Why Do Women Get Paid Less?

Leftist activists and economists like to blow dust about a lot of social issues by attributing them to the free market. Among them is of course the discrimination of women in pay. Their outcry against businesses calls for government control of these social occurrences in order to eliminate the pay gap and provide gender equality. The reason why leftists have miserably failed in their task so far is because they don’t understand correctly the causes of these effects, and even worse, because they go on to blame the wrong things all while calling for an Orwellian set of laws that are simply terrible.

Do women get paid less because of sexism? While it is true that some men are despicable pigs that don’t want to give women and men the same pay, the reason why most women are discriminated in the payroll is a purely economic one. Now why is that? Is it because women are inherently inferior to men in the work they do? Absolutely not. Even though women can be inferior to men in some areas, they can be much better in other areas, and are. These areas include even those jobs that have been traditionally done by men such as plumbing, business management, or army. The issue of job performance is not a class issue between men and women. As with everything else, it’s an individual issue. Some men are better at some things, some women are better at other things.

What is the explanation then? In economics, there exists a very important concept called the marginal product of labor (MPL). It can be defined as the marginal (additional) revenue earned by the firm as a result of employing a marginal factor of labor. In other words, the increase in the firm profits that comes as a result of employing an additional employee. This is one of the most important concepts in labor economics because it explains a lot of job-related issues, including this issue in discussion. MPL decides what employers pay their employees. The competition between different employers assures that employees are paid very close to their MPL and that there is no space for “exploitation,” as Karl Marx misinformed us (see my previous article on this). In the same way, while some employers may want to pay women less because of their sexist beliefs, the average employer simply pays women their MPL.

Women have a lower marginal product of labor. This is, again, not because they are not as good as men, but because of another very important social role that they play in society. They are mothers. The society has developed in such a manner so as to have women carry the burden of raising children and taking care of the house, a sacrifice that men rarely take. In assuming this difficult role, women’s time and energy to perform other jobs naturally declines. The already onerous task of catering to the newborn and raising them in the manner that mothers feel is best consumes a lot of their ability to devote themselves to other tasks. That is why women who are mothers usually take part-time jobs. Those women that take full-time jobs are unable to accomplish jobs in the manner which they would if they had not had children. This social phenomenon is clearly distinguished in statistical data. When comparing pay between men and women, the stark difference only occurs with mothers and not with non-mothers (so to speak) who are paid very similarly with men. Thus, it’s the patriarchal system that we live in today that overloads mothers with so much responsibilities that it undermines their ability to perform other “non-patriarchal” tasks. This is then reflected in their pay roll.

The Free Market Punishes Sexism!

As I explained above, it’s not the free market that’s responsible for the wages of women, so there’s no point to side with socialists and call for cruel regulations. To blame the free market for simply reflecting on women’s MPL is like me being punched in the face for pointing out to a man that he’s missing a tooth. The free market only shows what exists; it doesn’t make the rules or judge people. In fact, it’s an abstract description of our unrestrained, free activities as individuals. And because we don’t live in a purely free market, it makes even less sense to attribute gender pay gap to it.

The free market, however, punishes sexism and other forms of discrimination. This again, is illustrated by the MPL concept. If a black person has an MPL of $200 but is being paid only $150 by his racist boss, then every other firm that wants to employ this black person from $151 up to $199 will earn a profit. Providing that there must be some firms that are not racist, this black person will definitely be employed somewhere better. This way, the racist boss would lose an employee, and regardless whether he cares about blacks or not, this is a loss. The same story applies with women. Those women that are being underpaid will always have opportunities to work somewhere else where they are valued correctly, that is, accordingly with their MPL.

The reason this doesn’t happen as easily in the real world is not because this theory is wrong, but because the bloody government has to interfere in the labor market and distort it. Yes, I’m talking about minimum wage laws. These laws are essentially anti-job laws; they directly and explicitly cause unemployment. Ironically, they hurt the people they are conceived to help most, such as mothers whose MPL is lower. By setting the minimum wage that businesses can pay above the market equilibrium levels, the government forces firms not to employ mothers because it would cost them more than they would benefit. This way, instead of doing a job they voluntarily opted for at a wage their MPL determines, mothers are left to stay at home without financial help and dependent on their husbands. This is not to mention other tons of regulations and interventions that distort the entire economy and reduce the number of jobs not only for mothers but everyone else.

