12. The Standard Rate

MY PURPOSE in this chapter is to show that the enforcement of “the standard rate,” also called “the rate for the job” or often, misleadingly, “equal pay for equal work,” operates as a powerful factor not only in reducing the flow of wages and income, but in creating or perpetuating inequality of opportunity, and hence avoidable inequalities of income. Yet insistence on the standard rate (more and more on a nationwide scale of recent years¹) has come to be the cornerstone of strike-threat policy.² It is the principle on which resort to legal enactment in the labor market has relied. It is represented—sometimes sincerely—as a means of entrenchment of equality of treatment for all persons. It has a powerful psychological attractiveness. Through the slogan of “equal pay for equal work,” it can be presented as a precept of transparent fairness. It appears superficially as a straightforward way of insuring protection against caprice or favoritism in remuneration.

Now it is true that equal remuneration for work inputs of equal content in respect of quantity and quality is, with one practically unimportant exception (mentioned below), the consequence of freedom in the labor market. But the imposition by legal enactment or private duress of what is intended to be equal pay for equal work operates as an extraordinarily effective method of shutting off access to the bargaining table for the least privileged or least well-endowed members of the community. Whether intentionally or unintentionally, the uniformity imposed constitutes the most formidable device ever invented for enforcing discrimination against what H. Demsetz calls (in a courageously rigorous analysis of some of the issues³) (a) “nonpreferred” groups, and (b) “relatively unproductive” groups. It is, I shall argue, far more powerful than obvious forms of exclusiveness, or entrenched privilege, or overt discrimination against “nonpreferred” groups.

To explain this contention, it is essential to stress at the outset that by “the standard rate” I do not have in mind all forms of wage-rate standardization.

For instance, we have seen that, when monopsonistic power exists, managements can maximize the residual yield by remunerating each worker in relation to the value of his alternatives (see p. 100). Now although such discrimination is not necessarily exploitation (see p. 114, note 4), and may in some circumstances be to the advantage of the particular workers discriminated against, one may have every sympathy with the desire to prevent discrimination of this type. Uniformity of remuneration in respect of inputs of equal quantity and quality seems on the face of it to be so unquestionably just, that some readers may well feel that discussion of the topic is superfluous. That it is a desirable outcome is indeed hardly a matter of controversy; but any attempted imposition of such uniformity is another matter. Our attachment to the notion of the inherent justice of nondiscrimination of this type seems to have its origin in our familiarity with free market influences in the determination of wage rates, which tend always to bring about the equality envisaged! And our intuitions derived from perception of the nondiscrimination enforced under competitive conditions lead us, on the whole, to sound ethical judgments. Nevertheless, we must try to avoid a simplicist trap.

To get to the root of the matter we have to begin by recognizing that there is a certain arbitrariness about the price or wage-rate uniformity which is enforced by the social pressures found in competitive markets. An awareness of this arbitrariness prompted Mrs. Joan Robinson, in 1935, to argue against the laissez-faire system precisely on the grounds that it tends to make the discrimination we are considering impossible.⁴ I attempted at the time to answer Mrs. Robinson’s criticisms and to defend the responsible planning and coordination of the economic system under laissez faire. But I could not question at all her demonstration of a possible inherent arbitrariness in competitively determined price uniformity. I expressed the problem as follows:

Because discrimination is prevented where there is free exchange, and because it happens to maximise a monopolist’s return, does not prove that it is opposed to consumers’ advantage. On the contrary, it may be beneficial. The uniformity which is the product of the purchaser’s right to resell may, on occasions, conceal some important elements of arbitrariness. This is possible because successive increments of a particular kind of commodity may be regarded as having a different “urgency” to a particular buyer—as occupying a different place on his scale of preferences; and as between different buyers, we may regard the increments that are purchased at a uniform price at any moment as being wanted with different degrees of urgency—as occupying different relative positions on the individuals’ scales of preference. Now it has been suggested that the ideal production and exchange system, if planned by a divine hand—by one completely conscious of every individual’s scales of preference (that is, of his aspirations and strivings, and his powers and resources), would lead to a set of prices for each commodity which in certain circumstances also varied for each individual. In so far as this could be so, it follows that a social loss might be incurred as a result of the uniformity imposed by competitive conditions. A set of prices other than the uniform prices enforced by the consumers’ right to re-sell could serve their “real desires” more effectively.⁵

But having explained why discrimination may, under theoretically conceivable circumstances, be socially beneficial (that is, tending to bring about the optimal use of human powers and resources), I went on to explain why, in practice, accepting the ideals of a democratic consumers’ sovereignty, there is a case for a rule which, under nearly all circumstances, forbids discrimination. In my plea for this general nondiscrimination rule I had to insist, however, upon a theoretically important exception, namely, when the discrimination is “the fulfillment of an expected condition essential for the specific investment to take place.”⁶ The required condition for tolerable discrimination is that the parties discriminated against benefit thereby. In the case of a commodity or service, the parties who are forced to pay more than the others may nevertheless get it cheaper in consequence; or they may benefit because they can afford to buy some of it whereas otherwise they could afford to buy none of it. And in the case of a worker selling his services, the condition is that through accepting lower wage rates than others, he is a beneficiary, that is, he can find better-paid employment than he could if entrepreneurs were forced to pay all workers equally for identical contributions to the value of the product (at identical employment costs).

However improbable, such a possibility could arise where there are economies of scale (in production and marketing) of such a magnitude that the condition known as “natural monopoly” and “natural monopsony” are present in any degree. It may then be to the advantage of those workers employed by the “natural monopsonist” who have the poorest alternatives, that they accept long-term contracts under which they are remunerated according to their “opportunity values,” that is, according to the value of their services in the occupations from which it is necessary to attract or (on the contract’s expiration) to retain them. I explained above how (in abstractly conceivable circumstances) workers with lowly-valued alternatives could gain by entrepreneurial action which, although discriminating against them, (a) removed no existing employments and (b) improved their earning power, because the economies (low costs) so secured made the venture that employed them worth risking. (See pp. 105-106.)

I am not, it should be noticed, pleading here for a general tolerance of discrimination. On the contrary, I am adhering to my argument put forward in 1936 and advocating legally enforced nondiscrimination when this objective can be proved to be unachievable sufficiently successfully through the safeguarding of the competitive process. The aim of direct legal enforcement of nondiscrimination is to insure that every worker shall be remunerated as though he were selling his contribution to output in a competitive market. Thus, the required rule could provide that, if he is paid by the piece, he shall receive the same wage payment as another worker (with better alternatives) whose contribution to output is identical. But to be able to advocate such a rule, without misunderstanding, I am obliged to make it clear beyond any possible doubt that, unless any discrimination is due to what I have termed “exploitation” (the deliberate withholding of alternatives from the lower-paid groups), there is nothing unjust about it. Moreover, the application of any defensible nondiscrimination rule ought to be (a) contingent upon positive proof of “natural monopsony”⁷ and (b) subject to the exception that no worker (or group of workers) exists who believes he can raise the value of his contribution to the common pool of output by accepting less than would be needed to retain or attract the services of others doing the same kind of work. The nondiscrimination rule should be inapplicable when it stands in the way of the economic advancement of any person or group with poorer alternatives. Equity in such circumstances requires that a worker whom it is just profitable to employ at, say $500, and who can improve his earnings and prospects if his offer to work at that figure is accepted, shall not be turned away because the market requires that other profitably employable workers have to be paid $600. In other words, no potential employee in any occupation who thinks he will benefit by undercutting, whether or not because he happens to have had less valuable alternatives than the average worker (although this might be his position), shall be denied this elemental human right. If the employment he wishes to get (at the wage rate he is prepared to accept) represents the best employment outlet available to him, the refusal of permission for him to accept that alternative is essentially exploitative.

We must remember that the kind of discrimination we are discussing is possible only in the presence of monopsony. In a free competitive labor market it could not occur. Should it be due to collusive monopsony, then antidiscrimination policy should aim rather at eliminating the collusion than at the pricing consequences of the collusion. Hence, if true discrimination in remuneration⁸ does seem to be found in an apparently free market, the likely explanation is that it is a consequence of that very small degree of short-term natural monopoly and monopsony which, we know, inevitably characterizes almost every firm in practice.⁹ Any such discrimination will be short-lived if antitrust is performing its function. But what can possibly be very important is that, in the meantime, it may be assisting a relatively poor worker to overcome the costs of getting a permanent entry into better and more productive employment outlets. The importance of the exception (which could be phrased so as not to constitute a loophole) is that it can insure that no avenue toward material advancement on the part of the poorer workers shall be closed.

The obvious danger in permitting any exception to the rule of nondiscrimination in remuneration is that it might become a loophole. But there is a very much greater danger that attempts of lowly-paid workers to break into well-paid but entrenched employment preserves for which they are competent or for which they can be trained will be prevented by any unqualified nondiscrimination rule. Hence conditions necessary for the imposition of the rule (as distinct from the achievement of nondiscrimination via the market) must be, as I have already shown: (1) proven natural monopsony; (2) the effective right of persons whose alternative opportunities are of low value¹⁰ to discount this disadvantage; and (3) unrestrained managerial power to employ any workers willing to undercut at a discriminatory rate even if (a) existing wage contracts, or (b) other forms of union resistance, or (c) present market alternatives for existing and essential employees, prevent a reduction in the standard rate sufficient to permit the profitable employment at that rate of the would-be newcomers.

We turn now to quite different reasons why a degree of standardization in wage rates, in a quite independent sense, is at times acceptable and, indeed, unavoidable. In some circumstances the value of individual outputs cannot be measured or estimated with adequate accuracy. In this case the standardization involves equality of remuneration for workers the value of whose contributions to output differs within a moderately narrow range. When payment by the piece is out of the question owing to the difficulty of defining the unit of work done, there is often a situation in which, while the really unsatisfactory worker is discernible, it is impossible to recognize measurable differences of efficiency over the narrow range mentioned. By “efficiency” here is meant the value of an individual worker’s output in relation to its cost. Sometimes managements do not know with any certainty how the one individual’s contribution to the undertaking (in the group accepted as “satisfactory”) differs from that of another. When this is the position, a common time rate for the grade in question is the only answer. A standard rate for these reasons is equitable and nonrestrictive, but it implies that managements may establish many grades when that happens to be practicable.

