The Minimum Wage; D. Boudreaux

If a price is too low, there will be an excess de mand for the good or service in question, and buyers will compete for the limited quantities available by offering higher prices to sellers. If a price is too high, there will be an excess supply, and sellers (who cannot sell all that they wish at the high price) will compete for customers by of fering lower prices. So long as there are no gov ernment-imposed restrictions on prices, prices Professor Boudreaux teaches economics at George Mason University in Fairfax, Virginia. will tend to adjust in each market so that the quantities demanded will be equal to the quanti ties supplied. It is important to realize that prices change only when there are bargaining inequalities be tween buyers and sellers. Prices rise only when the amount demanded by buyers is greater than the amount supplied by sellers; prices fall only when the amount demanded by buyers is less than the amount supplied by sellers..Put another way, prices rise only when there is a sellers' mar ket, and prices fall only when there is a buyers' market. The rise or fall ofprices, however,elimi nates the inequalityof supply and demand and, thus, eliminatesthe conditions that people de scribe as sellers'markets and buyers'markets.

Freedom of price adjustments ensures equality of bargaining power among buyers and sellers. Freely moving prices are the great equalizer. Employers compete for human labor services, like most things of value in a society based on pri vate property in a market in which sellers and buyers engage in voluntary exchanges. Wage rates (in combination with other forms of com pensation) are determined in the labor market. If this market isn't hampered by government, wages will constantly adjust so employers and employ ees enjoy equal bargaining power. Of course, unskilled workers aren't as produc tive as workers with greater skills, and so wage rates for skilled labor tend to be higher than wages for unskilled labor. It is a myth, however, that highly skilled workers enjoy greater bar gaining power with employers than do workers with fewer skills. If wage rates are free to adjust to their market-clearing levels, unskilled workers will enjoy as much bargaining power as the most highly skilled workers, because freely moving wage rates adjust so that the amount of each type of labor demanded will tend to equal the amount supplied. Employers can have no bar gaining advantage over even the most unskilled workers if wage rates are free to move to the lev els at which the amount of labor services de manded is equal to the amount supplied by workers. Freely moving wage rates are the great equalizer of bargaining positions among employ ers and employees.

The MinimumWage: The GreatUnequalizer Minimum-wage legislation prohibits wages from falling low enough to equate the number of people seeking jobs with the number of jobs be ing offered. As a result, the supply of unskilled labor permanently exceeds the demand for un skilled labor at the government-mandated mini mum wage. Minimum-wage legislation thus creates a buy ers' market for unskilled labor. And as in all buy ers' markets, buyers (employers) have an un equal bargaining advantage over sellers (unskilled workers). Consider, for example, a grocer. Suppose he decides that a clean parking lot will attract more customers, and that this will increase his sales by $10 per day. Of course, the grocer will pay no more than $10 a day to have his parking lot cleaned. He then investigates how best to get this done. Suppose there are two options available to him. One way is to hire a fairly skilled worker who can clean the parking lot in one hour, while the second way is to hire two unskilled workers who, working together, will get the job done in the same time. Other things being equal, the gro cer will make his decision based upon the relative cost of skilled versus unskilled labor.

Let's assume the skilled worker will charge $6 an hour, while each of the unskilled workers will charge $2.50 an hour. In a free labor market, the grocer will hire the two unskilled workers be397 cause, in total, it costs him $5 per hour for the un skilled workers whereas it would cost $6 for the one skilled worker. But what will the grocer do if a minimum wage of $4 per hour is imposed? To hire the two un skilled workers will now cost him a total of $8 an hour. The skilled worker now becomes the better bargain at $6 an hour. Minimum-wage legislation strips unskilled workers of their one bargaining chip: the willingnessto work at a lower wage than that charged by workers with more skills.The re sult is unemployment of the unskilled workers. Consider another effect of the minimum wage. Because there are more people who want jobs at the minimum wage rate than there are jobs to go around,. employers have little incentive to treat unskilled workers with respect. If an employer mistreats an unskilled worker, the employer need not be concerned if the worker quits. After all, there are plenty of unemployed unskilled work ers who can be hired to fill positions vacated by workers who quit.

In addition, the permanent buyers' market cre ated by the minimum wage encourages employ ers to discriminate in their hiring and firing deci sions on the basis of sex, race, religion, and so on. Suppose an employer has two minimum-wage jobs available, but there are ten unskilled work ers who apply for the jobs. Because the workers are prohibited from competing with each other on the basis of wage rates, other factors must de termine which of the workers will be hired. If the employer dislikes blacks, and if there are at least two non-black workers who have applied for em ployment, no black workers will be hired. With a surplus of unskilled workers, there is no econom ic incentive to stop this bigoted employer from indulging his prejudices. Conclusion Minimum-wage legislation creates an excess supply of unskilled labor and gives the buyers of unskilled labor an unfair bargaining advantage over the sellers of unskilled labor. It is a fantasy to believe that the welfare of unskilled workers can be improved by such legislation. Unskilled workers shouldn't be restricted to a permanent buyers' market. 0 398 Free Market Money in Coal-Mining Communities by Richard H. Timberlake ,'In the company town, or mining camp, ... United States coin and currency were not in good supply. . . . During the heyday of the old company town, scrip circu lated more freely than U.S. currency and was in deed the coin of the realm.... Eleanor Roosevelt ... in the mid-thirties, during.[one of] her human itarian crusades, attacked the use of scrip by coal mining companies as a very evil thing. . . .