It’s a Matter of Principles

Private property is a crucial principle if the society wants to thrive. It would take treatises to explain why, so you just have to take my word on it. How would you feel if I walked in your home and told you what you can or cannot do there? A reasonable man would ask me to leave, a more practical one would kick me out. The businesses are in the same situation. It’s simply unethical to tell them at what wage they can or cannot hire as long as their practices are purely voluntary. To say that women (or anyone else) have “human rights” at this or that service is completely fallacious. You can have a right to your life, liberty or freedom of speech, but not rights over the services of others. This mistake is often done when speaking of socialist (pardon me, universal) healthcare. The “right” to medical service, they say. My father is a doctor; does it mean he’s enslaved to the needs of others and he is to provide them unconditionally? If we spoke of a seller with a shop in this manner we’d find it absurd, but somehow medical services are “special.” Well nothing is special in this sense, they are all services and the only way they ought to be provided is voluntarily between consenting individuals. The same is with other jobs. Nobody owes you a job, if a business offers you one take it or leave it. You don’t have any property rights over that business and therefore you are not in a position to regulate what offers they can give you. You can only regulate what you own.

Discrimination is not necessarily bad. We discriminate on a daily basis. We make choices, and every choice is a renunciation. We should be free to decide who comes to our house and who doesn’t. We should be free to impose conditions on which they can come. So should businesses. If they want to discriminate, well, their loss. The only reason why the costs of discrimination are hidden is because the government has distorted the labor market in such a manner that there is a lot of unemployment. This means that businesses’ demand for labor is very elastic, which gives them advantage in bargaining. In a libertarian society, there would be sexism and racism, but they would cost dearly.

The Hypocritical “Pro-Women” Laws

There is nothing that I hate more than “anti-discrimination” laws. These laws are the hypocrisy of the world! You usually hear stuff like “..the parliament is working hard to have at least 30% women..” or like “..lower exam points threshold for women..” Don’t you see the underlying problem here? What these people are essentially saying is that women are stupid and that we should cut them some slack! If this isn’t discriminatory, then I don’t know what is. Politicians that make these laws are exactly the kind of people that believe women are incapable of doing things as good as men. It is beyond my understanding why women choose to be part of these kinds of campaigns. If I was told that I would be given lower criteria for acceptance in a job, I would find it offensive as long as it didn’t have a good reason for it. The “30% women in parliament” law does the same thing. It implies that women are incapable of achieving such a status themselves, so they should be pushed by the help of men.

Besides, how do you come to these numbers? They are completely arbitrary. In a normal world, supply and demand for things set prices, levels or standards. How does one come to know that “30%” is the right number? What if women can do better than that? This just goes on to show that these laws are hypocritical and bad, both qualitatively and quantitatively.

Conclusion

I’ve wanted to get these thoughts off my chest for some time. I have sisters, so it pains me to see how women are misled by socialist propaganda concerning discrimination and pay gap. Mothers and sisters, the choice is not regulation and interference, it’s exactly the opposite. Tell the government to stop doing harm to the economy so more firms that value your worth can spring up and use your services for the benefit of society.

Private Defense Forces vs. State Monopoly Army

The Issue

Today as I was returning from university, I was thinking of Austro-libertarianism (as usual) and bumped into an unpleasant deadlock. I thought of the unfair advantage that monopolies (of course State monopolies) have over private activities. When I applied this case to private defense, the outcome was scary.

Take a hypothetical example: Albanians have somehow become more intelligent than the rest of the world and have successfully instituted a fully anarcho-capitalist society. There, the idea of the State is in the past, and whether it is the grocery store or the defense services, they are all privately serviced. On the other hand, the neighboring Serbia has remained a statist, social-democratic state. In addition, its political class has nourished further the hawkish mentality against Albanians, looking to return Kosovo under its claws at any given opportunity.

How could Albania that has established anarcho-capitalism defend itself against Serbia which forcibly collects taxes to fund the State army and has instituted compulsory conscription to strengthen its ranks? Just as the State post office poses an unbearable competitive advantage over other existing or emerging private post offices, the neighboring country that relies on monopoly of force to fund its army services will in the same way have an advantage over the anarcho-capitalist society concerning defense. And if Serbia decided to pursuit a chauvinist agenda (Serbians have a PhD on violence) and occupy the anarcho-capitalist society, their largely funded army would have no problem dispersing the many, small private agencies that operate there, in a matter of weeks. While the State army would undoubtedly be highly inefficient compared to the private agencies, its huge pool of funding will offset this incompetence to a degree that would still make it stronger than the private agencies.

For the first time ever, my shallow thoughts had led me to think that Rothbard was inconsistent: State monopoly is unfair to other private firms, but private defense can still work if there are other States with monopolies on force. At the end of the day the world is just another bigger market. I sat in the train for moments, bemused with the puzzle I had presented myself, and hastily concluded that anarcho-capitalism can only work if every society in the world is such. In the reality that we live today, even if we managed to establish one anarcho-capitalist society (Albania), other aggressive States (Serbia) would pose a serious threat to that society because of their monopoly advantage.

