I thought I would quickly address the "living wage" issue. In the United Kingdom there is something called a living wage which is an informal benchmark indicating how much a worker should be paid in order to live a "decent life". Today this issue is central to mainstream political demagoguery and is mentioned often by contemporary politicians of both mainstream political parties.
In the United Kingdom, there is a living wage, and a minimum wage. The minimum wage is the legal amount an employer must pay their workers. This amount is slightly lower.
Living wage = £7.85
Minimum wage = £7.50
Both the benchmark rate and the formal rate are harmful to the worker. I will explain why.
What is a living wage? How is wealth measured? Wealth is only relative to what you can afford.
If your bank balance were to double overnight, would it matter if the price of consumer goods doubled simultaneously?
This is what happens when wages are artificially hiked. There is no growth of wealth for those being paid more, they simply can afford less. Temporarily they may seem richer, but prices realign and ultimately the price of living goes. Nobody wins.
Lets break it down by looking at the employer: If an employer is forced to raise the wages of his workers, he or she now has to make adjustments to secure profit margins will not be impeded on. An employer may do this in a number of ways, one of which is to raise the prices of their products. So now the fish and chip shop owner who used to sell his fish and chips for £4, now has to sell it for £5 if he is to keep his employee.
According to The Living Wage Foundation, "a living wage is an informal benchmark indicating how much a worker should be paid in order to live a "decent life"".
What is a decent life I might ask? How can one measure what a "decent life" requires?
The subjective nature of this definition reduces people to quantitative objects that only need x goods in y amount to live a "decent life". The reality is that nobody can define or standardise what a decent life is. What some people necessitate, others do not. Therefore we can not quantify what a "living wage" is.
As I have explained, artificially raising wages does not make people wealthier. It only succeeds in diminishing their purchasing power. Defining and quantifying what is enough for a "decent life" fails to realise the complexities of human relationships and interactions in any given society. Implementation of minimum wage policy does not work. But it will not stop governments from trying, and its subjects from believing. Like a dog trying to chase its own tail, the desired objective will never be reached.
Mr Hayek