Re: Coordination problem was RE: Help with a Minimum Wage Model

From: Rafal Smigrodzki (rafal@smigrodzki.org)
Date: Sat Apr 19 2003 - 21:17:11 MDT

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    ----- Original Message -----
    From: "Lee Corbin" <lcorbin@tsoft.com>
    To: <extropians@extropy.org>
    Sent: Saturday, April 19, 2003 5:48 PM
    Subject: RE: Coordination problem was RE: Help with a Minimum Wage Model

    > Rafal writes
    >
    > > Lee Corbin wrote:
    > > > [Rafal wrote]
    > > > > Barring contracts below a certain wage level will result in some
    > > > > transfer of income to the workers,
    > > >
    > > > Can you enumerate some of the assumptions behind this statement?
    > > > I don't know of any realistic ones, but enumerate them just the same
    > > > if you would.
    > >
    > > ### According to game theory, certain strategies are inherently unstable
    due
    > > to the coordination problem. Forced coordination, as in legislation to
    > > impose a monopoly bargaining entity in the form of labor unions, or to
    stop
    > > individual bargaining for wages, does solve the problem, which is why
    > > immediately after the imposition the law there is an increase in income
    to
    > > the beneficiaries of the law (as in unionized workers).
    >
    > I don't know what this BS about coordination is all about,
    > but I do see that you are pointing out that for a particular
    > set of workers, their wages will go up if it's mandated some
    > way, or they achieve it some way through bargaining.

    ### You might want to read about the coordination problem at
    http://william-king.www.drexel.edu/top/eco/game/game.html.

    The "queuing game" is quite enlightening.

    Formation of an effective monopoly does increase the potential income of the
    monopolist compared to a competitve equilibrium. This is uncontroversial, I
    hope?

    Due to the coordination problem it is not possible for workers to form a
    monopoly. A legislative intervention *forces* them to behave like a
    monopolist, increasing their income, initially.

    There is a difference between a labor union (which improves workers'
    bargaining position), and a minimum wage law, which limits the scope of
    bargaining, but in the long run both have the same destructive results.

    --------------------------------------------------

      Yes,
    > if tomorrow Bush passed an emergency measure (that he somehow
    > had the power to do) that said every teacher in the U.S. was
    > to get a 50% pay increase, then indeed every teacher would
    > make more money.
    >
    > > In the long run, due to lower productivity, both the workers,
    > > the businesses, and the customers suffer, but this is a
    > > different story.
    >
    > Okay. But what about the following *immediate* effect: if all
    > the janitors in the U.S. get their wages doubled overnight,
    > then fewer janitors are *immediately* with jobs. Likewise, if
    > all unions were busted tomorrow (by equally magical fiat), then
    > the total number of employed persons would *immediately* go up.
    > Right?

    ### Not immediately in the latter situation. BTW, you don't need to "bust"
    labor unions, merely abolish the laws that mandate their formation. Most
    labor unions would go out of business pretty quickly.

    Rafal

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