Coercive Labour Policy Creates Unemployment

Everyone is better off on one's own!

The minimum wage legislation is dear to the hearts of most compassionate authoritarians, including modern day left-liberals. Armed with the cracker-barrel sort of wisdom that in its absence workers are bound to starve in hopeless poverty not receiving their fair share of economic bounty, many are tempted to dismiss the obvious arguments against minimum wage laws. It is not even that such arguments are always inveighed against or even met by a hand-waiving dismal. The truth is that most products of Government schooling do not even know these arguments-or even that such arguments do, and can exist. In them, often, there is not even a glimmer of understanding of the work free market economists have done to demonstrate the mythology of the much-repeated assertions of supporters of the minimum wage.

The very fundamentals of Economics tell us that it is hardly necessary to legislate “wage exploitation” out of existence. The competition among businessmen and workers will ensure that workers are paid according to the marginal productivity of their labor. If an employee is paid much less than his productivity, he will soon seek a better paying job. It is often argued that the information asymmetry prevents employees from seeking greener pastures. However, it is not at all necessary for workers to be well informed of the market rate of wages. It is more than enough if the employers know of it and offer it. Hence the “information asymmetry” argument defeats itself.

It is bad enough if the minimum wage law is unnecessary; it is far worse if it inflicts enormous harm. When the Government sets the minimum wage at say, 100 $ a day, workers who aren’t worth that much either lose their jobs or will not ever be hired. The real victims of the minimum wage law are the least skilled workers-often black teenagers and the handicapped in the US. Employers even hesitate to hire many of them who are worth more than the minimum wage as hiring the low skilled is too much of a risk in an economy strangulated by minimum wage laws. Hence a law intended to protect the weakest sections of the society ends up harming them the most and prevents from them from finding a way out of prolonged unemployment. As it must be evident by now, it is not a coincidence that the organized labor is the loudest proponent of the minimum wage legislation. As Walter Block rightly puts it, the minimum wage legislation is not an employment law, but an unemployment law.

Labor Unions

We all have long heard how determined the labor union leader is in saving the small guy, the hapless worker from the oppression, suppression and exploitation of the heartless capitalist. In his eyes, if left to the vagaries of the free market, the businessman is omnipotent. The real danger lies not in his omnipotence as such, but in the fact that he is a being full of caprice and whim. His range of planning hardly proceeds beyond the immediate moment, and he has always had a difficult time coming to grips with the fact that others too are driven by self-interested motives. The only hope of the worker then lies in the trade union leader. By the virtue of his cozy alliance with the Government, the trade union leader can put a solid rein on the business man’s excesses by firmly disciplining him whenever he gives solid expression to his whims and fancies. In the process, both successfully legislate out of existence an artificial construct of “heartless” economists: the age old law of supply and demand.

All this is of course, flummery deserving to be greeted with the greatest of suspicion. The truth of the matter is that if labor union leaders in general are of any aid to the weakest worker, it is only in an unconsciously satiric sense. The unrepentant labor union leader is marked by an ever exceeding cynicism, self-imposed economic illiteracy and staggering moral bankruptcy. The obvious fact the supporters of coercive labor policy evade is that primarily, it is self interest, not their moral sense or benevolence which impels employers to pay employees according to their productivity. When an employer pays too much, he takes a cut on profits, and when he pays too little, he will have a hard time attracting quality labor. An employer who pays too much or too little, hence, will be compelled by the market forces to mend his manners or fall by the wayside.

Wages are determined by the marginal productivity of labor, which in turn is determined by the sophistication of tools and machines used. It is not hard to see that it all depends on the level of capital investment. Wages in relatively free countries are several times higher than that of wages in controlled economies as free countries have largely left people alone, free to accumulate capital and invest in production. In more controlled economies, workers produce less per man hour as of the insufficient quantity of invested capital and the resulting grave inadequacy of machinery. Through taxation and regulations, the state and Labor union leader’s stand in the way of any progress like increased capital investment which would have significantly improved the lives of workers and shown them the way out of poverty. What labor unions acquire is at best a higher wage for its members at the expense of others who are mercilessly thrown into the labor market, forced to find jobs elsewhere. Their intentions are best revealed when without batting an eyelid, union representatives claim to be persistent in fighting the “unfair” competition of non-unionized, low wage labor. Unionism not just creates unemployment, but prevents the expansion of the work force in organizations as the higher wage rate imposed by the unions make it impossible for employers to hire more workers.

