Why Don't Capitalists Compete with Each Other by Paying Higher Wages Than the Competition?

Robert Taylor, resident anarchocapitalist in the comments section, asks a fascinating question: Why don’t capitalists compete with each to attract workers by raising wages? Good question! I don’t know why they don’t. But they don’t. Generally.

Robert, you’re talking about evil people here. You say that if they have their way, they would lower wages to the subsistence level. Meaning that they could afford to pay higher wages, but choose not to.My question is: what’s stops an EVEN MORE evil capitalist from paying just a little more to take the business away from the current controlling Capitalist? If he pays just a little more, clearly the labor force will go to him, and without labor, the subsistence-level capitalist has nothing, no matter how low he can drive prices.

We shall take this apart bit by bit here.
Robert, you’re talking about evil people here.
Yes, I am talking about capitalists, correct.
You say that if they have their way, they would lower wages to the subsistence level.
There really is no wage level that is too low for the capitalist to pay. If you don’t believe that, check out how many US corporations shut down their US operations and head to whatever place is currently paying the lowest possible wage. If that place lowers its wage, they move to someplace even lower. How many US corporations have moved to places where they pay ~14 cents an hour? Lots.
In fact, many US corporations and of course businesses overseas deliberately pay people at wages that are not only at subsistence but are often below subsistence. I’m pretty sure they could afford to pay those folks more than subsistence or below subsistence wages, correct? Then why don’t they do so?
If slavery was legal, capitalists would take it up in a New York minute. Child labor is great for business too.
Slavery and child labor are epidemic forms of exploitation by capitalists in the 3rd World, in particular in South Asia – in Pakistan, India, Nepal, etc.
After all, Austrian economics is all about efficiencies. Wages being one of the biggest inefficiencies of all, of course. Surely slavery and child labor must be much more efficient than wage labor? What is scary is that this “efficiency talk” has now taken over world economics. Just about every country on Earth now is talking in terms of economic “efficiency.” Yet I just showed how slavery and child labor are incredibly efficient. I think it’s time we trashed this efficiency fetish once and for all.
My question is: what’s stops an EVEN MORE evil capitalist from paying just a little more to take the business away from the current controlling Capitalist?
Interesting argument. How come it never works that way then? I guess I will just throw that question right back at the anarchocapitalists then, since they are the ones who says that anarchocapitalism is the best way thing since sliced bread for workers, consumers, society, and, oh yeah, as an afterthought, business.
So…How come it never happens?
The labor market is deliberately tight. There are way too many workers than there are jobs. So workers don’t have a lot of mobility. Sure workers might leave Capitalist A paying $8/hour to go work for Capitalist B paying $10/hour. A few might. Maybe. But probably Capitalist B would just fill up all his positions with new folks. His costs would be so high that he would soon be driven out of business by Capitalist A.
Believe me, I would be overjoyed if capitalists competed like this. But they just don’t. I’ll leave it to the anarchocapitalists to explicate this thorny matter for us.
In some industries, labor is very highly valued, and companies actually do compete for labor. Putting aside for a moment Hindu 1-B job thieves, IT is a good example of this. IT companies sometimes actually compete with each other by trying to offer higher wages and better benefits in order to get scarce talented labor to work for them instead of the competition. But this is rare.
There is a hint of truth to Taylor’s comment, but it has to do with people  Libertarians hate worse than any other humans – labor union members. If one company in an industry is unionized, then the higher wages and bennies in that company will often fan out from that company to its competitors somehow. But this is increasingly rare now that unions are as rare as four leaf clovers, thanks to guys like Mr. Taylor.

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0 thoughts on “Why Don't Capitalists Compete with Each Other by Paying Higher Wages Than the Competition?”

  1. I don’t think capitalists are evil at least here in the western world (a women was able to sue McDonalds for millions for burning herself with hot coffee she bought for god’s sake and the labour unions are good) and you have workers rights unlike in the former USSR, China or any other Communist country.

