A brief comment on this year’s Nobel Prize in Economics


This year’s Nobel prize in Economics is awarded to works on minimum wages and the impact of immigration on wages, among other things. I will give a brief comment on these works.

It is generally claimed that most jobs are set by the market force. This makes the setting and revising of minimum wages a controversial issue. But it is a myth that wages are mainly determined by the markets. Physicians’ pay scale is determined by the government, such as in Canada, or anchored on payments by large government programs, such as Medicare. Teachers’ pay is negotiated by the powerful teachers’ unions. Public servants are paid from tax dollars collected by the governments, which have the monopoly power of tax collection and money printing. Finance industry is blessed by the implicit and explicit government guarantee, and fed by endless stream of pension deduction mandated by the almighty government.  In most high pay professions, wages are pushed up by government regulations or government payments, not by the market.

Most high pay jobs are not determined by the market, but by the political power of various professions. The payments from minimum wage jobs are of minimal scale in the total society. Hence, we would expect the setting and revising of minimum wages are of minimal impacts. This is exactly what the empirical studies have found.

For this particular study about minimum wages and jobs, it is a comparison between New Jersey and eastern Pennsylvania, two very different areas in many ways. The very reason minimum wage was raised in New Jersey may indicate the job market was tight there. Similarly, unions often go on strike when there is a good chance they can get better deals.

The relation between immigration and wage is also well known. Upper class benefit from more immigration because more laborers lowers the cost of their businesses. Upper class will earn higher incomes as a result. Lower class laborers suffer from more immigrations because more laborers lowers the value of their works. That is why the upper class support more immigration and lower class, other than those who have relatives and friends among the would be immigrants, resist immigration. Immigration issue is a hot topic in every election. The empirical study merely confirms what everyone already knows.

For the particular work on the relation between immigration and wage, it is about Cuban immigrants in Miami. The size of the migration in this study is small, at 125,000. By comparison, there are tens of millions of immigrants in US. Cuban immigrants are quite distinct among immigrants. For example, US public are much less sanguine with the influx of Haitian immigrants at this moment.

The mainstream economists are surprised, or pretend to be surprised by the empirical results because they are oblivious to the obvious facts in our societies. Our societies are comprised of monopolies and oligarchies of various scales. The Iron Law of Oligarchy and the dominance of monopoly capital have been pointed out long ago (Michels, 1915; Baran and Sweezy, 1966). Wages are determined by monopoly power and scarcity, which is often a result of institutional structure (Chen, 2018). But the mainstream economists aggressively ignore the existing literature and proudly parade their new clothes and new discoveries.

Related References

Michels, R., 1915. Political Parties: A Sociological Study of the Oligarchical Tendencies of Modern Democracy.

This book presented the Iron Law of Oligarchy, the prevalence of oligarchy in a society.

Baran, P., & Sweezy, P. (1966). Monopoly Capital, New York. Monthly Review Press

This book discussed the great importance of monopoly in understanding our society.

Chen, J., 2018. An entropy theory of value. Structural Change and Economic Dynamics, 47, pp.73-81.

This paper discuss the relation between value, (and hence wage and income) and monopoly and scarcity.

For official introduction of 2021 Nobel Prize in Economics, please refer to the Nobel Prize website.