, and I can assure you that I had no bargaining power.
And the fact that you are a Libertarian, and thus presumably an open borders advocate, just furthers how ridiculous this argument is. In a world without a minimum wage guarantee, and with a constant supply of desperate workers, I'm not seeing much bargaining power.
2. Rent controls.
Someone living in New Jersey who wants to move to Manhattan might be willing to pay more for a rent-controlled apartment than the current tenant of that apartment. But rent control stringently limits the potential tenant's bargaining power.
How many times do I have to point this out -- that's the whole point of rent control. The current tenant gets to live there and pay a modest rent, even though someone in New Jersey would be wiling to pay much more.

john hare writes:

@Jon
The only employee with no bargaining power is the one of so little value that he can be instantly replaced by any inexperienced warm body from the street. Other people may have been willing to work for less than you in exchange for training or schedule. As an employer myself, I can tell you that any employee of value has negotiating capability. Minimum wage is not a law that says I have to pay you a certain amount, it is a law that says that if you are not worth at least that amount, then I cannot hire you except as a charity case. If you are a charity case, then you are not a legitimate employee.

Rent control protects the current tenant at the expense of making impossible for more worthy tenants to move in. It also discourages or prevents new rentals from being built. So for the convenience of one, you force several more into a long commute, which is basically theft of hours and cumulatively years of their lives.

There is room for misunderstanding on the internet, and I could easily be misunderstanding your points. In person, the people that have argued your position as I understand it, are seldom worthy people.

Toby writes:

@David: If I hire a nun to smack me with a ruler on my fingers every time I try to bite my nails, then that's also a forceful restriction then. Even though it's completely voluntary and I believe it will improve my well-being.

Fair enough. I am not a native speaker and I seem to have conflated the use of force with coercion.

And I think you also fell into the trap of saying that the fact that someone votes means that he or she consents to everything that the government does.

1. I think we both can agree that under the model in the Calculus of Consent, that every participant consents to everything by agreeing on the rules of the game, right?

2. For the US or any other democracy I think that it is correct to say that you consent by voting when you willingly vote to restrict yourself.

Would you agree with me here?

3. Similarly, I think that it is reasonable to say that if you willingly vote to restrict others you implicitly consent to be restricted yourself. If you have no problem when you can use the rules to restrict others, then you cannot reasonably have a problem when the rules are used to restrict you.

I suppose you would disagree with me here. My objection though is that this would mean that you're likely inconsistent in how the rules are to be applied.

4. If you accept #3 and you agree that the restrictions passed in a democracy largely reflect public opinion, then for most individuals it will probably hold that they've consented to these restrictions by willingly participating.

For example, I don't believe that minimum wage legislation is a restriction that most individuals wouldn't consent to. I am pretty sure that an overwhelming majority would vote in favor of such a restriction.

jon writes:
The only employee with no bargaining power is the one of so little value that he can be instantly replaced by any inexperienced warm body from the street.
Or as these people are more commonly known, minimum wage employees. You might have noticed the the "Fight for Fifteen" is mostly a movement of fast food workers. Not a lot of journeyman electricians or plumbers in that group.
Rent control protects the current tenant at the expense of making impossible for more worthy tenants to move in.
Once again I must reiterate that this is the whole point of rent control - providing housing for people who work low wage jobs in the same city where they do those jobs.
There is room for misunderstanding on the internet, and I could easily be misunderstanding your points. In person, the people that have argued your position as I understand it, are seldom worthy
No need with the false pleasantries, just come right out and say you think I am a horrible person. The feeling is mutual.
Don Boudreaux writes:

Jon,

In response to John Hare's observation that rent control "protects the current tenant" and, thus, makes it more difficult for other tenants to bid for existing rental units, you write:

Once again I must reiterate that this is the whole point of rent control - providing housing for people who work low wage jobs in the same city where they do those jobs.

Questions:

(1) What reason have you to believe that the current tenants whom rent control causes to be artificially ensconced in their rental units are people who work low wage jobs in the same city where they do those jobs? (I believe if you look at the evidence you'll find that the tenants that rent control artificially keeps in their current units include a disproportionately large number of older couples whose children have left home. These couples would otherwise have moved into smaller units but rent control keeps them where they are, both because the rents they pay for their current units are kept artificially low and because of the increased difficulty - thanks to rent control - of finding other rental units. Also, rent control artificially encourages tenants who move to other cities to keep as second homes the units in their previous city of residence. New York City is full of such rental units.)