In other cases, however, although actual measurement of efficiency is more or less ruled out, managements can rely upon less simply described evidences of the value of individual labor inputs, and differentiate accordingly. To avoid or minimize suspicion of arbitrariness, caprice or discrimination in such valuations, resort has been had to various forms of “job evaluation” or “merit rating” (see p. 197). In the ideal, however, managements ought to have untrammeled discretion in offering specially high wages to those whose services they particularly wish to retain or attract. The question of “quality” as a determinant of worth to the undertaking is influenced by such things as the worker’s versatility, his trainability, his cooperativeness, his reliability, his integrity, his experience, and other definable, clearly recognizable, but often unmeasurable attributes. When estimates of the usefulness of combinations of such qualities are possible and relevant, managers can act at least as rationally (which does not mean infallibly) as the selectors of, say, a professional football or baseball team when they offer different terms to different players, or the director of a ballet when he offers different terms to different ballerinas. There are always imponderables, but the differentiations are normally profitable and accepted as just.

Let us now turn to the case in which differences in individual worth are observable and measurable. When this is the position, payment by the piece may be possible; for there can then be an objective measure of the number of units of output contributed by each worker. Moreover, where it is possible to define adequately a general “work unit,” a common measure of the contribution of workers in quite different kinds of work may be available. And allowances for measurable differences in quality of work can be made where tests are practicable and spoilage is definable. One of the chief advantages of payment by the piece (apart from the incentive created by the almost self-evident justice of the principle) is that, even when there is a standard piece rate imposed by union duress, greater numbers of the less efficient workers can be profitably employed than is possible with standard time rates. This is still more the situation when a general formula is possible by means of which allowance can be made for the economizing of time by the faster workers—that is for those who use the plant more intensively. Under such a formula, that is, when for this last reason the slower worker has the right to be paid less per unit of output than the faster workers, there will be no discrimination against him as there necessarily must be under rigid standard piece rates.

It should be noticed that, even when a piece rate system permits the slower worker to escape injustice because the rates are arrived at by a formula which amounts to a lower rate per piece (in order to compensate for his less intensive use of the plant), the rate fixed may still be exploitative. That is, a high standard piece rate may yet be creating a privilege. The privilege in this case will be shared by a group which includes some of the slower workers. The underprivileged then consist of all who could improve their earnings if the standard piece rate did not exclude them from the protected employment field. Thus a standard piece rate adjusted for the slower worker can still operate as a subtle exclusive device. Like the standard rate in other forms, it can suppress free bargaining—deny the initially less valuable workers the right of access to employment outlets.

The forcing of a standard rate by strike-threat duress or legal enactment on any group of workers merely imposes a minimum. It does not normally prevent differentiation in the form of higher wage rates offered to exceptionally valuable individuals. The effect is (a) to displace or exclude¹¹ the least valuable workers (the least well-qualified or those whose employment involves the highest special costs) and (b) to reduce the earnings or prospects of those workers who were earning more than the standard rate before it was imposed (because enhanced costs reduce the profitableness of the productive activity as a whole).¹²

Through reactions under (b) a certain leveling tendency is exerted within the protected occupation. This does not mean that an egalitarian pressure is thereby applied on the distribution of the community’s aggregate wages flow.¹³ When all workers are brought into the reckoning, including those displaced into lower-paid employments (possibly into temporary unemployment), or forced to remain in lower-paid employments, the effect is to cause the distribution of the national income to be less equal as well as less equitable. In this connection, we should notice that the imposition of a higher standard wage rate, or the raising of a minimum wage rate, can have the effect of slowing down the subsequent rate of progress in earning power which an existing employee or a recruit (supposedly benefiting from the increase) would otherwise have enjoyed following the acquisition of experience over the next few years. For ceteris paribus duress-imposed costs reduce an undertaking’s demand for the services of all labor and not merely for the services of grades subject to the minimum;¹⁴ and because a firm’s competitors will presumably find the profitability of purchasing labor adversely affected more or less in the same proportion, the wage rates needed to retain or attract experienced employees will be lower than they would have been had the minimum not been imposed or raised. Such a reaction may therefore partially offset the effect on labor costs of the imposed or raised minimum.

Again, when the condition I have called “joint monopoly” (see pp. 72-73, 128) is present, it sometimes creates a monopsonistic power which managements can use to ease the aggregate burden. They can on occasion practice discrimination against the more efficient, causing the latter to be paid (in the extreme case) the same wage rate as the average or the substandard worker who retains employment.¹⁵ The enforcement of time rates where piece rates are practicable is one stratagem for discrimination against the better workers. If the employees of above-average efficiency have highly specialized skills which they acquired not expecting discrimination against them (in standard rate form, or otherwise) they will be exploitable (in this case jointly by the workers of average or substandard efficiency and by managements on behalf of investors). And in the case in which the exceptionally efficient can be shut in they will be exploitable even if their skills are versatile.

It is, however, the use of a supposed nondiscrimination principle to effect discrimination that I wish now to stress. Demsetz has put the gist of the problem so clearly that I cannot do better at this stage than to quote briefly from his contribution. He is dealing mainly not with “the standard rate” enforced through the strike threat, but with wage-rate uniformity imposed under legal enactment. But the implications are the same whenever nonmarket values are imposed, regardless of whether they are enforced by governmental power, the strike threat or the boycott.

“Minimum wage law,” says Demsetz, “concentrates the criterion for employability on the personal characteristics of workers, a criterion under which the nonpreferred will suffer.”¹⁶ “Wage uniformity at levels above the minimum. . . . works to the disadvantage of even the very productive nonpreferred workers.”¹⁷ “The nonpreferred either will not be hired or they will be hired in lesser jobs in which they are more productive than their preferred counterparts.”¹⁸ Nonpreferred persons are prohibited “from compensating discriminating employers by offering wealth compensation”¹⁹ although “an employer who does not discriminate according to personal characteristics will, ceteris paribus, be the most profitable competitor in the market place.”²⁰

The “equal pay principle,” continues Demsetz, is equally “disadvantageous to those workers who are relatively unproductive,”²¹ and in practice, because there is “a strong positive correlation between persons discriminated against for reasons of personal characteristics and persons who are relatively unproductive,” the adverse effect on the “nonpreferred” of enforced wage-rate uniformity is doubled.

Many “nonpreferred” or “relatively unproductive” persons are in practice to be found distributed irrespective of race or sex groupings. Nevertheless, in the western world the injustices of the standard rate system can be observed to fall most heavily on those who make up two great unprotesting groups, namely, nonwhites and women; and I shall be dealing mainly with the consequences upon these two categories, I say “unprotesting” because although nonwhites, for instance, certainly protest about many real or imaginary grievances, the extraordinary thing about the injustices suffered by the “nonpreferred” is the almost universal innocent acquiescence by their “leaders” in the causes of the injustices.

Gary Becker, an eminent economic theorist, seems to me correctly to describe what the disinterested parties who approve of minimum wage legislation believe the aims to be. For them, the purpose of the “equal pay for equal work” principle is “to prevent various minorities, especially working women, from receiving lower wages than other apparently equally productive workers, that is, the aim is to reduce discrimination against them.” But the actual lobbyists and politicians responsible have recognized quite cynically, I believe, that, as Becker puts it:

The direct effect is quite different, for by preventing disadvantaged groups from offsetting the prejudice against them, the legislation tends to increase rather than decrease the observable discrimination. Legislation is not the only source of a direct restriction on the incomes of minorities. . . . The important point is that, whatever the intent of the legislation, unions, or other institutions, the effect may well be to increase the observable discrimination. . . .”²²

The effect of the standard rate principle, he says, is “directly [to] reduce the cost of discrimination and encourage discrimination.” Controls “placed on the money incomes that can be received by discriminators . . . reduce the cost of discrimination . . . and thus encourage discrimination.”²³

The device of the standard rate must be recognized as the most damnably successful means of unjust discrimination that has ever been invented, largely because it almost universally commands the support of its victims—the more unfortunate members of any group against which the discrimination is exerted. In the United States, for instance, the provisions of the Fair Labor Standards Act of 1938, which declared it illegal in production for interstate trade to discriminate in the terms on which workers are hired (on the basis of color, race, etc.), have acted as viciously effective measures of discrimination—measures through which the more fortunate areas or races have had their privileges very powerfully protected.

There are various more obvious forms of economic injustice which survive or are imposed through law, custom, personal prejudice and collusive action against “nonpreferred” groups. But these, including such blatant exclusions as are effected through explicit color bars and the like, are of relatively little importance anywhere. Enactments like the South African “job reservations” may be said to proclaim the spirit of color exclusiveness; but even in South Africa, protections in that honest form are minor obstacles to racial equality of opportunity when compared with “the rate for the job” (enforced in that country by the unions and by the Industrial Conciliation and Wage acts).

As we have seen, equal remuneration for work of equal value would always be the consequence of any truly free market process. Entrepreneurial incentives to seek out and offer better-paid opportunities to any presently underpaid labor would bring about equality of opportunity and a distribution of earning opportunities in accordance with the distribution of developed and valuable abilities. When we buy a commodity, we do not ask, “What was the color, race, ancestry, social class, religion, language or sex of the person who made it?” We ask, “Is it good value for money?” The free market is colorblind.²⁴ It is tending constantly to bring about “equal pay for equal work” in the special sense that I have explained. If the market fails to achieve this result, and “natural monopsony” is not the explanation, successful resistance to the operation of the market and not its own inherent tendencies will be to blame. It will not then be a free market. (See p. 100.)

