In a
previous post (http://thinkingabouthumansociety.blogspot.ca/2013/05/will-human-labor-become-superfluous.html), I explained why it is extremely
unlikely that human labor, even unskilled human labor, will ever become
superfluous, and hence why there is no reason for there to be permanent mass
involuntary unemployment in a free-market system. Given this, human labor
should be conceived of as an ever-scarce, ever-valuable, non-reproducible at
will factor of production that is not specific to any particular industry. In
this post, I will show how when we correctly conceive of human labor like this,
it is clear that on a free-market, it is impossible for employers to ‘exploit’
their labourers.
A labourer
is someone who has something to sell, his labor services, to a purchaser that
desires it, a producer (or for personal labor services, a consumer). This is
similar to, say, someone who seeks to sell uranium to a (private) nuclear power
plant owner, who needs it to produce power. What price and terms of sale will
the uranium seller and the power plant owner agree on? Well, that depends on
what the market price of uranium is, determined by the complex of mutually
advantageous exchanges made by all market participants buying and selling
uranium and made roughly uniform through the profit-seeking activities of
market participants on the lookout for speculative or arbitrage gains on
uranium. Neither the power plant owner nor the seller of uranium can
unilaterally dictate the price and terms of sale because if they are
unacceptable, one of them can find a buyer/seller of uranium elsewhere on the
market who will probably be willing to make a deal closer to the market rate.
If we just
apply the same analysis to the labor market as we did to the uranium market,
both markets for scarce, valuable, non-reproducible at will factors of
production, we see how absurd the contention that employers routinely ‘exploit’
their laborers really is. If the power plant owner cannot ‘exploit’ the seller
of uranium (and no one, to my knowledge, claims that they do), then why can
employers ‘exploit’ sellers of labor services? An employer cannot just
unilaterally and arbitrarily dictate the terms of employment and the wage of
the laborers in his employ, unless he wishes to end up with no laborers at all.
Sellers of labor services, like the sellers of uranium, can always look
elsewhere if they are unsatisfied with the current purchaser of their
goods/services. Like for uranium, a market price for a specific type of labor
will indicate what employers are generally willing to pay for that type of
labor and what laborers are generally willing to accept, so that the laborer
and the employer know roughly what wage and terms of employment they have to
settle on in order to reach a mutually beneficial deal.
In the world
of the exploitation myth, market prices are determined for every factor of
production except for labor, but once labor is being bought and sold, suddenly
price determination becomes a matter of ‘power relations’ and ‘exploitation’
rather than the standard market procedure. This makes no sense, as there is no
good reason to assume one method of price determination for material factors of
production, and a completely different one for human labor service factors of
production.
To this,
some would reply that there is a difference. It is claimed that laborers
absolutely need to work in order to survive, so they are pressed to sell at
whatever terms are currently going. But the business selling uranium absolutely
needs to sell its uranium in order to survive as a business, or else it will
bring in no revenues and go bankrupt. Similarly, the employer of labor also
absolutely needs labor services if his business is to survive, and if his
business does not survive, what exactly is he going to be living on? Another
contention is that human labor is different because being unemployed is such a
traumatic experience and it is hard to find a new job, and thus people seek to
avoid the possibility of unemployment even at the cost of being ‘exploited’. But
is it really that much easier for a seller of uranium to quickly find a new
bulk buyer, or for the employer of labor to seek out and train a new employee
to fill the vacant position? Besides, unemployment is scarier currently than it
would be in a free-market system because of the institutional wage rigidities
created by the minimum wage policies of governments and their tolerance of
coercive labor union activities, thus creating a significant amount of
institutional unemployment. The government creating the boom-bust cycle through
its inflationary policies also creates prolonged periods of high unemployment
in the bust phase. Moreover, the government’s inflationary policies, through a
sapping of the purchasing power of the worker’s wage, and its policies which
discourage capital accumulation, both serve to reduce the real wages of
workers, thus making the workers more desperate for work than they otherwise
would be.
The
existence of unemployment, it is true, creates more of a ‘buyer’s labor market’
where employers have the advantage, when hiring for certain positions, of
knowing that there is a pool of eager potential workers seeking jobs to fall
back on, and thus tending to make the employers bolder in their demands. But
this unemployment is primarily caused by government policies, and government
policies sapping the worker’s real wage rates also serve to weaken the worker’s
bargaining position. Thus, to claim that this situation is a result of the
‘exploitation of labor’ inherent in a free-market is not correct, when it is
interventionist government policies that create many of the problems in the
first place.
With this
discussion in mind, I will now go on to consider various so-called ‘pro-labor’
laws imposed by interventionist governments. These laws implicitly assume that
the exploitation theory is correct and that employers have arbitrary power over
their laborers, an arbitrary power that can only be curbed through government
action. In fact though, we will see that these laws have one, or more, of three
effects: 1. To create institutional unemployment. 2. To raise the price of
consumer’s goods. 3. To limit the worker’s employment options.
1. The Minimum Wage: Minimum wage laws are based on the
erroneous assumption that employers have the power to pay their employees
whatever they want, unless the government intervenes. Their main effect is to
create institutional unemployment. By setting a legal minimum price on human
labor services, any human labor service not worth more than the minimum price
to an employer will not be purchased, and the laborer selling this service will
be forced into unemployment. People who can somehow land a job whose wage has
been pushed above its market rate by the minimum wage are benefited in their
capacity as laborers, but at the expense of laborers forced into unemployment
and of consumers who are forced to pay more for the good in question which now
requires more expensive labor to produce.