The Solution

This, luckily, is not the case. I quickly realized how wrong I was when I gave it another thought. The first and foremost difference that I couldn’t make was that, even though the State of Serbia could fund its army through compulsory taxes, it would do so only against Serbian subjects, not Albanian. This is a crucial difference, for in the post office situation the State taxes (and makes poorer) the people who will potentially open a new private office, in addition to presenting them with an unbeatable competitor. In the case of Albania, no taxes whatsoever will exist and the only ones to be taxed would be Serbians in their own country. While it would still constitute a monopoly, it would only do so in Serbia, and not elsewhere – precisely because no one other than Serbians are being taxed for it and no one other than Serbians are being presented with an unbeatable competitor. If Sweden has a public post office, Norway won’t suffer from it because it doesn’t get taxed to maintain it, Swedish people do. And while it would still constitute a competitor, it wouldn’t be as damaging to Norwegians (who can use private posts) as it will to Swedes.

Now since the question of “monopoly over private defense” is out of the way, there are other arguments which help the case for anarcho-capitalism. Even if Serbia can count on its “entire” population to fund its State army, it doesn’t necessarily mean that it will extract more funding than Albania. Remember, Albania is a way richer country and defense is one of the most sought after commodities. If the monopolistic State of Serbia posed a serious threat, Albanians would be naturally willing to pay their private defense firms more. They would even do so to a level in which the private firm revenues would exceed the taxes that Serbia can extract from its citizens. In addition, the overwhelming efficiency of the private defense firms compared to Serbia’s State army will ensure that costs are much, much lower and that they would be earning great profits. And because we’re dealing with a free market, it’s logical to think that the quality of services provided by the private defense firms would dominantly exceed Serbia’s bureaucratic army. Lockheed Martin equipment would be up against old, Soviet manufactured garbage, and we all know the outcome. The fastest man in Serbia would run even faster.

Taking into account the same interests that competing private firms would have in Albania–a climate of safety–it’s very logical to think that they would team up in an “army” style to keep Serbs at the bay. Firms would then use their competitive advantage to slot into different areas; some would take air, some ground, some would plant mines, some would launch missiles. It wouldn’t be a surprise to see them work individually either. This would be a great opportunity for them to show quality in both protection and humanity. Those firms that would fail to protect Albanians would be blitzed out of the market the next day, and those that would overstep the boundaries and attack innocent Serbs would be shamed in the news and yes, blitzed out of the market too. With zero restrictions and the full support of the scared customer, these private firms would do wonders in areas of safety, humanity and efficiency. Serbia wouldn’t stand a chance.

So while there may be objections to private defense–the last stronghold of minarchism–the idea that a neighboring country with a monopoly on force can pose an absolute advantage over a society of private defense is a fallacy. Simply because States have something like a blank check for their incompetent, wasteful and of course unethical armies, does not mean that they will extract more funding than the voluntary private firms. The question of efficiency shouldn’t be even discussed, as shouldn’t that of quality in both service and ethical values, for they clearly side with the private firms. This just goes on to prove to ignorant people that compulsion cannot stop voluntary transactions once they exist, but only suppress them from appearing in the first place. If we could only build a society where such transactions were present, even the cruelest of the monopolies would fail to shut us down.

Pyetja 1-milion dollarëshe

Nëse Kosova me të vërtetë i takon Serbisë, atëherë pse Serbia nuk intervenon ushtarakisht që ta ri-kthej Kosovën nën kontrollin e saj territorial?

Duke pasur parasysh se çfarë diskutohet tani nga shqiptarët, vetëm dy argumente jetëshkurtra po i imagjinoj si përgjigje. Njëri shpjegim është që Serbia nuk guxon ta bëjë një gjë të tillë sepse do të nënkuptonte luftë me K-FOR-in, përgjegjës për sigurinë e “kufijve” të Kosovës, dhe në proces luftë me të gjithë faktorin ndërkombëtar. Natyrisht, këtu është fjala për çështje teknike; një gjë të tillë është e pamundur duke pasur parasysh fuqinë ushtarake të Aleancës kundrejt Serbisë. Në të njëjtën kohë, kjo do të nënkuptonte katastrofë për politikanët serbë bashkë me vetë shpresat e qytetarëve të atij vendi për një të ardhme Evropiane. Thjesht, nuk mund të ndodhë.

Por, atëherë pyetja tjetër shtrohet: A do të vepronte Serbia në të njëjtën formë sikur njëri nga qytetet tjera të saj, le të themi Beogradi, do të okupohej nga një fuqi e njëjtë si ajo e K-FOR-it? A do të rrinin serbët duarkryq në këso situate sepse armiku është thjeshtë pa krahasim më i fortë se ta? Nuk e besoj. Në një situatë të tillë, pa marrë parasysh se kush do ta okuponte Beogradin apo Novi Sadin, serbët do ti kapnin armët e tyre për të luftuar në mbrojtje të atdheut ashtu siç do të bënte çdo popull, dukë përfshirë këtu edhe shqiptarët. Kjo sepse serbët e dinë mirë që dy qytetet janë pjesë e Serbisë, kështu që argumenti i përparësisë absolute ushtarake të armikut bie poshtë.