Noneconomists are often nonplussed by this argument. They have no answer; yet its implications are irreconcilable with their firm convictions. They feel almost instinctively that there is something basically misleading about it. They often ask this sort of question, “Why do you object to the imposition of the standard rate, as a condition always to be observed on an otherwise free market, when you claim that the free market itself always tends to achieve something resembling this condition?” The question is genuine and pertinent.

What the unions call “equal pay for equal work” is usually not that at all. What they are really insisting upon is equal pay for persons whose contributions to the productive process differ in value. That is why, as I have explained, the standard rate locks out from the bargaining process those workers whose labor is worth less than the rate fixed. The people so excluded are kept in lower-paid kinds of work because they are denied any opportunity of discounting their initial or innate inferiority, or discounting any extra cost of employing them due, perhaps, to threatened unrest among existing staff for reasons of caste or race or sex prejudice, etc. (see below, pp. 182-183).

To illustrate how legally imposed standard rates (a special case) not only maintain less qualified and nonpreferred classes in lower-paid occupations, but sometimes force them into such occupations or into unemployment, we can consider evidence presented by Yale Brozen. Discussing the position which existed immediately subsequently to 1949, when private household work was a principal occupation not covered under the Fair Labor Standards Act, Brozen showed that “in each instance in which the minimum rate rose, the number of persons employed as household workers rose,” although “there was also a rise in the percentage of household workers unemployed in each instance.”²⁵

The standard rate, which may be enforced in the form of a uniform rate for each occupation or for each defined grade within an occupation, resembles a law which forbids the working of any land to produce a certain crop of which the rent is, say, less than $100 per acre. And a statutory minimum wage rate applying to all occupations is similar to a law which prohibits the use of land for any purpose whatsoever unless the rent is at least, say, $25 per acre.²⁶ But why should the less productive land be forced to be treated as though it were completely barren? And why should those persons who are below a certain efficiency (present or permanent) be forced to forego the full remuneration of such efficiency as they do possess? Why should a person who, let us assume, could maximize his income by working in an occupation in which he can produce only four-fifths of the average output per worker, be refused the right to accept four-fifths of the time rate which his faster competitors can command?

Ought we not to encourage the less well-endowed (the relatively inefficient or substandard workers) to seek that independence which is conferred by the right to contribute the maximum to the common pool of output? It is irrelevant to this right whether a worker’s inferiority is due to an illness, an accident, war service, an innate inability to acquire valuable skills, the lack of exceptional muscular power or some fault of character. And ought we not to recognize also the rights of the “nonpreferred” classes, whose presence arouses the resentment of “preferred” workers at having to work side by side with them?

If we are to do so, we must rid ourselves of any illusion about the consequences and, in the majority of cases, the purpose of “the rate for the job.” Most often its whole claimed object, although obscured by tendentious terminology, is to insulate the high grade and more fortunate workers from the competition of the low grade, “nonpreferred” and generally less fortunate workers. It does so by forbidding the latter the right to compete by pricing themselves into the most remunerative employment outlets available to them. I shall have to reiterate this truth in several contexts.

I am pleading here, among other things, firstly, for the rights of the low-grade worker who has to be classified as such by reason of his inborn qualities, even in the occupation in which his productivity is highest; and secondly, for the rights of the worker who must be classified as low-grade solely by reason of lack of opportunity. The incentive to invest in human capital through “on the job training” can often be destroyed if persons who are in a position to benefit from the training cannot be employed at what they are initially worth, while the value of their efforts is being built up. In many undertakings it requires a good deal of time to habituate a recruit, including an adult recruit, for the task he is to perform. And it may take even more time to inculcate in him the skills which are essential.²⁷ During an inevitable transitional or adjustment period, “the rate for the job” can close the door to the most hopeful prospects available to many.

Moreover, as Henry Simons pointed out, “The old-established firms have skimmed off the cream of the labor supply and have trained their workers to a substantial superiority over the inexperienced. If potential competitors must pay the same wages as old firms, the established enterprises will be immune to new competition, just as high grade workers are immune to the competition of poorer grades.”²⁸

In the case of a statutory minimum, as under the U. S. Fair Labor Standards Act, it is juveniles who appear to be immediately and particularly harmed. Statistics presented and explained by Yale Brozen show that the trend in the proportion of teen-age unemployment to general unemployment has risen continuously since 1938, in spite of a growing proportion of juveniles being held off the labor market by prolonged compulsory schooling. Since 1964, teen-age unemployment has remained continuously nearly 3-1/2 times as high as general unemployment. And with juveniles belonging to a “nonpreferred group,” the detriment is multiplied. Thus, the proportion of nonwhite teen-age unemployment to white teen-age unemployment increased from the ratio 1.3 in 1949 to 2.3 in 1968.²⁹ Why did this burden thus fall so heavily and unjustly on nonwhite juveniles? Again to quote Brozen, “without a minimum wage floor, the nonwhite teen-ager could offset this disadvantage by working for less than the white teen-ager.”³⁰ The statutory minimum had shut the door.

All juveniles have been adversely affected, then, by the minimum wage laws, while Negro and other “nonpreferred” juveniles have been harmed differentially. Now as I have already insisted, a minority of workers in all protected wage groups (including both white and nonwhite juveniles) may well have benefited in the short run. But money wage rates of low-paid workers generally had risen (following 1938) with a trend of about 4 percent per annum, so that (in Brozen’s words) the increase “would have come anyway, in most cases, within two to five years.”³¹ Brozen concludes:

If all that happened as a result of the minimum wage statute was a change in the timing of wage-rate increases, there could be little to concern us. However, in the interval between the time that the minimum wage is raised and the time that productivity and inflation catch up with the increase, thousands of people are jobless, many businesses fail which are never revived, people are forced to migrate who would prefer not to, cities find their slums deteriorating and becoming over-populated, teen-agers are barred from obtaining the opportunity to learn skills which would make them more productive, and permanent harm is done to their attitudes and their ambitions. This is a very large price to pay for impatience.³²

If the aim of policy had been not to fix wage rates below which no employment could be legally offered or given, but to raise the free market value of the poorest races or classes toward or above a stipulated target the objective could have been wisely sought via the removal of discernible barriers to equality of opportunity. But of these barriers, wage-rate minima appear to be the most effective and harmful.

The oppressive incidence of nonmarket wage rates upon the poorest classes can be discerned to be even more serious than Brozen’s grave conclusions suggest when the private imposition of standard rates (via strike-threat duress) is taken into the reckoning.

Not only can the standard wage rate, whether the result of legal enactment or the strike threat, have the effect of forcing down the earnings and prospects (possibly affecting adversely thereby the health, efficiency and ambitions) of the least well-endowed or least well-trained, it can harm the workers of whole districts which are less “developed” than others. And in a country as large as the United States, the injustices so wrought are greater than they are in smaller countries. It would be very difficult for the British unions to persuade French, Belgian, or Italian workers to price their labor so as to protect workers in British industries; but it has not been difficult for unions of workers in established industries in the northern areas of the United States to achieve a similar result within their own country. Bolstered by the Fair Labor Standards enactments, labor unions’ pressures have effectively retarded the relatively young industries in the South.

What would be the attitude of the Latin American countries if the United States, lobbied by the AFL-CIO, tried to get the International Labor Organization to sponsor an international convention enacting minimum wage rates to insure that the outputs of those areas could not compete with American products in the world? But the wage-rate standardizations the unions have imposed (directly and through political pressures for the minimum wage) have, within national areas, blocked the path toward the maximization of earnings through the most productive geographical deployment of the labor force and, in particular, workers whose labor happens to be relatively plentiful and naturally cheap in certain districts have been denied the right to price their efforts in their own interests.³³

The unions’ demands are almost invariably for a standard money wage rate; and in practice this means insistence on a higher real wage rate for areas of relatively plentiful labor; for such areas have virtually always relatively low living costs. But it is obviously to the advantage of workers as a whole in areas of plentiful labor supply that their real wage rates shall at least not be higher than those in areas in which labor is scarce. Hence the standard real wage rate is doubly harmful. Refusal to allow for geographical differences in determining the wage rates imposed (on industries which serve interstate markets) can be, indeed, a most effective means of holding back the competition of any initially cheap labor district. Its effectiveness depends upon its power to prevent or slow down the development of the people of a region without arousing their opposition. The unions are very seldom willing, in industry-wide bargaining, to agree to allowances for area differences in living costs. Occasional reluctant exceptions seem to occur only where the secession of locals would otherwise be threatened, or in areas where the standard national money rate would clearly cause too many unpopular lay-offs. Similarly, legally enacted minimum wage rates seldom allow for area differences in the real value of the money unit. The reader should keep this important point in mind as the subsequent argument is developed. When I expose the deleterious consequences of standard real wage rates, the fact that standard money rates are normally imposed means that the social detriment is aggravated.

Even so, a minimum wage-rate adjusted for local living costs which in, say, New York State, merely condemned a relatively small proportion of the less well-qualified to low, but not disastrously low incomes, could cause dire distress in Mississippi, Louisiana, Georgia, or Tennessee, by reason of the numbers affected.³⁴

Let us return to the supposed “unfairness” of the poorer workers toward the better paid, and consider the case of the lowest-paid American industrial workers. After World War II, unskilled labor costs (in real terms) for industrial workers of comparable efficiency in the least affluent areas of the United States seem to have been materially higher than those in any other part of the world apart from the developed areas of Canada. In the light of what criterion, then, could labor costs in the South, as they then were, be held to have been unfairly low in relation to competitors abroad? Practically all foreign unskilled labor would have had to be regarded as even more unfairly cheap in the light of American unskilled labor earnings. Had all costs been equalized over all geographical areas by an “international fair standards convention” (possibly covering “fair profits” also), all interarea trade would have been brought to an end! To what absurdities, then, does this notion of “fairness” in competition lead? (See pp. 180-181.)