(2) Because rent control artificially encourages conversions of rental units into condominiums, as well as artificially encourages the building of owner-occupied housing as it artificially discourages the building of units for rent, how can you be sure that rent-control's benefits are captured by the working poor? (Rent control likely harms the working poor and artificially helps the more well-to-do by putting downward pressure on the prices of owner-occupied housing in rent-controlled areas.)

(3) How would you respond to Thomas Sowell's economic analysis of rent control?

John hare writes:

Minimum wage is an attempt to extract by force that which one is unable to earn by right. As such it generates a reaction that surprises those that don't understand cause and effect.

jon writes:
Minimum wage is an attempt to extract by force that which one is unable to earn by right.
Exactly! We have an underclass of people who, left on their own, would be very unlikely to earn a living wage by right (and, of course, the current minimum wage is not a living wage). So what do you suggest we do with these people?

@Don: I'm currently in transit, I'll respond later.

john hare writes:

It is your of course that I disagree with. I have lived on considerably less than the purported minimum wage a few times when business is bad. It is very possible to live on minimum wage. It is not possible to live well on minimum wage. Sharing an apartment and commuting by bicycle would be a start. Learn inexpensive meal planning. Cable and fast food is a luxury.

It is very difficult to make money off of minimum wage employees due to low skills and extreme supervision requirements, not to mention low reliability. Raising the wages of the bottom employees just makes more of them unemployable. Pretending they are worth more than they are just reduces the information that would provide the motivation for them to improve themselves. Ask any manager of low skill and motivation employees how hard it is to get anything done with them.

Good ones move up. I don't pay multiples of minimum because I'm generous, but rather because that is what it takes to retain good people. Most of the employers that I know are screaming for good people that aren't available.

Low value employees are losing ground. It would help if they were made to understand that productivity is what builds wealth, not unearned wages forced from their employer.

I am passionate on this issue as we have been in hiring mode for two years with poor success. Yes it is hot, hard, and dirty work. It also pays the $15.00 or better right now, without some near criminal mandate.

Don Boudreaux writes:

I respond, at my blog (Cafe Hayek) to Jon's latest comment. Here's the bulk of that comment:

Jon’s defense of the minimum wage is strong evidence that the world does indeed include people who really do believe that government-officials’ stated intentions determine the outcomes of government actions. Jon writes as though minimum-wage legislation really does improve the lives of the (as he describes them) “underclass of people who, left on their own, would be very unlikely to earn a living wage.” Judging from this comment (and from some of his other comments at EconLog), Jon doesn’t even bother to consider the possibility that the minimum wage might not raise incomes in the way that he supposes that it does.

Another error is reveal by his question, “So what do you suggest we do with these people?” Even if it were true that the United States has lots of people who “left on their own … would be very unlikely to earn a living wage,” and if it were also true that John hare and every other opponent of the minimum wage can offer no good ‘solution’ for how to improve the economic well-being of such people – it does not follow that the minimum wage is, therefore, a policy that will help to improve the economic well-being of such people. If Smith advises Jones not to drink a gallon of gasoline by pointing out to 65-year-old Jones that drinking gasoline will not, contrary to Jones’s stated belief, turn Jones again into a 25-year-old man, Jones would be mad – and illogical – to respond by asking rhetorically: ‘So what do you suggest I do to turn myself again in to a 25-year-old man?’ Not all problems have solutions, and certainly the failure to offer a solution to a problem does not imply that the proposed solution currently under consideration will work.

Jon’s response to John hare also suggests that Jon believes that prices and wages are rather arbitrary numbers the only function of which is to determine how a fixed-sized economic pie is to be sliced. Raising the minimum wage will (apparently in Jon’s view) cut bigger slices for low-skilled workers by cutting smaller slices for business owners and others. There is in Jon’s comment no evidence whatsoever that he is even aware of (much less that he has a response to) the concern that the minimum wage prices out of jobs the very workers that Jon understandably seeks to help.