  2. Capitalists dont compete that way for unskilled labor for the simple reason that they dont have to. Why “compete” for wage-earners? Nobody cares about wage earners. And I say this as probably the only actual minimum-wage earner who comments here, most of you sound like middle class people.

  3. Capitalists can be made to compete for higher wages under the right conditions. Basically, Robert Taylor’s theories work in a closed system with a limited number of workers, so we have to have a pretty decent level of restriction on the labor market, i.e. protectionism and national capitalism.
    It’s simple supply and demand, you have to restrict the supply of labor if you want a particular working class (in this case the American) to be in demand, thus competed for.

    1. “Robert Taylor’s theories work in a closed system with a limited number of workers, so we have to have a pretty decent level of restriction on the labor market, i.e. protectionism and national capitalism”
      – that is why I am a Nationalist and a protectionist!

  4. In capitalism, there is one imperative: maximize profits over the near term. Paying workers well in hope of some long term pie in the sky goal, even if that goal is full spectrum dominance, does not wash with shareholders. It doesn’t even matter whether or not capitalists are evil people, although I suspect most of them are. Jesus and the twelve apostles could return to earth and be put in charge of Nike or GM, and it would be the same as long as they were not allowed to change the rules. Either that, or a second crucifixion.
    What this amounts to is that CEOs in particular are obsessed with charming their stockholders into not beheading them with their letter openers, and this means short term profits at the expense of workers. This near term thinking is exemplified in Lenin’s quote about capitalists selling the rope to hang themselves. What does it matter if they swing from a gallows tomorrow if their shareholders are happy today?

  5. Wages are a matter of supply and demand as long as American labor isn’t competing with cheap labor in other countries. If we could hypothetically stop all the outflow of jobs and competition from SE Asian labor, I could live with a pure supply and demand wage.
    I don’t think slavery or child labor is compatible with a modern economy which is based on service and consumption, because if everyone is a slave, who is going to buy anything? Companies need people to sell their stuff too or they go out of business. Who are they going to sell it too if everyone is a slave? So at a certain point, slave labor is no good for anyone.

    1. “Who are they going to sell it too if everyone is a slave? So at a certain point, slave labor is no good for anyone”. –
      I suspect that very many of the ultra-rich don’t really care if the “service and consumption” economy that needs plenty of fairly well paid consumers continues. They would just as soon have a world were there is no middle class. With all the money that they had inherited and all the money that had previously been in the hands of the middle class, as long as they could control the masses and feel safe they would be happy to do away with “service/consumption capitalism. Just keep enough factory’s running to produce what the ultra rich want and keep the money in their hands. They could do without that pesky, risky, type of capitalism that might give some shrewd, ( or smart and evil? ), enterprising person(s) a chance to compete and take away some of their money.

      1. In the 3rd World, typically there is little to no middle class to speak of. What middle class exists is often pummeled and downtrodden. I remember a while back seeing an analysis on El Salvador that said that 2% were rich, 8% were middle class and 90% were poor. It had been this way for maybe a century, and the rich did not seem to care. If a stable middle class is so important to the rich, then why are they always trying to decimate and impoverish them?
        It’s pretty forward thinking to want a middle class around to buy your stuff, but I don’t think rich people think like this.
        Admittedly, this is one of the mysteries of capitalist economics. Why are more capitalists not Fordists?

        1. If I remember my history, a lot of Ford’s capitalist peers were quite infuriated at him for voluntarily paying his workers more so that they were some middle class consumers that would by the products they made! Infuriated!
          Ford was thinking outside of the box and made more for himself and the stockholders by sharing the wealth. Yet, even though he created a “win-win” situation, his peers were mostly just blinded by greed and contempt for the little guys. They did not want the little guys to have ANY of the profits of capitalism.

  6. It’s pretty clear to me why an evil capitalist can’t just step in a pay a dollar more an hour to steal the labor force from a competitor: Not because of Capitalism, but The State and it’s regulations.
    The same rules you want to impose to supposedly protect your workers actually end up hurting them in the long run, Robert. Regulations do a vast number of things including stifling innovation, stifling entrance into the market to compete etc. And then you blame Capitalism. No sir, this is not Capitalism. This is Mercantilism turning into Socialism.
    Capitalism involves free exchange. A voluntary trade. Once a voluntary exchange between two individuals is stopped it ceases to be Capitalism. If we could just get our terms correct it would be much easier to know when to invoke Capitalism and when not to.