Argumenti tjetër është që serbët nuk e kanë larguar nga tavolina mundësinë e veprimit ushtarak, por ata thjeshtë po i shtjerrin mundësitë tjera diplomatike në kërkim të kthimit të territorit të Kosovës, qoftë në tërësi e qoftë duke i dhënë shqiptarëve autonomi. Nëse diplomacia nuk sjell rezultate pozitive për ta, ata do të veprojnë ushtarakisht në fund të fundit.

Këtë do ta quaja përgjigjen naive, sepse kështu është natyra e këtij mendimi. Ideja që serbët, apo më mirë politikanët e tyre, mendojnë se mund ta kthejnë Kosovën nën kontrollin e tyre me metoda diplomatike është qesharake. Nëse e vizatojmë një bosht ku bëjmë krahasim në mes afërsisë së Shtetit të Serbisë me Kosovën, e kuptojmë që gjatë 11 viteve të fundit që nga çlirimi ata veç sa janë larguar shumë e më shumë ndaj cakut të tyre. Asnjë nga metodat e tyre diplomatike nuk ka qenë produktive për ta, qoftë edhe rroli i tyre prapa skenave në nxitjen e trazirave të marsit më 2004. Pyetja “Kur ma?” do ta përmblidhte këtë paragraf.

Tani dikush mund të thotë që kjo mënyrë e të menduarit është e gabueshme, sepse “dëshmon” që edhe enklavat serbe ne Kosovë nuk i përkasin “Shtetit” të Kosovës për shkak se nuk janë nën kontrollin e tij. Dhe përderisa ky “shtet” nuk e përdor “forcën” për të vënë nën kontroll pjesët që thotë se i takojnë, edhe ky atëherë po le të kuptohet që këto pjesë nuk janë të tij në të vërtetë. E nëse Kosova nuk është e Serbisë, por pjesë të sajë nuk janë as të vetat, kjo na vë përballë një gabimi logjik.

Megjithatë, ka një shpjegim këtu. Tek rasti i shqiptarëve rrethanat nuk janë edhe krejt ndryshe. Në dallim me serbët realistë, që e dinë se Kosova është humbur, shqiptarët idealistë janë bindur nga faktori ndërkombëtar, arkitekti i “Republikës së Kosovës”, që në një të ardhme ata do të kenë kontroll mbi këto enklava. Në fakt, ndërkombëtarët janë përkujdesur aq mirë në pengimin e zhdukjes natyrale të këtyre enklavave saqë shqiptarët as që lodhen më të angazhohen në vënien nën kontroll të tyre për shkak se nuk jetojnë aty dhe as që kanë të bëjnë me ato vende. Ajo pakicë që gjendet në veri, është pakicë shumë e vogël që të ngjallë interes për përfshirjen e tyre në sistemin territorial të Kosovës, nëse ekziston një gjë e tillë. Shqiptarët, indirekt, ua kanë falur serbëve këto pjesë. Duke pranuar kushtet për “pavarësi” të gjitha në një pako, ata i kanë dhënë hapësirë implementimit të decentralizimit edhe juridikisht edhe moralisht. Thjesht, ata nuk kanë interes në enklava, një situatë për të cilën faktori ndërkombëtar ka punuar me vite për ta krijuar në mënyrë që ta realizoj projektin e tyre shumetnik – Bosnja 2. Ngjashëm me serbët që e kanë kuptuar se Kosova nuk i përket atyre, edhe shqiptarët i kanë dorëzuar këto pjesë vullnetarisht sepse nuk janë të gatshëm të luftojnë për to. Kjo ka qenë shumë më e lehtë për ta, sepse argumenti i dytë, ai i përdorimit të diplomacisë në vënien nën kontroll të këtyre territoreve, mund të gjejë zbatim shumë më të madh në anën e shqiptarëve për shkak të përkrahjes ndërkombëtare në krijimin e “Shtetit” të Kosovës. Në një mënyrë, shqiptarët janë bindur, edhe pse verbërisht, që në fund të fundit ato pjesë do të jenë të tyre kur shteti i Kosovës të krijohet. Dhe tani që shteti është “krijuar”, ato enklava më nuk e përbëjnë rendin e ditës.