Finally, this unawareness on Jon’s part (which, I do not doubt, he shares with the vast majority of minimum-wage supporters) makes it fair to ask Jon the following question: What line of reasoning leads you, Jon, to believe that people who are so unskilled and inept that when “left on their own” they are incapable of earning a “living wage” will continue to be attractive to employers when the government prohibits these unfortunate workers from offering to work at hourly wages below the wages that are currently paid to more skilled and competent workers?

Jon Murphy writes:

Jon-

Are you aware that the minimum wage was created in this country (and elsewhere) for the exact purpose of keeping such an underclass out of the workforce?

To wit:

"Legal Minimum Wage positively increases the productivity of the nation’s industry, by ensuring that the surplus of unemployed workmen shall be exclusively the least efficient workmen...

What would be the result of a Legal Minimum Wage on the employer’s persistent desire to use boy labor, girl labor, married women’s labor, the labor of old men, of the feeble-minded, of the decrepit and broken-down invalids and all the other alternatives to the engagement of competent male adult workers at a full Standard Rate? … To put it shortly, all such labor is parasitic on other classes of the community, and is at present employed in this way only because it is parasitic.

The unemployable, to put it bluntly, do not and cannot under any circumstances earn their keep. What we have to do with them is to see that as few as possible of them are produced."

-Sydney Webb

"It is much better to enact a minimum-wage law even if it deprives these unfortunates of work. Better that the state should support the inefficient wholly and prevent the multiplication of the breed than subsidize incompetence and unthrift, enabling them to bring forth more of their kind."

-Royal Meeker (Woodrow Wilson's Secretary of Labor)

And, during the debate for federal minimum wage...

"You will not think that a southern man is more than human if he smiles over the fact of your reaction to that real problem you are confronted with in any community with a superabundance or large aggregation of negro labor."

-Congressman William Upshaw, D-GA

"I have received numerous complaints in recent months about southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South....This cheap colored labor is in competition with white labor throughout the country."

-Rep. Miles Allgood, D-AL

Ken writes:

jon,

"We have an underclass of people who, left on their own, would be very unlikely to earn a living wage by right"

We do NOT have an "underclass". Pretty much everyone in bottom quintile of income gets out of that quintile at some point in their life, putting the lie to your claim that they "would be very unlikely to earn a living wage by right". Additionally, many making less than minimum wage, they still earn a a wage on which they can live, i.e., a "living wage".

Also, no one has a right to fruits of other people's labor. In fact, we have a constitutional amendment forbidding involuntary servitude. No one has the obligation to ensure anyone else has anything. Of course, we do help others, voluntarily, all the time. Americans are the most charitable people on earth. However, everyone has the obligation to NOT be a burden to anyone else.

"and, of course, the current minimum wage is not a living wage"

The minimum wage, if you're working full time, is $15000 per year. The typical American before 1950 earned no more than $15000 per year (in constant 2009 dollars), yet ALL lived and most lived well (john hare is wrong to claim you can't live well on minimum wage). Further, in constant 2009 dollars, the typical American earned $1107 per year in 1790, $1509 in 1800, $2303 in 1850, and $6003 in 1900, with everyone being able to live, i.e., even $1107 is a living wage. To claim that $15000, which is ten TIMES what Americans lived on in 1790, isn't a living wage is simply to say you don't know history, from even just 60 years ago.

In 1999, I earned just $8000, which is equivalent to $10,301 in 2009, a full 33 percent less than a full time worker earning minimum wage) as a waiter in Seattle. Not only was I getting by, but I lived very well. I shared an apartment with three others, in which I had the master suite, with plubming, heat, hot, clean running water on tap; I had plenty of food and clothing, with enough income to buy these things as needed. I owned a car and a motorcycle, driving both frequently, all over the state of Washington. I dated and had an active social life.

It's not hard to live on a little bit of income. Those who whine that minimum wage isn't a "living wage", really, either have no idea what they are talking about or have probably lived on less at some point in their lives, so are just lying.

"So what do you suggest we do with these people?"

I suggest you leave them to live their own lives.