In the United States the mitigation of poverty in the South has long required the attraction of wage-multiplying assets to that area. The attractive force needed has been there all the time—a huge mass of labor in the southern regions, priced below its potential earning power. Because the specialized assets and cooperant skills needed for modem industry were initially scarce, unskilled labor was relatively cheap. Hence new corporations could, in the absence of “fair labor standards” restraint, have invested the capital needed and raised earning power in the low-wage districts. They could have offered new employment outlets without closing any other such outlets except through the bidding away of labor by higher wage offers. Moreover, they would have found it profitable to invest in the training of the initially low-paid southern workers for better remunerated, semiskilled or skilled operations, although at the outset, many of the trainees would have been worth relatively little.³⁵ But through the “fair labor standards” policy, the profitableness of business investment to prepare the South for skilled industrial employments was materially weakened,³⁶ and the entry of low-productivity farm labor (often easily replaceable by mechanization when labor cost rises) into much better-paid and more productive work (which would have been available in industry at market-determined labor cost) was slowed down.³⁷

It seems that if the relative incomes of unskilled and semiskilled southern workers are to be more rapidly (if gradually) raised, the South must continue for some time to be a capital-importing region; and because the savings of the South are as yet inadequate to finance the provision of a growing stock of industrial assets, the interest element in yields to investments there will have to be high (a) to attract savings from outside and (b) to retain local savings. Moreover, and quite separate, a material risk premium in prospective yields will be unavoidable. The crucial point here is that areas of high nonlabor costs need low labor costs if the real earning power of their people is to be maximized. And if essential skilled labor, executive ability and “know-how” are initially scarce in an area, and hence expensive (in relation to developed industrial areas), that similarly makes relatively low unskilled wage rates necessary if the progress of the region is to be set going.

Cheap and plentiful unskilled labor, provided it is cooperative and reliable, is, in other words, a source of attraction (a) for capital, (b) for entrepreneurial enterprise, and (c) for complementary skills. If this cheapness is forbidden, a fructifying redeployment of a nation’s productive assets is frustrated; the workers in the less-developed areas are prevented from, so to speak, bidding for the complementary assets and services they can use; and because they are denied the right to contract for a smaller claim on the value of output, the profitability of further investment in wage-multiplying assets there is reduced.

Yet another important consideration is that workers in areas of relatively low free-market wage rates “need” cheap products, in the sense that (as consumers) they are more severely harmed by any contrived scarcity than are the less needy. For example, they “need” cheap local transportation and that is hardly possible if their bus and local truck drivers have to be paid the wage rates which are ruling in developed areas. Similarly, they need cheap retailing. And initially poor people need cheap clothing, cheap footwear, cheap housing, cheap amusements; and these things may be in some measure denied to them if the price of any labor is forced above its natural scarcity value in its own area.

Legislative moves to restrain the progress of less affluent areas may be said to have begun in the United States with the Walsh-Healy Act of 1935, which prevented Government contracts from being awarded to firms which did not pay “a fair wage.” But if those who lobbied for this act had been deliberately and rationally seeking a humane objective, at a recognized collective cost for the community, they would have proposed that tenders submitted by firms which were mitigating inequalities of income by employing labor that was available at lower rates than the average should be given preference. The greater the percentage below the national average a firm’s wage rates were, the greater the preference they should have been conceded. The act was intended, of course, to have exactly the reverse effect. Moreover, it was left to an official to apply arbitrary and meaningless criteria. In practice, all that “unfair” came to mean was harmful to privileged labor. Some blame the Davis-Bacon Act (1931) for having initiated the policy.

The Fair Labor Standards Act has, as we have seen, worked in the same manner. It might be said that just as the major aim of the Wagner Act was to legalize the application of the standard rate on a national basis via industry-wide use of the strike threat, so the aim of the Fair Labor Standards Act, three years later (1938), was the application of a national standard rate (in the form of a minimum wage rate) to all labor employed in producing goods or services entering into interstate trade (agriculture being excluded). The standard rate imposed by strike-threat duress on an industry-wide scale, and minimum wage rates imposed by legal enactment, can be observed to have had similar effects on one another. Both have restrained the coordinative mechanism of the pricing system over space; for if allowed to work, this mechanism allocates assets to where human powers are prospectively capable of being used most productively and profitably developed, while attracting labor from where, through history and policy, it is presently employed relatively unproductively.

Almost universally, the claim has been that the purpose of resort to the standard rate principle through legal enactment is that of raising the material well-being (including the health and efficiency) of those destined to become its victims. But as we have seen, it nearly invariably harms such individuals as suffer from some defect of nature or nurture, or those broad groups of persons against whose employment in certain capacities there is a prejudice; and such less efficient or nonpreferred persons are morally harmed also if some character-destroying handout is resorted to by way of mitigation. Patently sincere humanitarians have been tricked into believing that the minimum wage can rescue the poor from poverty, that it can help them to lift themselves. Yet the absence of more tangible progress in many backward areas or among unprivileged races is due, in my own judgement, chiefly to the standard rate barrier.

As I have already suggested, the less disguisable means to the perpetuation of inequality of opportunity between races (union control of entry, apprenticeship subterfuges, “job reservations” and the like) are relatively unimportant. But the actual initiators of minimum wage legislation—the lobbyists and the politicians responsible—seem always to have inhibited concern about the consequences upon those people who might be disadvantaged. I find it difficult to quarrel with Demsetz’s judgment that laws restraining the free labor market which have been actually designed to affect “nonpreferred” persons (such as Negroes) beneficially “are not generally found in our legal framework and we shall need some imagination to conjure them onto its pages.”³⁸ The beneficiaries—indeed I must reiterate the intended beneficiaries—have almost universally been the workers in high wage-rate, privileged areas.

Insofar as the South has progressed industrially during the last half century, as H. C, Simons warned in 1944, it has been “in spite of the intentions of the northern unions and the Massachusetts Senators.” ³⁹The Fair Labor Standards Act, asserted Simons, “was designed . . . to retard migration of textile production and textile capital into southern states, . . . [It was] legislation which protected . . . northern workers and employers . . . against the South as tariffs and subsidies had earlier protected them against foreigners.”⁴⁰

We must remember that attracting assets to areas like Louisiana and Mississippi would “naturally” be less costly in money and “psychic costs” than moving poor families and their possessions from, say, those areas to Illinois. It is indeed, as John Van Sickle insisted long ago, incomparably more humane. As things are, the poor Negroes of the South have all too often found their best opportunities or prospects not in the southern environment in which they are psychologically and sociologically best adjusted, in contact with their parents, friends, and familiar ways of life, but in distant parts. In these strange areas, they usually earn well and welfare benefits are generous, but they often feel deracinated. Then, the failure to solve the problems created by rising affluence in an unfamiliar environment appears to have created some of the most intractable sociological disturbances of this generation. In spite of a policy of unparalleled enlightment aimed at the achievement of equality of respect and consideration for persons of all races and colors, and the attempted dissemination of goodwill and racial acceptance, the vested interests in disorder have had everything in their favor. It has been easy for troublemakers to exacerbate the stupid yet typically human prejudices and animosities which plague us all, whether we are white or black.

The effect of a competitive market for labor will be gradually to eliminate geographical differences of remuneration. The fewer the restraints on competition, the more rapidly will equality of that kind be established. “Putting a floor under competition” (as an apologist for the standard rate has described it) is simply to deny the lower remunerated areas the right to bring the “net advantageousness” of occupations in different parts into ultimate equality (allowance made for pecuniary and “psychic” costs of movement). For firstly (as we have seen), it prevents those who live in the less well-paid regions from raising their earning power through attracting capital via the offer of free-market determined labor costs, and guaranteeing the future determination of labor costs through the free market; and secondly (although less effectively, I think), it discourages profitable migration from low- to high-wage regions.

But the “labor economists” are teaching that a duress-imposed “floor to competition” can actually bring about this equality. This is, for instance, the position of L. R. Reynolds and Charles P. Taft,⁴¹ who argue that geographical differences of wage rates in the United States are “more a reflection of union weakness than of union intentions.” They admit, it must be stressed, that equalization of money wage rates over area will reduce the differences “by more than is desirable,” because this will mean higher real wage rates in the South than in the North. They admit also that differences in money wage rates may be desirable “in order to encourage location of new industrial investment in the Southern states and small towns.” They are here referring, of course, to the advantages for the workers in underdeveloped areas of offering lower real wage rates to attract capital, although they refrain from pointing out the general principle. Nevertheless, they maintain that “the imposition of a standard wage scale throughout an industry would appear, prima facie, to bring the industry closer to the situation which would prevail under perfect competition.”⁴² “The change produced by unionism is in the direction of competitive norms. . . .”⁴³ These fantastic assertions are backed by the plea: “The less profitable firms cannot, because of their un-profitability, pay less for bank loans, machinery or raw materials. Why should they be permitted to pay less for labor?”⁴⁴ The answer is that their illustration is wholly inapplicable. Interest rates on bank loans are not standardized throughout a large country; the amount and the terms on which a firm can borrow depend on its creditworthiness, while risk premiums will differ; raw material prices do differ from area to area, and attempts to enforce uniform prices for them at all points of sale are subject to the very vice which is alleged against standard wage rates.