Edhe pse nuk ka përfunduar, ngjarja po zhvillohet në një rrjedhë të cilën ndërkombëtarët e kanë dashur aq shumë – të këmbehen territore pa dhunë. Natyrisht, asnjë shqiptar nuk do ta pranonte publikisht dhënien e këtyre territoreve, siç nuk do ta pranonte asnjë serbë që Kosova nuk i përket atyre, për shkak se gjëra të tilla janë vetëvrasje verbale. Megjithatë, veprimet e të dy popujve kanë lënë të kuptohet çfarë mendojnë ata në fund të fundit për këto pjesë. Në të njëjtën kohë, ndërkombëtarët e kanë arritur qëllimin e tyre, i cili është paqe dhe vetëm paqe me çdo kusht. Natyrisht që ky shkëmbim i territoreve i ka shërbyer atyre më së shumti në realizimin e këtij caku. Si përfundim, ata kanë krijuar një ekuilibrim ku Shteti i Serbisë është shkëputur pothuajse tërësisht nga kontrolli i plotë i Kosovës, në një tjetër gjendje të kontrollit pjesor. Në anën tjetër të medaljes, shqiptarët dhe “Republika e Kosovës” kanë fituar një kontroll të kufizuar duke lënë jashtë në autonomi të plotë pjesët e destinuara për serbët.

Përfundim

Atëherë, pse politikanët serbë ende e kanë lartë në agjendë kthimin e Kosovës? Kjo sepse ata janë politikanë, do të thotë, të orientuar nga ajo çka gjen admirim në masat prej të cilave i marrin votat. Nëse kthimi i Kosovës është normë në agjendën politike serbe, sepse pak kush guxon të thotë se Kosova nuk i përket atyre më, atëherë politikanët serbë nuk kanë zgjidhje tjetër përpos të notojnë në këto ujëra. Megjithatë, synimi politik serb nuk përfundon këtu. Përveç që e dinë se nuk mund ta lënë anash Kosovën, ata e kane kuptuar shume mirë qëllimin e faktorit ndërkombëtar në krijimin e një ambienti të ri në Kosovë. Ata e dinë, si politikanë që janë, se në Kosovë ende mund të fitohet. Projekti shumetnik nënkupton një luftë të re me shqiptarët, atë në sasinë e sipërfaqes nën kontroll. Duke parë qartë mungesën e qëllimit të mirë dhe analfabetizmin e përfaqësuesve shqiptarë, politikanët serbë e dinë se edhe pse e kanë humbur luftën, mund të fitojnë betejën e fundit. Në anën tjetër, ata gjejnë kënaqësi duke i parë shqiptarët të tërhiqen të vetëkënaqur nga fitorja Pirrike. Mu për këto arsye punojnë shumë që të duken në skenë kur është fjala për Kosovën. E duke pasur parasysh rrethanat në të cilat gjinden, si pasardhës të kriminelëve e me një qëllim kriminal, ata ja kanë dalë mjaftë mirë deri më tani.

The Misuse of Positivism and Mathematical Models in Social Sciences

Probably the biggest mainstream “argument” against the Austrian School economists concerns the methodology that they use. Neoclassical economists disregard Austrian School as unscientific because it doesn’t adhere to the principles of positivism and mathematical models. The critics claim that these tools are essential to arrive at valid conclusions. They emphasize this even more when they point out, albeit completely out of place, that economics is a science of prediction. The impact that this line of thinking has had is big, because the average person thinks that economics is all about numbers, statistics and calculations in pursuit of profit.

Nothing, however, can be farther from the truth. Mathematics plays a role in economics as big as it does in psychology, history or any other social science. The only level of mathematics that can be used in economics is simple arithmetic, useful only to measure objective things. But in order to dwell in deeper and analyze the fallacy of the use of positivism in economics, it’s important to define what economics as a science attempts to accomplish in the first place. Probably the most accurate definition is that of Lionel Robbins, laid out in 1932 in his long Essay on the Nature and Significance of Economic Science. Robbins famously claimed, "Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses." So there it is. The task of economics, to break it down, is to study how humans act to achieve their goals (determined by their physical and psychical needs) through means that are scarce and which can be used in one way or another. This is called the human action. Human action is always purposeful, Ludwig von Mises pointed out, because humans look to remove uneasiness by employing some scarce resources into work. In doing this, they act rationally regardless whether the choices that they make turn out to be wrong later. They are the animals with reason, and by rising above their intuition, they use reason to maximize their utility by whatever “they can get.”

On the other hand, the neoclassical econometricians view the purpose of economics differently. They think the science is obliged to offer us conclusive advice as to what is the most optimal step in maximizing utility. They think this can and should be done by using positivist mathematical models to “measure” human behavior. According to them, this behavior can be quantified and tends to express objective patterns which can be translated into numbers and calculated. They think the economist is the computer that uses information as input and yields precise suggestions on the output. Anything outside this field of thinking is bashed as unscientific, or as Paul Krugman said, “… it is outside my radar.”

