Alternatively, the two submarkets have their own curves. In both cases, it must be determined how the two submarkets develop and how they interact. The most obvious hypothesis is that high productivity labour sets the trend for the development of wages. When minimum wage unemployment rises stronger than general unemployment, then the higher educated have more scope for wage demands, and then there is an upward effect on wages and prices, even stronger so when price expectations come into play. This would show an unfavourable (upward or rightward) shift of the (aggregate) Phillipscurve.
27. Subsistence
This chapter is a bridge between the standard macro model and the elaborations on heterogeneous labour and taxes. The concept of the ‘welfare state’ depends upon our concept of subsistence and the elements that go into its index , and on the decisions that we take on this at the national level.
In Book III we already regarded some indexation of subsistence and taxes. Here we will refine indexation of net subsistence. Gross subsistence will be T -1[B] as determined by the tax system. A way to understand this chapter is that it formulates conditions for the tax system.
We already saw two possible indexation schemes for subsistence: (i) on average net income or (ii) on gross average income. The latter presumes that taxes are an indication of welfare too. This current chapter will look an another way of indexation that takes an intermediate position that might be better but that might also be needlessly complex.
We will find that if we adopt certain indexations, then we must accept some divergence in development in other terms.
Definitions
Subsistence labour forms a special group within heterogenous labour. The group only exists if we acknowledge heterogeneity. In the labour supply density we already hypothised a ‘dromedary shape’ that partly reflected the fact that a minimum income means longer hours when the wage drops. Let us now discuss subsistence more extensively.
With man a social animal, sociobiological and social psychological causes apply in general. Precisely what these causes are, and how they apply, is a subject of serious study, see for example Aronson (1992a&b) and Wilson (1993). A regularity for mankind seems to be, vide these studies, that in certain cases people show a certain amount of care for their fellows.
This care should not be overrated. Part of it may not be empathy, but simply be precaution and an insurance for the event of personal misfortune. Also, some care obviously reduces the chance of a violent reaction of the disadvantaged. There are clear examples of empathy breakdown. For example, archeologists found ancient mines with such small shafts that these mines could only have been worked by children. We need not have illusions about working conditions, especially since it were lead mines. Nevertheless, whatever these clauses and contrary cases, ‘normal conditions’ seem to provoke a distinct level of care.