John hare writes:

Minimum wage is an attempt to extract by force that which one is unable to earn by right. As such it generates a reaction that surprises those that don't understand cause and effect.

Richard Fulmer writes:

Logically, the people helped by an increase in the minimum wage will be those who keep their jobs - or who can still get a job - after the increase. Likely, they will be those most skilled and experienced and will be members of ethnic groups that not discriminated against. Those hurt by the increase will be those who lose their jobs or who cannot find work at the higher wages. Likely, they will be the least skilled and experienced and will be members of the least "popular" ethnic groups. In other words, Jon proposes that we help those who need help the least at the expense of those who need help the most. What does Jon propose that "we" do with the people we hurt?

Jon Murphy writes:

@Richard Fulmer:

You are absolutely correct. In fact, that was the original goal of minimum wage: keep minorities, women, invalids, mentally-retarded and others who were not white men out of the workforce.

jon writes:

I respond, at my blog (Cafe Hayek) to Jon's latest comment.
I felt kind of honored, in a weird way, that you would devote a blog post to me. So I initially intended to respond there as well as here. But then I discovered that your blog is facebook only for comments. An odd choice, to put it mildly, for a purported Libertarian.
Also, this
What the World Looks Like to Someone Who Doesn't Understand Economics
seemed a bit harsh. My views on the minimum wage are backed by actual research (although not the kind that someone living in a Libertarian bubble is likely to encounter):

We confirm our earlier findings that business assistance living wage laws boost wages of the lowest-wage workers, at the cost of some disemployment, but on net reduce urban poverty. Second, we expand the analysis of distributional effects beyond looking just at the poverty threshold. We do not find that living wages increase the depth of poverty among families that remain poor, and we find that families somewhat below and somewhat above the poverty line are also helped by living wages.

http://www.nber.org/papers/w9702

jon writes:

Are you aware that the minimum wage was created in this country (and elsewhere) for the exact purpose of keeping such an underclass out of the workforce?
Are you aware that birth control was advocated for in this country (and probably elsewhere) for the exact purpose of eugenics? Does this change your views on the subject? Should it? Personally, I say no to both. It's unfortunate that some people come to the right conclusion for the wrong reasons, but that shouldn't do anything to change someone's opinion on the matter.

jon writes:

What reason have you to believe that the current tenants whom rent control causes to be artificially ensconced in their rental units are people who work low wage jobs in the same city where they do those jobs?
how can you be sure that rent-control's benefits are captured by the working poor?
These are at least legitimate potential critiques of rent control -- unlike Prof. Henderson's complaint that rent control achieves exactly what it sets out to do. And this very blog provided at least one anecdotal piece of evidence that this is a real problem. There is a video of Breitbart talking about how his time living in a rent-controlled apartment in a building his family owned turned him against the concept. Obviously, rent control isn't intended for the family members of the owner of the building. But rather than scrap the whole thing, wouldn't it make more sense to just double check the records to make sure there isn't so much fraud?

Jon Murphy writes:

@jon

My views on the minimum wage are backed by actual research

Actually your views are not. Even the paper you cited doesn't support your claims.

Are you aware that birth control was advocated for in this country (and probably elsewhere) for the exact purpose of eugenics?

I am aware of that. One of the many reasons I oppose state-sponsored birth control. But you didn't answer my question. Minimum wage was designed to keep the very "underclass" out of the workforce you claim you want to help. In fact, economists from across the spectrum agree that MW's disemployment effects fall disproportionately upon this "underclass." Thomas Sowell, Walter Williams, and Milton Friedman have all done yeomen's work on the MW's effect on minorities.

So, I repeat my question, but change the tense of it: Are you aware minimum wage is kept in place to keep the "underclass" out of the labor force?

Jon Murphy writes:

@jon

Let's test your theory, hm?

Tell me: who, exactly, are the "underclass." What are their demographics? What percentage of the workforce do they encompass? Things like that.

Ken writes:

jon,

My views on the minimum wage are backed by actual research

Of cherry picked research, no doubt. The general findings, i.e., average findings, of minimum wage research show the opposite of what you think the minimum wage does. The average research shows living wage laws boost wages of the lowest-wage workers (as is expected for those who can find jobs), at the cost of some disemployment, but on net increase urban poverty. That you can find a specific paper to confirm your bias in no way implies the general findings confirm your bias.