But what are mainstream economists missing that should be there to tell them that this task is absolutely impossible and therefore futile? There are several key concepts in economics that the mainstream interpret differently or don’t recognize at all, and it’s the failure to understand them that leads toward trouble.

First and foremost, it is the true understanding of value that is so crucial in economics and which the mainstream economists simply don’t get. Following the classical Ricardian line of thinking, they still can’t get rid of the notion of objective value. While not upholding the embarrassed labor theory of value necessarily (read Eugen von Böhm-Bawerk for a complete destruction of the Marxist theories on value), they do however recognize that there’s still some measurable objectivity in the human mind. By leading themselves toward this dead end, they are missing on the correct explanation of value – the subjective theory of value. Humans treat things as valuable only if they fulfill two characteristics: 1) they are useful to satisfy humans’ demands, and 2) they are scarce. Anything that is there but cannot be used to alleviate uneasiness and provide humans satisfaction will not have any value whatsoever. In addition, things that are valuable but are not in limited supply will also not have any value whatsoever. They’ll only be another physical object lying there outside the study of economics. But the subjective theory doesn’t stop here. It also tells us that when humans decide what is and what isn’t valuable, they do so very uniquely. Every person is different, and everyone judges differently at least in some way. In the same sense, the value that humans attach to things is also different, unique – simply subjective. This is why we have diversity, and above all, can trade with each other. If things had objective value, then trade would cease to exist because people wouldn’t have an incentive to exchange things that are of equal value. “Value does not exist outside the conscience of men,” hammered Carl Menger the point home.

Now what does this tell us about mathematical models? How can they possibly capture this paper and construct models to represent it? It seems very vague and arbitrary. There is a causality involved here; humans subjectively determining their needs and wants and then purposefully looking to use scarce resource to attain those goals. They “cause” something in hope of achieving the desired effect. How do we measure human wants? Do we do it by using ‘utils,’ the imaginary unit of measure for utility? Even the curves of supply and demand are nothing but abstract representations of this reality. It is pure illusion to claim that one particular model can measure the desires of humans. Human action can only be exposed in the marketplace, and only simple arithmetic may be useful to show a historical result of transactions. The future, however, cannot be predicted because humans think subjectively, and subjectivity is unpredictable.

Another fact which the neoclassical economists don’t grasp, and which relates closely to subjectivism, is human motivation versus that of other “objects” found in nature. As Gene Callahan correctly pointed out, “The study of the correlations provided by mathematical descriptions of events is central to physics and chemistry because in those fields we can determine constants of correlation that allow us to make predictions. We feel confident that electrons will not suddenly decide that they aren't quite so attracted to protons, and that oxygen will not come to the conclusion that it would really prefer to bond with three hydrogen molecules rather than two.” The suitability of mathematics in fields like physics and chemistry is only possible due to the physical fact that some constants never change. That’s not the case in the real world of humans. While a mathematical model may be successful in determining an average range of buying habits for one person, it will fail to account for or predict changes in the behavior that may occur in the future. Treating a human as being attracted to Coca Cola and an electron as being attracted to proton is not the same, for human motivation changes and that of an electron doesn’t. Motivation, therefore, is a gigantic difference between the world of physics and that of economics, and mathematical models don’t account for this.

So, while Austrian School economists don’t regard positivism as a bad tool per se, they point out that it is horribly inadequate to be used in social sciences. In economics, a value-free science, testability is not possible. People can’t be put in a lab and tested with different “variables” or “inputs.” Psychological tests are done all the time, but they give only approximate information as to how humans would act in a particular situation. However, they’ll never provide the “result” that neoclassical positivist models promise but don’t deliver. It’s almost embarrassing when neoclassical economists run into mathematical problems, the science they desperately want to use everywhere, when they propose other bad ideas. For example, they do so when they speak of “perfect competition.” One of the characteristics that they point out in such a situation in the marketplace is the inability of the firm to have any impact in the price whatsoever as a single entity. This simply doesn’t make any sense, at least mathematically and logically, for if no firm can’t have any impact in price alone, neither can the entire group of them. Or as Walter Block put it, “A million times zero is still zero.” It’s ironic to see proponents of econometrics make such basic mathematical mistakes.

