Maximum-Wage Legislation
12th May 2017
Don Boudreaux, a Real Economist, looks at wages.
Why is it that purported market imperfections are almost always the sort that allegedly justify government intervention against the perceived interests of employers or sellers? If markets are imperfect, those imperfections should not be overwhelmingly biased against employees or consumers. Sometimes – often, indeed – the imperfections should work in favor of employees and consumers.
Consider, for example, allegations of asymmetric information or other ‘imperfections’ that are said to create monopsony power in labor market. These ‘imperfections’ are used by some economists to justify minimum-wage legislation, on the grounds that these ‘imperfections’ cause market-determined wages to be too low (that is, below the value of workers’ marginal products).
But if market imperfections exist with such regularity and certainty to justify government intervention, why are these imperfections presumed always to work against workers? Why don’t imperfections often lead to wages that are too high (that is, above the value of workers’ marginal products)? I can think of no reasons why market imperfections are always or even usually biased against workers rather than in workers’ favor – especially today when unemployed workers are entitled to government handouts while most bankrupted employers (say, the restaurants that went belly-up because they paid their waiters and dishwashers too much) get no government relief. And why presume that employers of low-skilled workers can monitor with sufficient clarity the performance of workers to ensure that workers are not shirking so chronically that employers are not overpaying their workers? Perhaps – because of ‘asymmetric information’ – many employers can’t monitor workers so clearly. Or perhaps employers are more poorly informed than are workers about pay and employment conditions elsewhere, thereby giving workers a bargaining advantage over employers.