Are you aware that birth control was advocated for in this country (and probably elsewhere) for the exact purpose of eugenics? Does this change your views on the subject?

Conflating abortion with birth control is either dishonesty or simple sloppy thinking. Given your previous writings, I'll chalk it up to sloppy thinking. Abortion is one of the great evils of our time. Margeret Sanger not only doesn't change my views on it, but vindicates my views.

Should it? Personally, I say no to both.

Of course, if you think abortion is good, the intent of those brought those idea that killing children is a good thing to the forefront of our culture should be considered. After all, there's a reason they advocated for this idea from their ideologic position.

These are at least legitimate potential critiques of rent control

Yes. That, like minimum wage, it's results are the exact opposite of its intent. Far from creating cheap housing for the less wealthy, it makes cheap housing for the less wealthy more scarce.

But rather than scrap the whole thing, wouldn't it make more sense to just double check the records to make sure there isn't so much fraud?

And people continually tell me that the slippery slope argument isn't valid, but here you are adovcating for greater government interference in the market, after government interference in the market is shown to create more problems than it solves (as should be expected; it's unclear why you think forcibly replacing political preferences for consumer preferences is good for consumers).

Jon Murphy writes:

Ken-

Actually, jon is right to say birth control and abortion were originally advocated for the purpose of eugenics. Planned Parenthood was founded for the exact reason to keep the black (and other undesirables)population in check by providing birth control and abortion.

jon writes:

So Jon and Ken claim to be Libertarians, but they aren't even pro choice? Lol! I thought you guys were supposed to be "socially liberal, and fiscally conservative." I guess you only approve of government intervention when it suits your beliefs.

Even the paper you cited doesn't support your claims.
Higher wages for low-income people, a net poverty reduction? Sounds like support to me.

Seth writes:

"As a young lad, I worked a few minimum wage jobs, and I can assure you that I had no bargaining power." -jon

I think this statement better illustrates what the world looks like to someone who doesn't understand economics.

I'm guessing in jon's mind, 'bargaining power' only means the ability to bargain for significantly higher wages.

I've worked a few minimum wage jobs and my work ethic and attitude gave me plenty of bargaining power, but not for making double or triple the going-rate that my competition (fellow low skilled workers) were willing to work for.

To do that, I knew I would either need to differentiate myself from my competition or limit my competition.

In the former case, if I was able to differentiate myself from my competition and my current employer didn't want to pay for that differentiation, someone else would.

In the latter case, if I was successful at limiting my competition, great for me! But I should understand that I gained that bargaining power off the backs of even lower skilled workers, not by wresting it away from businesses.

jon sees Kling's axis of oppressor (businesses) and oppressed (low skilled workers).

He doesn't realize that when gov't passes a higher minimum wage it just became the oppressor, not to businesses, but to guys lower on the employment ladder than the new minimum wage.

jon writes:

I've worked a few minimum wage jobs and my work ethic and attitude gave me plenty of bargaining power
So what exactly did you bargain for? Back when I was in the market for minimum wage jobs -- the pay, the hours, the benefits -- none of those things were negotiable.

Jon Murphy writes:

@jon-

So Jon and Ken claim to be Libertarians, but they aren't even pro choice?

As per usual, you assume facts not in evidence. Ken is not a libertarian and I never gave my stance on abortion. I just made a statement in support of your history of birth control and abortion in this nation.

Higher wages for low-income people, a net poverty reduction? Sounds like support to me.

You need to either reevaluate your claim or reevaluate that paper. That paper does not support your claim that, absent minimum wage, there would be a permanent underclass. In fact, it actually supports us that minimum wage creates a permanent underclass. If you re-read the part just after your first bold, you'll see all the evidence against you.

Either way I am still interested in testing your hypothesis:

What are the demographics of the underclass?

jon writes:

I never gave my stance on abortion
One of the many reasons I oppose state-sponsored birth control.
So is your position that abortion should be legal, just not funded in any way by the government?
What are the demographics of the underclass?
So what exactly is the big "gotcha" you're trying to engineer here? If you want to know the demographics of the underclass, just look them up: https://duckduckgo.com/?q=demographics+underclass&t=ffsb&ia=web

Then test away!

