Five Political Imperatives: 4-5

4. Repeal the minimum wage: 

The minimum wage is a government-imposed price control, and like any price control, it will not lead to the result most people think it should. Minimum wages are imposed with the intention of helping poor people. In fact, they cause unemployment among these very people. If a person’s services are only worth $5 an hour to marginal buyers on the free-market, mandating that he be paid $10 an hour will tend to put this person out of work. Employers will try to reduce the amount of unskilled labour they need using machines that they would not have used without the minimum wage because of their cost. Or, they will simply cut back on the number of hours of people paid at the minimum. The result is to economically marginalize those whose services are worth below the minimum, effectively barring them from getting a full-time job. 

5. Take away the special legal privileges of labour unions: 

Labour unions enjoy a strange legal privilege under current law. They are allowed to use coercion to prevent members of their trade from working when they have declared a strike. Furthermore, there are labour laws in place that force employers to negotiate with labour unions instead of trying to hire workers that are willing to work, and some that force workers to be ‘represented’ by a union without their real consent. Certainly, no one should be barred from creating a labour union, nor should they be barred from voluntarily leaving their job in the hopes that their employer will give them higher wages. What labour unions should not have the power to do is to use coercion against people, forcibly preventing them with their picket lines from ‘breaking the strike’. Government is supposed to have a monopoly on the use of coercion, and yet they allow labour unions to prevent citizens from going to work by force. Besides the legal injustices, unions serve to create unemployment. They negotiate, with their coercive powers, wages that are higher than those on the free market for their workers. This has the same effect as the minimum wage, preventing the labour market from clearing, and thus causing institutional unemployment. Union members become a labour aristocracy, while those that they exclude constitute the labour underclass. The union decides who can enter the trade and what wages their members are to make. A similar analysis applies for professional associations whose members have the monopoly to practice a certain profession, such as medical associations or law societies. They claim to be protecting the consumer from sub-par services, but the main thing they do is restrict the supply of people in that profession and hence raise the wages of their members, barring consumers from spending less money on services the associations deem “sub-par”. Certainly these societies could exist as voluntary, professional associations, giving their stamp of approval to certain practitioners, something which many consumers would probably take into account, but their monopoly privileges just leads to monopoly prices and pricing lower end consumers out of the market for that particular service entirely. Often, powerful labour unions and professional associations do not exist in every field of employment. In this case, they restrict the supply of workers in their lines, forcing those trying to find a job into other lines artificially. The result is that these lines experience a supply of workers higher than they would on a real free-market, tending to reduce wages in these lines. Combined with the minimum wage, once enough workers are pushed into these fields, they are then pushed by the minimum wage out of work entirely.

           With these two reforms, unemployment would not be eliminated entirely but it should be significantly reduced. Welfare subsidies can create incentives to remain unemployed and rapid changes in industrial make-up stemming from central-bank induced boom-bust cycles (which I would see eliminated with the first reform) or just rapid economic progress or change can create some frictional unemployment as workers and employers look for each other. However, it is absurd that governments that are always yelling about the unacceptably high unemployment rate should actively maintain policies (minimum wage and allowing coercive unions) that can clearly be demonstrated to create unemployment by artificially favouring some workers at the expense of others. 

           

           The reason governments do not repeal these policies and why many people do not wish them to is because they believe in some version of the Marxist exploitation theory, where it is assumed that, left to their own devices, greedy capitalists would pay the workers less and less and grab more and more for themselves. This is a myth though based on bad economic reasoning. Employers compete with one another to get the labour that they need so that they can use it to make a profit for their businesses. This competition will result in a tendency for workers to be paid at a rate corresponding to their marginal productivity. For our purposes, this means that if one employer insists on paying say, a fast-food service worker $6 an hour, but if another employer expects that the services of that worker would add more than, say, $6.50 an hour to his businesses' revenue, it will be in the other employer's interest to offer the higher wage of $6.50 an hour to the worker to try to bid him away from his previous employer. The more capital is accumulated in an economic system, the more labour becomes relatively scarce and the more productive labour tends to become, thus resulting in a tendency for wages to rise. It is these forces, not the amount of money necessary for the worker to subsist as the Marxists claim, that determines the height of wage rates. Intervening to try to artificially force wage rates up through minimum wages and unions, without an increase in worker productivity as a result of an increase in capital goods or a higher personal efficiency of the worker, just results in unemployment and division of the labour force into a labour aristocracy and a labour underclass.