<p>I assume WH Hutt is referring to long-term effects. Here's what I understand. If "the price of any commodity is raised above the free market level by strike threat or action or by state edict," so that the price is above marginal cost. Then firms earn a "free" mark-up (=price - marginal cost) and need not be as productive as in a competitive market. As a result, they may hire less productive workers or offer less productive jobs, distorting investment in human capital in favor of low productivity and low-paying jobs.</p>

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2020-03-29T11:45:41.553Z
2020-03-29T11:57:43.540Z
2020-03-29T11:57:43.540Z
emeryville
<p>I am currently reading Economics of The Colour Bar by WH Hutt, and I'm having trouble understanding this bit he has written: “But when the price of any commodity is raised above the free market level, by strike threat or action or by state edict, the effect is always regressive, harming poorer consumers more than wealthier consumers. Moreover, such a process distorts investment in human capital. It causes, inter alia, relatively more people to be trained for and employed in occupations if low productivity and remuneration, and hence relatively few to be trained for and employed in occupations of high productivity and remuneration.”</p>

<p>I don't get the part where he talks about more low productivity jobs will be created and HENCE relatively few high productivity jobs will be created. How does this work? If I'm selling some commodity above free market price, if I'm making a profit, why would I hire more low productivity folks than high productivity folks? Is it because I'm assumed to be losing money for going above the free market price?</p>

<labor-economics><self-study><free-market>
Understanding distortions in investment in human capital
bad_chemist
# Understanding distortions in investment in human capital

(Asked by: username_0 on 2020-03-28)

I am currently reading Economics of The Colour Bar by WH Hutt, and I'm having trouble understanding this bit he has written: “But when the price of any commodity is raised above the free market level, by strike threat or action or by state edict, the effect is always regressive, harming poorer consumers more than wealthier consumers. Moreover, such a process distorts investment in human capital. It causes, inter alia, relatively more people to be trained for and employed in occupations if low productivity and remuneration, and hence relatively few to be trained for and employed in occupations of high productivity and remuneration.”

I don't get the part where he talks about more low productivity jobs will be created and HENCE relatively few high productivity jobs will be created. How does this work? If I'm selling some commodity above free market price, if I'm making a profit, why would I hire more low productivity folks than high productivity folks? Is it because I'm assumed to be losing money for going above the free market price?

**Tags:** labor-economics, self-study, free-market

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## 1 answers

### Answer by username_1 on 2020-03-29. Score: 1

I assume WH Hutt is referring to long-term effects. Here's what I understand. If "the price of any commodity is raised above the free market level by strike threat or action or by state edict," so that the price is above marginal cost. Then firms earn a "free" mark-up (=price - marginal cost) and need not be as productive as in a competitive market. As a result, they may hire less productive workers or offer less productive jobs, distorting investment in human capital in favor of low productivity and low-paying jobs.


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