The difficulty with most “labor economists” on this issue is their extraordinary inconsistency. For instance, Reynolds and Taft typically admit from time to time that competitive forces tend to bring about the greatest conceivable measure of equality, but they say that “to the extent that trade unionism has accelerated this development” (competition) “its influence has been beneficial.”⁴⁵ They remark also that “high wage companies are . . . likely to favor industry-wide standardization on competitive grounds.”⁴⁶ Such phrases almost suggest irony or equivocation. The union influence has throughout obviously been intended, in almost every way, to restrain the achievement of equality of opportunity and earning power. And their words “on competitive grounds” mean, of course, “as a method of restraining competition”! Only to the extent that the voting power of the lower-income groups (“the unskilled” or “semiskilled”) within industry-wide unions, or in organizations like the AFL-CIO or the TUC, has somehow caused barriers to skill acquisition and utilization to be lowered, has any equalitarian effect (a narrowing of the range of differentials) been brought about through the labor union organization. Yet common sense suggests that any such influence has been of no very great importance. (See pp. 201-202.) And in so far as those organizations have indeed worked to break down restraints on equality of opportunity, it has been through their mitigating the effects of strike-threat action, not through their employing it. It has been suggested that the Swedish Federation of Labor has indeed acted to facilitate mobility upward. If so, the Federation has been carrying out what is more appropriately a function of government.⁴⁷ In general, the whole force of the labor union movement has been used to suppress competitive pressures toward the “leveling up” of the poorer groups with some “leveling down” of the more affluent (that is, privileged) groups. Enforcement of the standard rate has been an almost infallible method of suppressing the necessary competition.

Yet Reynolds and Taft seem to condemn policies which permit enterprises to raise the earnings of the relatively poorly-paid workers. Offering the poorer classes or races wage rates which are higher than they are presently earning, yet less than the privileged rates currently ruling in other undertakings, can, they say, “become a threat to the entire wage and price structure of the industry.”⁴⁸ But must that structure be regarded as sacrosanct? Where the power to uplift the underprivileged by undercutting exists, a threat to the whole exploitative set-up is indeed created. The “threat” may certainly have the effect of forcing competing firms to reduce their prices. But this is adding to the source of demands for all noncompeting output, and raising therefore the aggregate flow of real wages.⁴⁹

“Labor economists” are sometimes masters in the use of language that clouds this disturbing aspect of contemporary reality. With elegant phrases, they befuddle their own minds and those of their readers. For instance, Clark Kerr, who always writes in dignified prose, with academic detachment and seldom an emotive adjective, illustrates the powerful appeal which the standard rate has in union circles by referring to “workers in low wage plants thinking they are worth as much as those in high wage plants and the workers in high wage plants feeling uneasy about unfair competition possibly threatening their jobs.” But instead of going on to expose the preposterousness of the situation in which enforcement of the standard rate denies the lower-paid group the right to increase their earnings by bargaining against the higher-paid group, he remarks: “Considerations of equity for one group and security for the other move hand in hand.”⁵⁰ Let us ask ourselves: Is it not the very “security” of the well-paid group which constitutes the “inequity” from which the poorer group suffers?

Clark Kerr’s comment illustrates admirably the blindness of teamed and influential teachers of labor economics to the reality that, as Arthur A. Shen-field put it recently, “the system is one which is approved by its victims.” Perhaps Clark Kerr intends the passage merely to reflect how typical workers think. But that hardly seems possible; for the reference to “unfair competition” exposes a failure to recognize that while competition can injure the privileged, it can never harm the unprivileged.

Returning now to the case of areas in which the “unprivileged” dominate—the low-wage districts—if policy concerned with helping the workers in such areas were built on explicit recognition of their right to price their inputs according to their natural scarcity value, then the dynamic consequences of the accumulation of industrial assets which would be attracted could be multiplied. (By “dynamic” here is meant that the increase of any one kind of output would contribute to the source of demands expressed in the area for all noncompeting outputs, including “the service industries”). Free-market wage rates would rise automatically.⁵¹

I anticipate here the objection that less-affluent areas like the South have no right to compete “unfairly.” But all that would mean is that the process of selling the output of such areas in competition with the output of more affluent areas is “unfair” if entrepreneurs offer wage rates which make due allowance for other cost disadvantages of their district. And as we have seen, demands for industrial labor in the South could have made their greatest contribution to wage income in that region if labor cost there had fully compensated for the high-cost factors mentioned on page 176. The southern industries are still often infant industries, like many of those in, say, Latin America. They can play their full part in raising the material well-being of the workers they employ only if their labor costs are freed from control in the interest of their competitors. (See p. 175.)

Investors are (as we noticed in Chapters 8 and 9) sometimes said to “take advantage” of the initial cheapness of labor in underdeveloped areas, although in doing so their investments tend to raise the earnings of those to whom they offer additional employment and training opportunities. As I have already insisted, new enterprises set up in such regions shut no doors to any income sources which had previously been available; hence they can hardly be rationally accused of “sweating” or “exploiting” the workers to whom they make wage offers, simply because it is “cheap labor.”

Under the U. S. Constitution all states are guaranteed freedom of trade in the sense that tariff and similar barriers may not be erected between them. But the federal government has not been constitutionally restrained from itself erecting barriers to the free deployment of investment over area, when the barriers take the form of legally enacted minimum wage rates. Nor has the Constitution forbidden the erection of privately imposed barriers of the same kind. Yet enhanced labor costs enforced in the less-affluent areas to enrich politically powerful union members in the more affluent areas are restraints exactly similar in aim and content to import tariffs framed on the principle of the “equalization of costs of production” to insure “fan trade.”⁵² Had the fathers of the Constitution been able to forecast developments in the form of federal wage-rate enactments or the use of industry-wide strike-threat duress in the pricing of labor, they would both have been explicitly prohibited. Because the required prescience did not exist, the provisions of the Fair Labor Standards Act and the Wagner Act have been operating so as to permit a veiled exploitative colonization of the relatively underdeveloped states for the benefit of the developed states.

I have been illustrating the injustices of the standard rate mainly by reference to disadvantaged areas. But that has been merely to highlight the general exploitation phenomenon. Through custom, unquestioned habit, their own social heritage, the color prejudice and the vested interests of the whites, we find that in the United States the Negroes, the Puerto Ricans, the Chinese, the Japanese, the Indians, and Spanish-Americans generally are still, on the whole, restricted to low-paid occupations and hence relatively poor living standards and less favorable environments. Their original inferiority (of status, condition and opportunity) was bequeathed to this generation by history. For over a century this racial relationship had been sociologically stable although not rigid. The urge for minimum wage enactments emerged only as the traditional relationship began to be seriously disturbed by free market forces. As soon as entrepreneurial incentives became powerful enough to threaten the demolition of historically determined inequalities, a “floor to competition” was demanded. That is, as soon as the restraints of custom, habit and prejudice were beginning to be overcome, the unions and the politicians erected standard wage and minimum wage restraints to perpetuate an inherited income structure. The motives of the white Americans were human enough. They saw that technological progress was creating, through the color-blind free market, a motive for and the possibility of investment in the industrial training, and employment in semiskilled or skilled work, of races traditionally confined to agricultural work or “put and carry” jobs. Both artisans and laborers of the privileged race then began to fear that the competition of the nonwhite races would affect their relative economic level, that is, in relation to the underprivileged groups. For reasons which we can all understand, it appeared to be outrageous that time-honored, mutually accepted or acquiesced-in relationships between the races should be changed, and “the rate for the job,” enforced by the strike threat or minimum wage laws, came to be tacitly recognized as a highly effective stratagem for protecting the status quo while nominally conceding equality of civil rights.

One possibility is that the southern Negroes and other unprivileged races simply lacked sufficiently disinterested or sufficiently enlightened leadership to perceive what had been happening. They have certainly often allowed representatives of labor unions from the North to persuade them to organize for the achievement of their own collective retardation, and to acquiesce in laws with the same objective. Of course, some of the southern workers—including some blacks—benefited relatively as the rate of investment in the South was slowed down. But such are the powers of persuasion possessed by the vested interests, and the self-perpetuating nature of inculcated stereotypes, that the injustices are acquiesced in by electors in the areas which particularly suffer, and often even approved of by them (partly because many really do benefit in the short run while others think that their turn is, perhaps, yet to come).

A device which has served to confuse the issue (if not purposely used for that purpose) has been treating color or race discrimination as though it originates from the prejudices of “employers” or managements. Admittedly, white managers as persons may be reasonably held often to share the race attitudes of the white proletariat. But any discrimination against “nonpreferred” races is damaging to the pecuniary interests of managements or the pecuniary interests of the stockholders to whom they are responsible. Thus, a sole proprietor may be said to have the right to be generous to those he favors; for although obvious favoritism on his part might lead to ill-feeling, no one would wish to deny any person an unrestrained discretion in making making gifts. But as soon as a firm has become a corporation, this right ceases. Managements have no right to be generous at their stockholders’ expense (see p. 113). If they discriminate in respect of employees whose efficiency and worth to the undertaking are the same, they are being generous to the individuals favored, and foregoing thereby their ability to maximize pecuniary profits.⁵³ It is a breach of duty if corporation managements refuse to permit the underprivileged to price themselves into higher-paid employments (when society allows this).⁵⁴ As we have seen, because society, in its consumer role, is generally indifferent to the color or race of the labor employed in making a product, but critical about price in relation to alternatives, managements would be unable to afford to respect racial bars if they were not concerned also about adverse staff reactions. Had they no worries about labor troubles, American executives could hardly ignore the prospective yield to investment in human capital through the training of all the disadvantaged races in the qualities essential for efficient semiskilled or unskilled work (regularity, punctuality, responsibility, submission to discipline, etc.), as well as in actual skilled operations. When managements in the United States fail to take advantage of these possibilities in the absence of minimum wage or standard rate obstacles, it will almost certainly be because of their preoccupation with personnel harmony. The dread of upsetting good morale among the whites and arousing fears of the ultimate consequences of racial justice upon white privileges has, admittedly, influenced employment policy. But if the nonwhites (or other unprivileged group) were in a position to discount such disadvantages, even this barrier could be broken through.