  7. To Rob:
    Since you are defining Robert Taylor as an Anarcho-Capitalist you should know that they are expressly against slavery and coercive labor relationships.

  8. Corporations engage in corporate interlocking all the time–price fixing on products and services, and they conspire to set wages for employees across sectors, curtailing competition. Essentially, corporations themselves have a union of their own.
    Workers: Rise up. Unionize or get steamrolled!

  9. Why would capitalists compete for workers by raising prices when there is surplus labor? There aren’t enough jobs to go around to sop up people who are currently out of work.
    At full employment this is precisely what businesses begin to do; they take on more labor which increases wages which leads to inflation. Check out NAIRU – the non-accelerating inflation rate of unemployment. At rates below NAIRU – commonly felt to be around 3-4% unemployment – prices begin to rise which leads to inflationary pressure.
    http://en.wikipedia.org/wiki/NAIRU

    1. Chuck you don’t even know what you’re talking about. There aren’t enough jobs at minimum wage and higher–maybe. There would clearly be job openings without a minimum wage.
      BUT SERIOUSLY– More employed=inflation. You have no idea what it is you are saying. If more people are employed and they now have the ability to buy goods, then no inflation can occur. Inflation occurs when the supply of goods stay the same and money supply increases. If an economy grows and more people are employed and the supply of goods grows equally, PRICES FALL.

  10. In answering the question posed by Robert’s post, “why don’t capitalists compete with each other by paying higher wages than the competition?”, I answered that there is no need for them to do so. In a recessionary economy workers will not demand higher wages because they are merely happy to have a job at all. There is no upward market pressure on wages either since there is plenty of labor sitting on the sidelines.
    As for the discussion about the impetus for inflation. I didn’t say that more jobs *always* lead to inflation. At the margins, when the economy has reached full capacity – as that term is used by economists – marginal employment filters into higher overall prices.
    I’ll admit that the concept of NAIRU is somewhat misleading because it posits a natural and stable rate at which this occurs, but that inflation-creating level is contingent on other economic variables.
    The reason that high employment/low unemployment leads to relative price increases in your monetarist(?) or Austrian view is that, at the margins, workers who are induced by higher relative wages are naturally *not* the cream of the crop, and they are *not* the most productive workers. This fosters the phenomenon of “too much money chasing too few goods”.
    I’m not an economist though I have some economic background, but if you can point to me where I’m incorrect, I won’t be offended.

  11. Robert Taylor:
    By the way, I’m in agreement with your argument as posed to Robert Lindsay. There is no concept of “evil capitalist” because if they were evil they would become uncompetitive as less evil capitalists took their productive workers from them. In short, the free market would beat the evil right out of these employers.
    Eventually, as economist Gary Becker has pointed out, these inefficient employers will shoot themselves in the foot.
    Tangentially, that’s the reason this legislation for the Paycheck Fairness Act – which hopes to eradicate discrimination against women by closing the mythical 23 cent pay gap between men and women – is illogical. Businesses and ultimately consumers don’t care who has jobs and makes goods and adds value. If a woman of equal education and equal ability made 77 cents to a man’s $1, a smart firm would come along and pay that woman 78 cents. This would continue until that gap was effectively closed.
    To Robert Taylor, it seems that I was responding to the general question posed in the blog headline rather than your underlying point; I didn’t read your underlying argument or Robert Lindsay’s response to it before I commented.

  12. Capitalists do compete for workers, but only when demand outstrips supply. Look at programmers in the 90s or many medical professionals in the last decade – their wages were going up, they were getting hiring bonuses, they were getting headhunted.
    Nowadays, for most job openings there is an army of unemployed workers ready to jump on any jobs, so employers don’t need to compete.

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