Whatever their motives, it is apparent that it is not a genuine concern for welfare of the ordinary worker. Economists Ludwig Von Mises and Murray Rothbard were right in pointing out that the fact that the trade unions do not demand a drastic raise in wages is enough proof that they are fighting their own knowledge that artificially higher wages would put many of them out of their jobs. It is deplorable that the world has not yet paid heed to an Ayn Rand character: “Didn’t they scream that they were the friends of labor? Do you hear them raising their voices about the chain gangs, the slave camps, the fourteen-hour workday and the mortality from scurvy in the People’s States of Europe?”

No sensible libertarian has ever argued that workers have no right to unionize-or that unions can never emerge out of a free market. What we oppose is the state’s legal sanction to, and legitimization of labor union coercion. It is perfectly possible for unions to emerge in a free market or even to gain a wage rate higher than the one set on the market by selling the immorality of being in league with the Capitalist to the common public and non-unionized workers alike. It can happen as the mystique of “not being a scab”, and “not undercutting wages” might prevent non-unionized workers from being the spoilsport. The restrictive nature of the unions throws many marginal firms out of business and raises the cost of production, resulting in lower living standards for consumers. Furthermore, they set work rules which clashes with the edicts of the management and result in an output which is far lower. Instead of helping workers, unions often mislead them with their artificial constructs and arbitrary demands.

Make work projects

As human beings are full of deep desires waiting to be satisfied, there is no limit at all to the work to be done in this world. If anyone asserts otherwise, it would mean that we are all in the Garden of Eden-the state of Nirvana. I do not think that I have to state that we haven’t yet reached such a state and will never ever do so. It should follow from these facts that in a free society free of government regulations and taxation, there will always be a tendency towards full employment-which means: Anyone who wants work can, in course of time, find himself in a job. More importantly, employment is mean to an end: production, and not an end in itself. As the Economist Henry Hazlitt reminded us, “poor countries like India and China, though vastly populated, doesn’t suffer from unemployment. Slave labor camps in Germany, and prison and chain gangs have always had full employment.” If full employment was an end in itself, it will not be too hard to achieve it to the largest extent possible.

Economists and other intellectuals who make a case for public work projects to cure unemployment pay no attention to these retrospectively obvious facts. “Government spending cures unemployment”, is an old fallacy in economics. The amazing naiveté with which the intellectuals push this theory is shocking indeed. It can’t be stressed more that the government doesn’t create wealth. Everything that it spends is taken from the innocent tax payer-directly or indirectly. (Inflation is an indirect form of taxation.) If this very money which the government spends is left to the tax payer, he would have either invested it or spent it on consumption. Both would have created employment opportunities.

Government spending only thwarts the market process. There is no reason to believe that a bureaucrat, who has only the moral responsibility, is likely spend the money more efficiently than the tax payer who has both moral and financial responsibility. The most important fact which is being forgotten is that the money taken from the tax payer won’t be spent in the same manner the tax payer wants it to be spent. If it were so, there would be no reason at all for the government to step in. The tax payer could have as well managed by himself. The fact that the tax payer is being called to spend for some ventures is adequate proof that no one would willingly spend for these projects.

Contra ‘standard libertarian argument’, it is not true that every penny spent by the Governments would imply one penny less spent by the private sector.  The libertarian argument would be right only if the money private individuals put in their piggy bank or save underneath their mattresses count as private spending. Cash can be stockpiled and resources can remain idle. However, there is nothing wrong whatsoever with it.

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