Direct discrimination in recruitment (forced on managements through white proletarian prejudice and union policy) is experienced in another form under duress-imposed wage rates because of the rationing problem created. Entrants must be selected according to some different criterion from prospective efficiency when the decision is no longer made through the bidding process of the market. It is not surprising that, in these circumstances (as Alchian and Kessel have put it):

Admission will be easier for people whose cultural and personal characteristics conform to the interests of the existing members. And admission will be especially difficult for those regarded as potential price cutters in hard times or not to be counted on as faithful members with a strong sense of loyalty to the union. Minority groups and those who find they must accept lower wages because of some personal or cultural attribute, even though they are just as productive in a pecuniary sense to the employer, will be more willing to accept lower wages if threatened with the loss of their jobs. But these are the very types who will weaken the unions’ monopoly power. All of this suggests that young people, Negroes, Jews, and other minority or unorthodox groups will be underrepresented in monopolistic unions.⁵⁵

We have noticed that sole proprietors and partners may, if they wish, sacrifice profit in order, so to speak, to purchase the objective of favoring preferred employees. But it is impossible to be certain in most cases whether apparent instances of such discrimination are actual instances. However, certain Chinese sole proprietors or Chinese partnerships in the United States are believed by some deliberately to recruit only from their race or, at any rate, to give their own people preference. And we actually do find evidence which may be so interpreted in the small (allegedly “sweated”) industries in the Chinese quarters of some big cities. Although the Chinese businessmen are typically represented as exploiting their own people, they are more likely, I believe, to be discriminating in their favor. The explanation seems to be that minimum wage laws and the standard rate, combined with the proletarian prejudices of white unionists, have excluded Americans of Chinese ancestry from opportunities elsewhere, creating an “incidental contrived plenitude” (see pp. 93 et seq.) There may indeed have been collusion between Chinese managements and workers to avoid the more oppressive consequences of minimum wage enactments and the labor-pricing policies of the white-dominated unions. But that is a quite separate issue.

Concern for customer disapproval may be a factor, especially in white working-class districts when employees and customers come into contact.⁵⁶ It could be argued that, in these circumstances, the market is simply serving consumer preference, in the sense that it is when airlines discriminate against ugly women in appointing hostesses.⁵⁷ But even members of the KKK are color-blind outside the sphere of personal services; and they seem never to object to being served by Negroes who are acting in what they regard as the Negroes’ traditional role.

Adequately to cover all possibilities, we ought really to make a distinction between prejudice as such and genuine misjudgment, based on lack of knowledge. Judgment about the abilities of underprivileged groups may be distorted by prejudice, but genuine error has not always been a negligible factor. Thus, some managements in the American South may have sincerely believed at one time that the Negro was incapable of anything more difficult than put and carry work. But let us, as economists, see that we are not a prey to equally mistaken judgments. Where managements have underrated Negro (or other nonwhite) potentialities, their mistaken judgment has always been contrary to the pecuniary interests of the shareholders to whom the managements have been responsible. And in the United States the lesson was learned with fantastic speed in the most obvious case, namely, in professional sports where, once the door was opened, color prejudice in recruitment could soon be financially disastrous.

There are some aspects of “fair employment practices” legislation which may work in the opposite direction from the minimum wage—discouraging or eliminating racial discrimination instead of fostering it. As Gary Becker puts it, “through litigation, fines, unfavorable publicity, imprisonment,” and so forth “the cost of not hiring some disadvantaged groups” is increased.⁵⁸ But he does not, I think, bring out the crucial point, namely, that because antidiscriminatory policy pressures in this form are not in fact used effectively against the unions (at least in the United States), managements have to balance the disadvantages of having to appease proletarian cupidity and prejudices—supported by the unions—on the one side, with the disadvantages of not buying labor in the cheapest market plus any penalties which might be imposed on them for appeasing proletarian prejudices on the other side.

The requirement under the Fair Labor Standards legislation that firms shall be “reasonable and just” in hiring does not sufficiently protect managements from the unions. It is certainly possible, however, that the course of U.S. politics may eventually lead to enactments which insist upon some percentage sharing of jobs. This could, at any rate, insure a nonracial sharing of privileges and injustices. Many years ago, I challenged the South African labor unions by suggesting an arbitrary quota system which would have had such an effect. I pointed out that the “Coloureds” (that is, the half-castes) of the Cape industrial area were approximately equal in number to the whites. I reminded the unions that the Coloureds had, half a century previously, supplied most of the skilled labor in the area. But there was then, as they knew, a very small proportion left in well-paid, artisan work.⁵⁹ As the unions typically claimed that the purpose of standard rates (including legally enacted minimum wage rates) and other labor protective laws was to prevent the exploitation of the Coloureds as well as the whites, my challenge was that they should agree to enforce a gradually introduced quota system under which the Coloureds could be assured 5 percent of the better paid employment openings in the first year, 10 percent in the second year, and so on, so that after a couple of decades the privileged occupations (if they were privileged) would be shared equally between the two groups. Naturally the challenge was ignored.⁶⁰

Federal policy in the United States has not yet begun to move clearly and efficiently toward enforcement of civil and human rights for nonwhites in the labor field. If the aim of minimum wage legislation, and government tolerance of strike threat-determined standard rates had honestly been to protect the poorer races from exploitation, any compulsions applied would (as Demsetz has insisted in the case of the United States)⁶¹ have been accompanied by quota provisions. But some effort has had to be made to give a semblance of meaning to election promises, and quiet pressure upon the union executives appears to have been exerted, with a hint of a quota. During Lyndon Johnson’s presidency, hesitant administrative pressures in the quota direction appear to have been exercised. This occurred, I understand, with secret assurances to the AFL-CIO that only token disturbance of the status quo would be required. Under Nixon’s presidency, rather more tangible token concessions appear (as this is written) to have been asked for. It seems that white labor unionists are now being advised that their unions are expected to make small concessions toward the equality of opportunity which the standard rate has prevented, in order to avoid larger concessions later. Veiled references to a Federal takeover of recruitment and apprenticeship, the withholding of federal funds in construction projects in which an insufficient proportion of Negroes is employed, and suits by the Department of Justice against certain locals, on the grounds of race discrimination—these moves (under both the Johnson and the Nixon administrations) have been compelling officials of national unions to veer toward abandoning the traditional excuse that they cannot interfere with the autonomy of their locals. Executives of the parent bodies seem to be shifting therefore from a tongue-in-cheek acceptance of or lip service to the principle of equality of rights, toward recommending some sort of sharing of their privileges—hopefully with just a few from the minority races. If this trend develops, the eventual outcome is likely to be a quota type of arrangement, reserving ultimately (through successive concessions) jobs for, say, Negroes more or less according to the proportion of Negroes in a district. Even the president of the almost wholly white Plumbers Union, told the executives of his locals, in March 1968, that although “we” (the officials of the parent union) “carried the fight about as far as we could,” it was now essential for the locals to stop “pussyfooting” and allow blacks in. “You cannot legitimately blame the whole affirmative action on us,” he said.

The result of a trend toward racial quotas, if carried to the point at which monopolistically valuable wage outlets come to be shared in proportion to racial numbers, will merely substitute social injustice for racial injustice. Apart from continuing unfairness toward those excluded from the bargaining process by the standard rate, the quota system would necessarily discriminate against the more efficient or valuable in one or other group, on grounds of race alone.

We are forced to the conclusion that the racial injustices due to the standard rate can be mitigated through resort to the quota system only at the cost of creating less conspicuous social injustices. Nevertheless, the substitution of social injustices for racial injustices does not aggravate the evil and may help in drawing attention to it. For that reason the “libertarian” may, perhaps, welcome the quota device.

In 1937, Dr. Abdurahman, the most influential leader the “Coloureds” of South Africa ever had,⁶² surprised everybody by asserting, in a reservation to the Report of the Cape Coloured Commission, that “. . . until equality of opportunity in the matter of education and technical education has been established, and until a greater measure of equality of consideration has been won, minimum wage legislation will generally work as an effective barrier to the advancement of the Cape colored people.”⁶³ Had there been any suspicion that Dr. Abdurahman would have spoken so unequivocally about this reality, I do not think he would ever have been appointed to the Commission. As things were, his reservation was ignored, and it has been completely forgotten by the “Coloureds” for whose advancement he was pleading in vain. There are as yet few signs that a leader of equal enlightenment is about to arise among the Negroes and the other underprivileged races of the United States.

I have so far illustrated my argument by reference to nonpreferred groups where color, race or ancestry are the origin of prejudice. But women nearly everywhere fall into the nonpreferred category for many employments. Psychosociological considerations complicate the issue rather differently but, I judge, even more powerfully where women’s employment is concerned. Some of the resulting complexities are recognized by writers who seem to think that restraints on the free pricing of their services can rectify the injustices. But in the light of what principles could wage-rate fixing by private coercive power or legal enactment assist? There are so many obstacles to equality of opportunity for women and so many reasons why, in a wide variety of tasks, women are less suitable than men, and so many special costs of employing them in such tasks, that justice for women often demands their right to accept less than their male competitors. Is not the basic problem simply: How can one effectively secure them that basic human right?

Now one would expect that in the lower paid kinds of work, for example, “put and carry work,” women’s general physical disadvantage in respect of muscular strength would be greatest, and that in work demanding skills, their physical disadvantages would be least or nonexistent, for example, in typesetting. In fact, however, it seems that the higher the average hourly wage rates, the greater the discount women must offer or accept (in relation to men’s remuneration) in order to compete on equal terms.⁶⁴ This may be accounted for of course by quality differences, for example, the normal inability of women to attend work with the same regularity as men, a factor which is, presumably, more important in the higher-paid types of work.⁶⁵ But on the whole one would have expected the discount needed to have declined as the development of mechanization in industry has reduced the importance of muscular power, and as the decline in male prejudice has reduced the costs of employing women. Moreover, in some cases, for example, as tellers in banks, pretty girls in their teens and twenties are probably more valuable than men; and their employment as tellers seems indeed to have been forced through interbank competition. But in industrial operations, because the proportion of women employed in the kinds of skilled work of which they are capable tends to be very small in most countries of the world, it is hardly possible to doubt that the inability of women to offer their services at lower wage rates has served as the most effective means of discrimination against them.

