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The Economics of the Anglo Disease | 48 comments (48 topical, editorial, 0 hidden)
You're drawing D-L wrong. (4.00 / 2)
But your labor demand curve has the wrong shape for low-wage labor in high-income Anglo Disease nations.

We are not in a full employment economy, and beyond the level of effective demand, there is no benefit to employers in hiring more workers, no matter how low a wage they are willing to accept. So the D:L curve should go downward sloping to the quantity of labor for which there is effective demand, and then drop vertically to the L axis.

Drop the wage, and its not inside the diagram that the reduction in the size of the pie occurs, but outside the diagram in the income feedbacks ... the result of the wage suppression is a reduction in effective demand and a leftward shift in D:L.

If unwilling to cure the Anglo disease, the temporary response is therefore to find unsustainable short term arrangements to prop up effective demand, replacing the effective demand lost due to wage suppression.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Jan 10th, 2009 at 06:59:16 PM EST
[ Parent ]
Re: You're drawing D-L wrong. (none / 1)
But your labor demand curve has the wrong shape for low-wage labor in high-income Anglo Disease nations.

I'm having a hard time visualizing this, can draw a picture for me?

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Sat Jan 10th, 2009 at 08:14:05 PM EST
[ Parent ]
Re: You're drawing D-L wrong. (4.00 / 4)
Unlike demand for goods and services, demand for labor is derived demand ... the marginal revenue product for labor producing goods or services for which there is no effective demand is $0, so at the limit of effective demand for the product, the elasticity of demand for labor in that specific labor market becomes 0.

The result when labor supply intersects within the zone of nil or negligible wage-elasticity of demand for labor is a bargaining range scenario, where there is no technical determinant of position within the wage and relative bargaining power is expected to determine position within the range.

Not all labor markets will be within the bargaining range for the same overall labor market conditions and same minimum wage ... and of course, this does not apply to a full employment economy (and hence does not apply within the standard economic modeling, which assumes from the outset a long-run tendency to full employment), but the empirical results tend to suggest that observed gross elasticity is nil or negligible, so if the partial elasticity is negative, it is offset by a positive income effect.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Jan 10th, 2009 at 11:56:44 PM EST
[ Parent ]

The Economics of the Anglo Disease | 48 comments (48 topical, 0 editorial, 0 hidden)
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