2. Tolerance of Coercive Labor Unions Activities: When a
labor union can use its special privileges, granted by the government, to
engage in coercive actions such as strikes which physically prevent employers
from hiring ‘strike breakers’, they have the power to set a minimum wage above
the market rate in their field of operation. When unions are confined to only
certain sectors of an economy, they do not directly create unemployment, but
rather raise the wages of their members at the expense of forcing other
laborers out of the field. These other laborers will presumably now work in
another, less optimal field, and through increasing the supply of workers, will
decrease the wages of workers in the fields they enter. This can, of course,
lead to unemployment if the unions are prevalent economy-wide, or if the
forcing of laborers out of the unionised field into non-unionised fields sends
the market wage in the non-unionised fields below or further below the
government’s minimum wage.
3. Maximum Hour Legislation: This type of legislation imposes
a legal cap on the amount of hours per week certain types of laborers are
allowed to work for an employer. It is based on the erroneous assumption that
employers have the power to make their laborers work however long they want
them to, no matter what wage they are paying them for their work. In reality,
in most cases such legislation is superfluous, as it is often set at such a
level that most laborers probably would not want, or have to, based on market
conditions, work for more hours per week than the cap. When it is not
superfluous though, it is usually harmful. It limits the worker’s options,
preventing him from working more hours per week if he really wants the extra
money. If coupled with coercive labor union ‘take-home pay’ demands, where the
unions demand shorter hours for their members but the same weekly pay, upon
threat of coercive strike, than the effects are the same as an increase in the union-imposed
minimum wage rates for their members, discussed above.
4. Mandatory Overtime Legislation: This type of legislation
usually provides for a buffer between the legal maximum hours per week and the
legal standard work week hours where employers, if they want their laborers to
work those extra hours, must pay extra wages, in Canada 1.5 times the normal
hourly wage. The assumptions behind it and the effects are similar to Maximum
Hour Legislation, except that at least for overtime there is an expensive
option for employers who really need the extra hours from their laborers for a
certain period. On a free-market, overtime provisions could of course be
stipulated in individual employment contracts, but that would be between the
laborer and the employer, probably based on the standard market rates and
practices with regards to overtime for that kind of job.
5. Mandatory ‘Benefit’ Legislation: Sometimes governments, or
coercive labor unions, force employers to provide ‘benefits’ to all of their
permanent employees, such as health insurance or unemployment insurance or a
pension plan. It is assumed that these are pure gains to the workers, heroically
extracted from the grasping, exploiting hands of the employers. In fact, they
are just a substitute for the equivalent amount of cash wages. If a minimum
wage above the market rate is not in place, employers will tend to just pay
less of a laborer’s wages in cash and more in the form of ‘benefits’. If a
minimum wage above the market rate is in place, the result of forcing employers
to provide ‘benefits’ is a de facto increase in that minimum wage, as on top of
the minimum cash wage are added minimum benefits, which cost the employer money
just as surely as cash wages do. The result is unemployment and the raising of
consumer goods prices, or if employers can hire in such a way that their
laborers do not count as full time employees entitled to ‘benefits’, a
proliferation of a sub-optimal type of labor relation and less options for the
laborer in choosing his terms of employment.
6. Workplace Safety Regulations: These kinds of government
regulations mandate that certain pre-cautions to help ensure the safety of the
laborers must be set in place by their employers. They are based on the erroneous
assumption that employers have the power to put laborers in however dangerous
of a workplace that they choose, and the laborers have no power to protest. In
fact though, just as laborers do have bargaining power over wages and ‘benefits’
based on the market price for their services, they also have bargaining power
over the level of workplace safety, which can be analyzed like a benefit. Employers
would have to compete with each other to buy labor services not just based on
wages, benefits, and working hours, but also on workplace safety. Probably, on
a free-market, third-party ‘workplace safety certification organizations’ would
pop-up to rate the workplace safety of a particular employer. Those with a
reputation for attention to detail and integrity would be heeded by both
laborers and employers, employers seeking to gain as good a workplace safety
level with these trusted organizations as was cost-effective and laborers
taking the workplace safety level of their potential employers into account
when making their decision. Workplace safety regulations take competition and
voluntarism out of this process, and simply decree, essentially, that employers
must pay the workers less in cash wages and other benefits in order to invest
money in meeting the workplace safety regulations. As with benefits, the result
is either a lowering of the cash wage in the name of workplace safety or the
creation of more institutional unemployment if a minimum wage above the market
rate is in place. It is highly likely that workers, on a free-market, would
value workplace safety highly and be willing to give up some of their potential
cash wage in exchange for it, but under the current system, as with ‘benefits’,
they have no choice or discretion in the matter. Moreover, on a free-market, the law should still require employers to disclose any significant known risks of their workplace to the employee, and if they fail to, hold the employer liable for damages should the employee be injured, as the employer would essentially be guilty of fraud. We should not of course, fail
to mention most governments’ hypocrisy in this matter, legislating workplace
safety regulations for private employers but themselves sending soldiers to be
shot at in hostile countries and astronauts on risky space missions.
Thus, it is
simply not the case that laborers’ wage rates and terms of employment are
determined by employers’ exploitative urges on one hand and governments’ and
coercive labour unions’ valiant attempts to curb this exploitation on the
other. As with any factor of production, wage rates and terms of employment are
determined based on market prices and standard market arrangements for that
kind of labor, themselves based on the complex of mutually beneficial exchanges
with regards to that labor service made by all market participants. Given this,
government ‘pro-labor’ policies are just attempts to set, directly or
indirectly, minimum prices for labor services above their free-market prices,
which, as with any other kind of price control, lead to unintended effects that
most people would not consider desirable.
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