Studies of divergencies of earnings between men and women in the same or comparable work are very difficult to interpret; for while a tendency for the range of differences to narrow has undoubtedly been to the advantage of women when it has been due to the gradual success of entrepreneurs seeking least cost labor, it has had the opposite effect when the narrowing has been due to legal enactment or when it has been due to strike-threat pressures. It is then almost always evidence of discrimination against women. Admittedly, the small minority of women who do manage to be allowed skilled employment, without bearing the discount which can mitigate inequality of opportunity, are obvious beneficiaries; and once in, they are often the strongest defenders of the system and likely to claim the source of their privilege as the achievement of equality between the sexes.

In stressing here the manner in which the standard rate can be used to trample on the prospects of advancement for the low-grade or “nonpreferred” worker, I am incidentally drawing attention to the rights of every individual who tries to smash through privilege-protecting walls. And here I must refer again to my argument in Chapter 4. Among the nonpreferred, we must include nonstrikers—those persons who believe that their future is likely to be harmed if a strike in which they refuse to participate is successful, or who oppose the method on moral grounds. We must include strikebreakers also. Their great opportunity may happen to occur through a strike. Accepting the employment which the strikers abandon often gives would-be interlopers their solitary chance of getting round the standard rate barrier from which they have suffered in the past.

If this argument at first sounds outrageous, let us look at the issue in this way. Can we even begin to approach the necessary conditions for social justice until every person’s right to improve his condition (without exploitation or theft on his part) is unconditionally and unequivocally guaranteed? If our answer is that such a right should be guaranteed, it means that we must recognize and explicitly protect the rights of the “scab.” For the “scab” is no moral leper just because we have allowed a loathsome name to be pinned on him. We ought indeed to attach to the use of the word “scab” all the opprobrium that is rightly attributed to the word “nigger.” The strikebreaker is simply saying, “That job, at the wage rate and prospects it offers, is for me better than any alternative society is offering. This strike creates my opportunity and my hope. I wish to accept the offer,” For him, it is indeed the chance to slip past the most unscalable wall to equality of opportunity that society has ever allowed to be erected.

But (as I contended earlier, pp. 51-54) largely through the degradation of democratic representation, public opinion has come to applaud those who seek their individual betterment through the repression of their competing fellow men, and to condemn and despise persons who seek their betterment, without exploitation, at the expense of the privileged. In other words, people have been indoctrinated into an admiration of the striker and a contempt for the “scab” or “black-leg.” To such an extent is this the position in the United States that the would-be nonstriker or strikebreaker, engaged in perfectly legal (and for the enlightened, praiseworthy) action, can today seldom expect effective protection from the police or district attorneys. And in place of laws expressly designed to protect the underprivileged, there are laws designed to protect the privileged. In some states and towns the employment of strikebreakers has been made unlawful.

It is essential to repeat that under free market determination of wage rates, equality of “net advantageousness” for work of different types tends to be established. The forces which exert this tendency are not instantaneous but powerful. “Equal pay for equal work” within each labor market sheltered only by the costs of spatial mobility is the early consequence of true market freedom. Enforced uniformity of wage rates, instead of promoting the achievement of this ideal, frustrates it, and is often deliberately used to frustrate it; whereas market freedom itself determines minimum real wage rates in respect of every area for every set of workers the value of whose product does not fall below the minimum so determined. In the case of any type of labor, this minimum will be the highest that is compatible with the availability of the most favorable employment opportunities for them, given the nonavailability of better employment opportunities. By this I mean that a market-imposed minimum may well reflect an “incidental contrived plenitude.” But that could never be through some defect in the free market which determines it or some defect in other free markets.⁶⁶ The cause in such cases is to be found in restraints on freedom in other labor markets. The reader is reminded of our conclusion in Chapter 7 that if wage rates in an occupation are “too low” in any meaningful sense, it is because persons in that occupation have been shut out from more productive and better remunerated employments, and often from training for such employments.

Empirical evidence of free-market enforced minima is not lacking in spite of so great a part of the economic system being dominated by wage rates influenced by the strike threat. In districts in which no statutory minimum wage rates (or union standard rates) apply to any occupation, a very effective market-imposed minimum wage rate is usually observable, for example, for domestic servants in many parts of the world. Both Pepys and Defoe (in the seventeenth and eighteenth centuries respectively) commented on the phenomenon in this occupation.⁶⁷ No household can acquire the services of persons seeking employment at less than the local market rate (and the more than normally competent can command a premium). The knowledge of market conditions among unorganized domestic servants can, indeed, create an illusory appearance of oligopoly (tacit monopoly) among them. Even in the case of girl juveniles, there seems to be a known market-determined minimum. George Shultz quotes this typical assertion: “The girls talk a lot among themselves about salaries and when jobs in firms paying lower salaries are offered, they refuse them.”⁶⁸ Moreover, summarizing the effects of “the upward pressure” on wage rates for girls taking up clerical work, Shultz draws attention to the fact that “some firms followed a policy of raising their rates in anticipation of this competitive struggle. Firms with lagging rates of pay felt the pressure most strongly.”⁶⁹

Market-enforced minima are incomparably kinder to minorities who, by reason of some physical, mental or moral defect, or by reason of such things as inability to serve for regular or conventional hours, are less productive than the majorities. The free market takes better care of these unfortunates than any form of social security in the way of handouts. In preserving their right to earn, which exemption from the standard rate maintains, it preserves their pride, their independence, their sense of social usefulness and their awareness of purpose in life. The question of the supplementation of their earnings by handouts is a separate issue, and must not be allowed to cloud thought about the ideal pricing of their labor.

Among the injustices which are unavoidable when the standard rate is enforced over an industry or area is discrimination against the smaller firms. In the free market, relatively small enterprises tend to be burdened—not unfairly—with higher than average labor costs per unit of output, although by reason of the different type of labor they usually require, the average earnings per head of workers employed in the small undertakings will be typically rather less than in big concerns. When the standard rate is forced on them, however, it means that these costs are raised more than proportionately to the costs of their larger competitors.

Moreover, (a quite different case) it sometimes happens that investment in the smaller enterprises occurs because the standard rate proves to be enforceable on the larger undertakings only. The small firms, if not under strike-threat coercion, can mitigate the situation and provide an extremely important form of social security. They can offer a source of earned income for the outcasts of the collective bargaining process—the excluded or displaced labor from the larger firms. But they can only provide this form of social security when each increment of the labor they employ costs less than the prospective marginal value of its output. Hence the minimum wage can exclude the disadvantaged class by denying them—temporarily or permanently—the right to an earned income, possibly offering them instead unemployment compensation or relief handouts.

Since the beginnings of the industrial revolution, the process I have called “economizing-displacement” (of labor and assets) has been causing the real price of labor to be rising (just as, since the 1930s, inflation has been causing the money price of labor to be rising in addition). Looking at the course of this experience in the United States since 1938, the increasingly rare market-set minima seem to have risen more continuously and steadily than duress-imposed or statutory minima. Market-set wage rates have risen at least as rapidly as far as trend is concerned, when allowance is made for any tendency of the growing strike-threat influence to aggravate the process through which underprivileged groups have been confined to occupations of relatively low productivity and earning power. The enforcement of nonmarket rates has had the effect of maintaining an inegalitarian wages structure. Yet the available statistics suggest that wage rates generally have risen in proportion to statutory minima during the period since 1938.⁷⁰ Nonmarket minima tend, it seems, to rise in jumps, and what I have termed “market-set minima” move evenly.

A point of major importance must now be stressed. The harm wrought by the standard rate, whether enforced through the strike threat or legal enactment, is not to be perceived mainly in the lay-off of workers, still less in the actual unemployment of labor, although I do not minimize in any way the sociologically harmful consequences of unemployment when it does occur. The main social detriment is borne through distortions in the composition of the stock of assets and in the specialization of labor for kinds of work which make a lower contribution to productivity and have in consequence a lower earning power. The standard rate is continually causing the relatively poor employed persons to be poorer and the relatively affluent to be more affluent. Of course, on occasion, actual displacements of labor caused through the forcing up of “the rate for the job” (or its maintenance despite an adverse change in consumer preference or other demand transfers) are responsible for obvious and avoidable distress, because the adjustment period is both prolonged and characterized by many unemployed. But abnormal unemployment of labor is a minor economic burden, although, because it is a visible phenomenon, it is politically important.⁷¹

Reformers who wish to see the erosion of time-strengthened bulwarks against equality of economic rights among different races, castes, classes, individuals and areas must face realistically the general principle. Neither legislative restrictions of the free market nor use of the strike threat can offer effective protection for the minorities to whom equality of opportunity has been denied; whereas legislation to foster the free market could be effective if it were tried.⁷²

NOTES

¹ Nationwide standard rates are found, for instance, in the United States in such industries as coal, pottery, hosiery, and certain types of glass and glassware. They have been imposed either through industrial unions, covering the nation, or through the use of the “whipsaw” or “strike in detail” (see p. 47) with the objectives set by acceptance of a common standard.

² See Sidney and Beatrice Webb, Industrial Democracy (London; Longmans Green and Co., 1920), Chapter V.

³ H. Demsetz, “Minorities in the Market Place,” North Carolina Law Review, 1964-1965, p. 276.

⁴ Joan Robinson, “A Fundamental Objection to Laissez Faire,” Economic Journal (1935).

⁵ W. H, Hutt, Economic Journal, March 1936, pp. 61-62.

⁶ Ibid., pp. 78-79.

⁷ This is because collusive monopsony can be directly tackled. See the following paragraph.

⁸ It is not “true discrimination” if persons of different ability or differing costs of employment do not receive the same remuneration.

⁹ That is, almost every firm is in a position to increase its earnings in the short run (raising its prices or—much less likely—forcing down its costs) by reliance on this small degree of “natural” monopoly or monopsony. But it may be able to do this only at the expense of adverse reactions (losses or perhaps disaster) later on. See pp. 117-118.

¹⁰ This may be because of prejudice (color, race, sex, creed) against working side by side with them on the part of the general body of workers (a prejudice which raises the cost of their employment), or it may be because their initial qualifications for the work are inferior.

