Re:What harm do minimum wages do?
by throwaway894345 on Wednesday August 19, 2020 @05:25PM
(#24216760)
Yes, the example we're discussing is very contrived and over simplified. Notably, I'm implicitly assuming "perfect information" for both parties for simplicity (spherical cows and all that). There's lots I'm glossing over because this is an HN post, and I was responding to the specific claim that an employer's ability to avoid bankruptcy without filling a position gives them the ability to fix labor prices such that the labor market is not free.
Free market in the microeconomic context is a market in which no one entity can significantly move the prices of a product but deciding how much to supply, therefore they don't have price setting power.
A second condition is relative ease of entering and exiting a market for competitors.
Coase's theorem is a good place to look for when thinking about power dynamics in a free market. Essentially, perfect information is a requirement when it comes to optimal decisions. Absent that, some party will be able to absorb some surplus, one essence "getting a better deal"