John Weeks on the econfakers, wages and unemployment

EconOfthe1%Another quote from the late John Weeks to focus one’s thinking. In the book which contains this passage, he refers to the intellectual mythmakers in economics as the “econfakers”. Here he argues that there is no simple one-way relationship between wages (and working conditions) and employment or unemployment, as is often claimed (and taught):

“What seemed so simple and obvious – lower wages, cheaper labor, more employment – proves impossible to establish as a general rule. For an individual company reducing wages may result in more employment. That is not the issue. At the level of the company, lower wages may allow for lower prices, and the lower-wage company takes business away from its rivals. The “higher wages cause unemployment” accusation is quite different. It alleges a fakeconomics faux law that a general increase in wages for the economy as a whole will reduce employment (and vice versa). This allegation cannot be established in theory, nor is it supported by empirical evidence. It is an ideological construction intended to justify lower wages and higher profits, and to blame unemployment on workers themselves.

In practice the econfakers and those they have indoctrinated trumpet this argument as a law of nature, and use it against all attempts to improve the conditions and hours of work. For example, laws that regulate working hours and require additional pay for overtime allegedly reduce employment because they increase labor costs. The same ideological illogic applies to workplace protection, health and safety legislation, and protection of vulnerable workers. They all raise the cost of employing people. Therefore, they must contribute to unemployment. All attempts to improve the conditions of labor, either through the collective action of workers or legislation, are self-defeating. These arguments are wrong, technically, empirically and morally. In civilized societies all people are paid decently and work in healthy conditions to the extent that the level of economic development allows. This is a simple and straightforward hypothesis that requires no fanciful assumptions to establish.

The econfakers look back to Adam Smith as their intellectual ancestor and their inspiration for the free market. However, the great contributor to the Scottish Enlightenment had no truck with “labor markets”:

What are the common wages of labour depends everywhere upon the contract usually made between [workers and employers]… It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily, and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen… In all such disputes the masters can hold out much longer.

Anyone familiar with the union-busting campaigns of the closing decades of the twentieth century in the US and Europe would recognize the similarities with the closing decades of the eighteenth century.”

John F. Weeks (2014), Economics of the 1%, Anthem Press, p.37-8.

2 thoughts on “John Weeks on the econfakers, wages and unemployment

    • That is certainly a possibility. But really Weeks was saying that the relationship could run in either direction. If higher wages lead to lower profits then this could lead to lower investment and lower growth. It depends on context. Your example would be a case of “wage-led growth” but “profit-led growth” is also possible.

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