Conclusion

There’s a clear distinction between social and natural sciences, and this is most exposed in methods that are used to study them. It is important to discredit the use of positivism and mathematical tools in economics for two major reasons. First, because it is the despicable practice of some so-called economists who use the fame that physics and mathematics have in science to raise credibility for their work. They construct complex, hard-to-explain models and like to appear as if they have invented the universe. In fact, they have done nothing but play with meaningless numbers and hypotheses that hold true for themselves, but don’t reflect the human action in any way. It’s like the joke about the economist who lost his watch on one side of the road but was looking for it on the other side. When people asked him why he was looking for the watch there when he lost it on the other side, the economist’s response was, “There is more light around here.” The moral behind the story is that some economists try to construct models and then deflect the reality to reconcile with them, when obviously they should be doing the opposite. Second, it’s important to discredit econometricians because they, implicitly or explicitly, serve as court scientists for some of the most scandalous political and economic ideas – Socialism and Fascism. They contribute to the collectivist philosophy of central planning and the “godliness of the commissars” who with their supernatural capabilities and “angelical moral” will guide humanity toward prosperity. They contribute to the fallacy of planning, guidance, and execution of economic order by one central unit in complete disregard with the desires of the consumers, because that central unit – usually the State – knows best. It’s just another way, albeit less hostile to liberty and the free market, to claim that there is still an important role for “leaders” in economy because there are models which they can follow and maximize our welfare collectively. I need not dwell in any further to point out the tragic fallacy of these ideas, for the entire history of humanity hitherto is written by the struggle against the State.

Unions and How They Affect HR Management (University paper)

Introduction

My aim in this paper is to analyze the role that unions and their government-backed coercion play on an HR manager. Do they make the job easier or harder? In order to answer this question we must first form our opinions about these issues in the prism of cause and effect. As a student that leans strongly toward classical liberal ideas, especially those as theorized by the Austrian School economists, I have spent the last three years reading about the effects that these restrictions have on businesses and the economy in general. I believe I can use those lessons in a more detailed, job-related level and see how they influence the sphere of HR.

In social democracies like Austria, Germany, or France as well as many other European countries, there is a very strong, consolidated belief that unions, minimum wages and regulations (particularly regarding labor) are crucial to avoid the unfair treatment of employees and give them the bargaining power they “lack.” It is essential, it is held, that the government oversees the market and restricts it in such a manner that it doesn’t produce undesirable results. It is like the image of a circus caretaker taming a lion. If the lion is under control, he will delight the spectators with his show, but if unleashed, he will cause great havoc and even kill.

Unions are believed to be important because in the spirit of collectivism they assure that employees are paid the wages they “deserve” and that the conditions under which they work are “fair.” Minimum wages are believed to be important because they decrease the almost “absolute advantage” that the employer has over the employee and thus diminish the possibility of “exploitation.” Regulations are believed to be important because they contain the “excesses” of the free market and create a social safety net. But the question arises: do they, really? Are these cultural beliefs correct, or do they fall apart under the close observation of science? There are economists who suggest that there is both an ethical and economic justification behind these movements. I happen to be in the group of believers that there isn’t, and here is why.

Unions

“No one has ever succeeded in the effort to demonstrate that unionism could improve the conditions and raise the standard of living of all those eager to earn wages.” That’s what the great Austrian economist Ludwig von Mises once wrote in his magnum opus Human Action (pp. 764-65; pp. 770-71). The Austrian School position on the myth of exploitation is based on the understanding of the concept of marginal product of labor (DiLorenzo, 2004). Marginal product of labor can be defined as the extra revenue that employers earn as a result of employing an additional (marginal) unit of labor. The competition between firms, say Austrian School economists, makes sure that the employees are paid their marginal product. If, for example, one’s marginal product of labor is $200 but is being paid only $100 (being exploited), then other firms will earn profit by employing this individual from $101 up to $199. It is, therefore, the free market competition between firms looking to take advantage of the difference between the prevailing wage rates and the overall marginal product of labor that ensures that workers will be paid their almost full product. In a free market, therefore, businesses will only risk losing employees if they compensate them for much less than they bring in revenue. This is further confirmed by daily, empirical evidence, for we have yet to see the theory of exploitation work in practice in free economies where the government has not radically interfered with the market through labor laws. Some leftists claim that this is as a result of minimum wage laws, but this is evidently not true, for the wage rates in industrial world are much higher than the average minimum wage.

Of all the critiques that some economists direct towards unionism, the most important one is the claim that the end result of all unions is unemployment (Mises, 1952; Friedman, 1979). The thinking behind this idea is that unions are successful at raising wages, but in the process their coercive actions will force the company to lay off some other workers. This holds true especially for small companies whose profit margins are very small. Any increase in wages will have to be accommodated with a decrease in other units of labor (i.e. employees). Simple arithmetic proves this, so let’s look at a hypothetical example. A firm that can only pay $100 dollars in wages per week, and has employed 10 workers, has done so in agreement that each of them earns $10. Now, if let’s say 4 of those 10 employees are unionists and succeed to increase their wages up to $15 each through coercive actions (such as strikes and government backing), the remaining revenue for the business to pay will be only $40 ($100 less $15 x 4). As we can see, $40 can only cover for another 4 workers, meaning that two have to be fired. So in unionizing, these workers have successfully increased their wages, but have done so only at the expense of others within the firm.

