I often hear from my friends on the Left that “free markets” don’t work. They even cite examples of what they call “market failure.” What they are missing is that in order to have a free market, there must be true price discovery; the buyer and the seller must be free to negotiate price. When government interferes with the pricing mechanism, distortions ensue, leading to the erroneous assumption that there has been a market failure.
Recently, in an article posted on the Politico website, Breanna Edwards wrote that California Democrat Sen. Barbara Boxer “thinks [the] minimum wage should be raised to about $10 an hour…to promote a healthy nation.” This was in reference to statements the senator had made on “The Ed Show” on MSNBC. Edwards quoted Boxer as saying, “We raise that minimum wage and we move forward with the vision of this president that we have, which is everyone pays their fair share.” Boxer added, “There’s one word we always have to focus on and that’s ‘fairness.’”
A couple of days later, in an article posted on Zero Hedge, Washington D.C.-based economist Logan Albright offered a rebuttal. Albright asserts that labor is a product. The worker is the producer of that product and the employer in this instance is the customer. So if you are a worker, says Albright, “Boxer claims that a mandated increase in the price of your labor will benefit you, the seller.” He goes on to say that if that were true, a government mandated minimum price of $10 per burger for fast food chains should be to their benefit. It would, in fact, be the opposite, resulting in fewer customers. According to Albright, “An arbitrary hike in the price of a product does not benefit sellers, it drives away buyers. Labor is no different than any other product in this regard. When we think of labor as a product in this way … it becomes quite easy to see why high minimum wages do not benefit the poor.” To this I would add, if raising the minimum wage is the solution, why not make minimum the wage $25 per hour, or $50 or $100?
For entry-level or unskilled workers, price may their only bargaining chip. If you take that away from them, by mandating the minimum price they can charge for their labor, you may be putting them at an unfair disadvantage in the marketplace.
In fact, instead of helping those at the bottom, you are probably ensuring that many are unable to enter the work force, having been priced out. As I pointed out in my previous article, youth unemployment has skyrocketed. Younger workers are dropping out of the job market and the government statistics aren’t even including them among the ranks of the unemployed. If you cut off the bottom rung of the ladder to success, you strand those that are most vulnerable; those who need to acquire the skills that will serve them for a lifetime of employment. In other words, minimum wage laws hurt those that need the jobs the most.
A couple of years ago I attended a roundtable discussion in Charleston regarding West Virginia’s prevailing wage laws. Prevailing wage is a list maintained by the state of West Virginia regarding the minimum hourly wages to be paid by government contractors to employees when bidding for and executing government contracts. It is supposed to be based on a survey of “prevailing wages” throughout the region. However, even some supporters of this form of governmental price fixing acknowledge that the wages quoted are artificially high. In other words, they are not market rates.
The participants of the roundtable included government officials, legislators and business people. I remember a comment made by one government official that West Virginia had the lowest per capita income in the nation and that prevailing wage was designed to help mitigate that. Interestingly, in 1934 the per capita income of West Virginia was 30th in the nation. Prevailing wage was implemented in our state several years later.
The fact that West Virginia’s ranking has fallen badly since then should provide a clue that government interference in markets is counterproductive. Prevailing wage has clearly not helped improve our state’s per capita income statistics.
When Boxer bandies about the word “fairness,” she distorts the meaning of the word, as surely as government mandating of prices destroys the meaning of free markets, rendering them dysfunctional. As Albright concludes, “fairness is allowing individuals to freely contract with one another, negotiating a mutually agreeable price.” Even with the best of intentions, politicians and bureaucrats aren’t qualified to know what’s “fair” and when they meddle in what they do not understand, such as markets, they usually make matters worse.
— Elliot Simon
writes from Harpers Ferry