On last week’s Stossel (no video available yet), was mentioned that rich countries gain their wealth through the exploitation of poor countries. Professor Marc Hill of Columbia University opined that businesses operating in poor countries ought to pay workers an extra dollar per hour for their services. It’s a very nice thought at first; however, there’s no such thing as a free lunch (as I’ve mentioned — but it’s one of those things one can never say enough).
While companies could pay an extra dollar per hour of work, this increases the costs of producing their output. Let’s say that it’s shoes. Higher wages increase the costs of production and lead to a reduced supply of shoes. A lower supply of shoes entails a higher price for shoes and a lower quantity of shoes demanded (because people can’t afford the same amount at the higher prices). The reduced supply of shoes also means something more subtle: you need fewer workers to produce a reduced supply. While the workers who keep their jobs do benefit, what about the workers who lose their jobs?
This is one aspect of “fair trade” advocates that I find abhorrent. After imposing fairness, they completely ignore the unintended consequences of their “fairness.” They forget about the workers who lost their jobs as a result of “fairness.” In instances where attempts at free trade were subverted under the guise of waiting for fair trade, they forget about the workers who never even got the chance to take jobs.
Fair traders, by virtue of their actions, say, “Yes, so they’re starving and impoverished, and have lower economic growth, but at least they don’t have to work in sweatshops earning unfair wages. Besides it’s not a consequence of my fairness, it’s because of greedy capitalists. Now, I can sleep better at night, knowing that I created some positive benefits.” Even though the costs were far greater.
This same logic applies to the minimum wage as well.