HR comment:

Now what is the role of HR manager in this? Taking into consideration that firing employees is one of the worst things that an HR manager can do, and definitely one of the things that they want to avoid, this proves to be a very tricky situation. Unions, therefore, are a great threat for the HR manager and an obstacle in completion of the job. In the light of this situation, the HR manager can only give in to the pressure of the government-backed unionists and then try to limit the damage done as much as possible.

Another problem with unions is that the higher costs that they impose on the firm are usually borne by efficient workers. Since unionists are dissatisfied with their wages, it’s logical to think that’s because they’re not as efficient in their work. But because they are unionized, their wage increases will have to come at the expense of those who aren’t. Then again we come back to the efficient workers, which as we see are penalized for not being part of unions. Of course, lower productivity means lower quality products and services, and as a result, a lower standard of living (F.A. Hayek, 1960).

HR comment:

One of the duties of the HR manager is to hire hard-working, efficient employees and then use training to increase the overall skills. Taking into consideration that the best workers are penalized for the benefit of less efficient ones, the HR manager may well face a crisis of morale and motivation. The outcome of all this may be that the efficient workers will cease to be so, and the overall productivity of the company may fall.

Another critique against unions is related to experience: whenever unions increase wage rates, businesses look to accommodate these higher costs through higher prices. Consumers are the ones who pay for the coercive increases in costs which ultimately lead to higher prices. Taking into account that all the unionists are workers and therefore consumers at the end of the day, this means that unionists themselves will not necessarily end up being richer in real terms.

HR comment:

While price increases are not a matter of the HR manager, but rather other executives such as the Marketing manager, the awkwardness that the HR department suffers is still present. The reason for this is that price increases have not come for economic reasons in pursuit of optimal maximization of profit, but rather as social costs that the statist system brings. Since the HR manager is the one responsible in dealing with these illicit and compulsory demands, he/she will be held most responsible for these price increases which may have consequences for the firm later.

The wage increases are risky especially in small companies where the profit margins are really small and the company fights to survive on a daily basis. Union practices against these small companies can inevitably lead them to bankruptcy. Obviously, the end result of bankruptcies is debt, less competition, lower quality of goods and services, and again, a lower standard of living.

HR comment:

While other executives will be sympathetic to the HR manager in this case, because his/her hands are tied, it’s no exaggeration to say that “poor HR management” will be written in the history books as a reason of bankruptcy.

In addition to all the economic distress that they cause, unions also commit highly unethical practices when they interfere with private property rights and even resort to violence (there’s a book written specifically for this called Union Violence: The Record and the Response by Courts, Legislatures, and the NLRB by Armand J. Thieblot, Jr. and Thomas R. Haggard). This means that unions impose cost on firms even outside their pay structure; bad advertisement, vandalism or even threat of life. They distort and destroy the public relations that HR managers try so hard to build.

In the end, unions only produce collective wishes that are summed up generally. The specific, subjective wishes of the individuals are swept aside, most possibly in favor of union leaders who get to negotiate individually for special benefits. How are the HR managers to negotiate with adults who are controlled by others? These awkward situations create legal problems when lawsuits are later filed for clauses that workers didn’t agree to individually but were granted as a collective package required by the union. The firm is left to fight court battles with both the individuals who failed to coordinate with their union interests and the unions themselves that misrepresented the individuals in the first place. Nobody can know better than you what you want, so only individuals can agree with HR managers on their job contracts as clearly and as consensually as possible.

Conclusion

After analyzing the negative effects that unions have in the overall economy and their dismal failure to increase the standard of living, I have also come to understand that they make the HR manager’s job much more difficult. However, the key characteristic of entrepreneurship, which is a product of the beautiful free market, is that of finding solutions even within claustrophobic surroundings imposed by other aggressive agents. While I don’t entirely regard the entrepreneur as the hero of unsailed waters as Joseph Schumpeter did, I still think he has the capacity to overcome many difficulties that are put in his way unfairly. It is his success in doing so that has paved the way for the modern division of labor, the fruits of which have been increased capital and therefore wealth. But it is my concern, however, that the entrepreneur and his success story may not last long if we are burden him with such dire restrictions and controls.

References

Mises, Ludwig. Human Action (1949). Yale University Press.

DiLorenzo, Thomas. “Do Capitalists Have Superior Bargaining Power?” (2004).

Source: http://mises.org/daily/1602

Mises, Ludwig. Planning For Freedom (1952).

Friedman, Milton. Free to Choose (1979).

Hayek, F. A. The Constitution of Liberty (1960). Routledge Classics.