¹¹ The reader is reminded that the word “displaced” refers to workers laid-off. The word “exclude” refers to workers denied entry.

¹² When a formerly existing standard rate is further raised by duress, the earnings or prospects of those who had been earning more than the new standard rate must tend to fall for similar reasons.

¹³ That is, the net effect will not be egalitarian. Some redistribution at the expense of workers who would have avoided displacement at higher wage-rates under the free market may occur.

¹⁴ A fall in demand for the services of all labor in an occupation implies a downward shift in the demand schedule. A fall in demand for the services of a grade subject to the minimum implies a movement along a curve representing a demand schedule for that grade of labor.

¹⁵ See H. A. Turner, “Inflation and Wage Differentials in Great Britain,” in J. T. Dunlop, ed., The Theory of Wage Determination (London: Macmillan, Ltd., 1957), p. 129.

¹⁶ Demsetz, op. cit. p. 276. The “nonpreferred can be plain women or physically deformed persons as well as Jews or Negroes.” (Ibid., p. 278).

¹⁷ For example, through “equal pay for equal work” laws or “laws which confer a high degree of monopoly power on unions” (Ibid., p. 276).

¹⁸ Ibid., p. 277.

¹⁹ Ibid., pp. 277-78.

²⁰ Ibid., p. 278.

²¹ Ibid., p. 279.

²² Gary S. Becker, “Comment,” Aspects of Labor Economics: A Conference of the Universities—National Bureau Committee for Economic Research, A Report of the National Bureau of Economic Research (Princeton: Princeton University Press, 1962), pp. 178-179.

²³ Ibid., p. 179. Becker points out that, theoretically, even income tax could have this effect.

²⁴ See W. H. Hutt, Economics of the Colour Bar: A Study of the Economic Origins and Consequences of Racial Segregation in Africa (London: Andre Deutsch, Ltd., 1964), p. 173, et seq.

²⁵ Yale Brozen, Journal of Law and Economics, October 1962, p. 103. This example refers, of course, to what I have called “displacement.” But as I have shown, “exclusion” (under my definitions—see p. 97, note 4) is an even more serious cause of “incidental contrived labor plenitude,” and of the avoidable low earning power of the workers affected.

²⁶ This excellent illustration is from Henry Simons.

²⁷ When former farm workers are being introduced to industrial work, for instance, work attitudes are often particularly important. Factory employments require not only the acquisition of skills but of habits of regularity, responsibility and discipline that are largely alien to those whose background has been work on the land, or whose home environment has been that of humble agricultural laborers.

²⁸ H. C. Simons, Economic Policy for a Free Society (Chicago: University of Chicago Press, 1948), p. 140.

²⁹ The ratio was 2.4 in 1967, but the figures are not strictly comparable. See Yale Brozen, “The Effect of Minimum Wage Increase on Teen-Age Unemployment,” Journal of Law and Economics, October 1969, p. 118.

³⁰ Ibid., p. 119.

³¹ Ibid., p. 121.

³² Ibid., p. 122.

³³ Labor may be comparatively plentiful in certain districts by reason of such things as local differences in living costs; or the availability locally of subsidiary, “moonlighting” employments; or race attitudes which, allied to the standard rate, restrain the effective availability of competing employments in those parts; or an exceptional rate of growth in population of working age.

³⁴ On the general question of wage-rates imposed to cover wide areas, see John Van Sickle, “Geographical Aspects of a Minimum Wage,” Harvard Business Review (1946, No. 3), especially pp. 277, 280-81; and M. R. Colberg, “Minimum Wage Effects on Florida’s Economic Development,” Journal of Law and Economics, October 1960.

Of course, in the United States, in those cases where the minimum applies only to employment in the manufacture of products which enter into interstate trade (that is, where similar minima are not imposed by the state legislatures), the relative poverty perpetuated or created will be less serious.

³⁵ See pp. 172-173.

³⁶ A partially countervailing factor is that some of the states in the South have availed themselves of their rights under 14 (b) of the Taft-Hartley Act and adopted “right to work laws” (see Chapter 18).

³⁷ There were of course other obstacles to the rapid progress of the South. The low initial per capita income meant a lack of lucrative markets for its industrial products except at high freight costs; and land in the South is, on the whole, very much less fertile than land in the North. John Van Sickle refers in this connection to a Department of Agriculture survey which shows that “there was more first-grade land in the single state of Iowa than in the II southern states.” See his “The Wage Problem in the South,” Georgia Review (1947), p. 496.

³⁸ Demsetz, op. cit., p. 284,

³⁹ Simons, op. cit., p. 135.

⁴⁰ Ibid., p. 136. Since 1938, the minimum set, beginning at 25 cents per hour, has been continuously raised (as technological progress has raised the real value of labor and inflation its money value) in order to preserve the protective effect of the minima; and a minimum of $1.60 has been reached as this is written.

⁴¹ L. G. Reynolds and C. Taft, “Union Influence on Wage Differentials,” in E. Wight Bakke, Clark Kerr and Charles W. Anrod, op. cit., pp. 596-599.

⁴²Ibid., p. 598.

⁴³ Ibid., p. 598.

⁴⁴ Ibid., p. 598. They seem to have conceded, in the passage quted above, that the standard money wage-rate is a means of forcing certain firms in certain districts to pay more than those in other districts.

⁴⁵ Ibid., p. 599.

⁴⁶ Ibid., p. 596.

⁴⁷ That is, the releasing of competitive forces—the intended purpose of antitrust.

⁴⁸ Reynolds and Taft, op. cit., p. 596.

⁴⁹ It does so by reducing any current exploitation (a) of consumers, (b) of previously excluded workers, and (c) of workers who have previously suffered from an insufficiency of complementary assets (tools, machinery, factories, etc.) because high standard wage rates have been reducing prospective yields to investment in such assets.

⁵⁰ Clark Kerr, “Wage Relationships. . . .,” in, Dunlop, op. cit., p. 183.

⁵¹ A similar effect will follow if a plentiful and cheap labor supply in an area can leave to undercut in high wage areas (that is, where the stock of assets is more plentiful). This reaction (which I judge to be less common) will also cause a leveling-up in the one district and a leveling-down in the other.

⁵² See Henry Simons’ comments, quoted p. 177.

⁵³ The assumption here is of course that the circumstances discussed on pp. 163-166 do not apply.

⁵⁴ Most often, however, racial prejudice is least powerful among the better-educated classes, which include the managers. Today, most business executives can see how preposterous discrimination on the basis of skin-pigmentation or cultural inheritance is.

⁵⁵ Armen A. Alchian and Reuben A. Kessel, “Competition, Monopoly, and the Pursuit of Pecuniary Gain,” Aspects of Labor Economics, pp. 173-4.

⁵⁶ The question here is more complex than some readers are likely at first to perceive. About 30 years ago, I tried to persuade a big retailer in South Africa to employ “Coloured” (half-caste) shop assistants in shops serving mainly the “Coloured” people. He said that previous attempts in that direction had failed because—strange though it might seem—the “Coloureds” greatly preferred to be served by whites. A “Coloured” cooperative retail society which I encouraged and of which I was a member failed, I think, largely for that very reason. (See my Economics of the Colour Bar, pp. 23-27.)

⁵⁷ Some economists describe such preferences as “noneconomic,” but they have exactly the same economic status as all other preferences,

⁵⁸ Becker, op. cit., p. 179.

⁵⁹ A coalition formed in 1924 between a rather extreme radical or socialist party and a nationalistic party representing mainly Afrikaans-speaking whites had applied a Wage Act, an Industrial Conciliation Act, an Apprenticeship Act and other legislation to perpetuate rather than to secure this situation.

⁶⁰ Actually, my challenge in South Africa was made in the form of a quota proposal purely for polemical purposes. I thought it would be an effective way of exposing how unjustly the standard rate (and indeed the whole system of wage-rate determination) was working. On other grounds, we must recognize how the quota system could itself be used for discrimination against a race with good traditions whose people had been more successful than those of another race by reason of the virtues of their traditions. For instance, a quota restricting the number of Jewish medical practitioners according to the proportion of Jews to total population in the United States would be grossly discriminatory.

⁶¹ Demsetz, op. cit., p. 284.

⁶² On Abdurahman’s death the largest funeral procession (on foot, as is Moslem tradition) ever experienced in his country formed spontaneously. It included Christian “Coloureds” as well as Moslems. (“Coloureds” means “half-castes” in South Africa.)

⁶³ U. G. 54, 1937.

⁶⁴ At the lower end of the wage scale, minimum wage enactments may prevent women from offering the relatively small discount which would maximize their earnings (and their contribution to output) in the low productivity operations.

⁶⁵ The probability of the relatively able younger women marrying and then withdrawing is also a factor because it reduces the profitableness of investing in the development of their skills.

⁶⁶ The phrase, “free market” (which is an explicit assumption in this paragraph), implies of course the absence of the monopsonistic exploitation discussed in Chapter 8.

⁶⁷ See W. H. Hutt, The Theory of Collective Bargaining (Glencoe, Ill.: Free Press, 1954), p. 33.

⁶⁸ George P. Schultz, “A Nonunion Market for White Collar Labor,” Aspects of Labor Economics, p. 140.

⁶⁹ Ibid., p. 142.

⁷⁰ One difficulty about such statistical comparisons is that a rise in union-enforced wage rates in an industry might cause wage rates in competing nonunion firms to rise. Relevant statistics in respect of statutory and market minima have been recently set out and cogently explained by Brozen, op. cit., pp. 110-113.

⁷¹ Unemployment of labor is politically important because its magnitude tends to be roughly correlated (inversely) with fluctuations in real income (fluctuations in “prosperity”). But the phenomenon with which I have here been concerned has reference to the magnitude of income, not the fluctuations to which that magnitude is subject.

⁷² For a rigorous general treatment of this issue, see Demsetz, op. cit., passim.