Also, regarding your comment on that other blog that is facebook only, I was aware, I just don't care. Why should it matter that some long-dead person supported something for a bad reason? If I wanted to wast the time, I'm sure I could find some libertarian-ish sounding quotes from a slew of horrible people in the past. Would that make you change your political views?

jon writes:

If you re-read the part just after your first bold, you'll see all the evidence against you.
And if you re-read the part just after the part just after my first bold, you'll see all the evidence against YOU!
on net reduce urban poverty

John hare writes:

Jon,
You missed his point about work ethic and attitude. People with poor ones deserve compensation proportionately, which is to say minimum or less.

Jon Murphy writes:

@jon-

And if you re-read the part just after the part just after my first bold, you'll see all the evidence against YOU!
on net reduce urban poverty

Actually, that doesn't despute anything we've written. However, the immediately prior statement ( at the cost of some disemployment,) invalidates your theory.

Then test away!

Thanks. I did. The evidence you provided further invalidates your claim:

"William Julius Wilson (1985) defines the underclass as those who lack training or skills, are out of the labor force or long-term unemployed, and who engage in deviant behavior."

Given that these people are out of the labor force or long-term unemployed, then a hike in the minimum wage couldn't possibly help them. In fact, given the fact that minimum wage results in fewer jobs, then increasing minimum wage would perpetuate or expand the underclass, not shrink it.

This is further evidenced by the effects of minimum wage in minorities, that the disemployment effects fall disproportionately upon minorities (See: Neumark 1988, Hellerson et al 1996, Williams 2011, Sowell 2015 etc), then we can say the minimum wage achieves it's original "Progressive" goal of keeping minorities permanently unemployed.

So, based upon the evidence you furnished, supplemented by some additional insights on MW's effects on minorities, we can deduce your hypothesis is incorrect.

jon writes:

However, the immediately prior statement ( at the cost of some disemployment,) invalidates your theory
The research shows that minimum wage laws on net reduce proverty, it really stretches logic to try to twist that into evidence against MW laws.

Booker DeWitt writes:

[Comment removed for supplying false email address. Email the webmaster@econlib.org to request restoring your comment privileges. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

john hare writes:

Jon's stated concern is for the "underclass". I have a concern about those I see as somewhat disenfranchised. I cannot hire people without drivers licences, that can't pass a drug test, or have certain felony convictions.

Some of these problems are somewhat arbitrary. Drivers licences lost for trivial reasons that are just beyond their capability of recovery. Insurance rates prevent hiring those testing drug positive. People that have done the time for the crime are still not allowed on many of our job sites. Decades ago we used many of these people and they paid their own bills.

I would like to see two things. One is removal of several of the barriers to self sustaining employment. The other is removing several of the barriers to people living within their means via housing, transportation, medical, and other inflated costs mostly through mandated feature creep.

I would like to see a trend towards people being able to overcome artificial restrictions, and the corollary differentiating them from the truly worthless that should be allowed to live with the consequences of their choices. All this without top down force such as the high MW.

Jon Murphy writes:

@jon

The research shows that minimum wage laws on net reduce proverty [sic], it really stretches logic to try to twist that into evidence against MW laws.

I said it invalidates your hypothesis regarding minimum wage, not that it is evidence against MW laws (that I have a whole other batch of studies, including some of my own).

Jon Murphy writes:

@john hare-

Agreed 100%

Thomas Sewell writes:

re: MW discussion:
Employer option A (MW law example): Hire one worker for MW.
Employer option B (No MW law example): Spend the same amount of cash to hire more than one worker, spending less than MW on each.

Under which option are more total employees likely to be hired? B.
Under which option are lesser qualified employees more likely to be hired? B.
Under which option are employees more likely to be able to trade cash income for other benefits (i.e. accommodate other job with flexible hours, partially lift job restrictions, lighter job duties)? B.
Which option creates the most overall benefit to the most people (including employer, consumers, potential employees, etc..)? B.

These results are all consistent with economic theory and empirics as I understand them.

jon writes:

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