Freeing the Labor Market from its Distortions
Labor, like all other actors in a market, will produce a shortage or a surplus in the face of price controls. It is naïve to see how price controls on goods and services create artificial shortages and surpluses, and to think that labor would not be affected in the same way.
Small companies are most negatively affected by minimum wage, given their more limited resources to hire. In a simple thought experiment, a minimum wage that’s higher than the value that a worker is able to contribute, would result in very few companies able or willing to hire people. Some of the most extreme real-world examples were in American Samoa and Puerto Rico, which are under the jurisdiction of U.S. minimum wage laws despite significantly lower productivity levels. The results in labor market were catastrophic, and these U.S. territories faced mass layoffs, while protests ensued to be exempt from these wage laws. Automation has already been hastened by low skilled labor being under-priced by relatively cheaper capital. The solution is to subsidize labor (through the National Income Supplement program), to grant citizens a share in the national wealth, and to minimize the costs of essential goods; not to price workers out of the market.With wages being bolstered with the National Income Supplement and the other pillars of income security, along with incentives to maintain executive pay ratios, unions must be freed to focus on other goals. While unions can form to ensure fair practices in the workplace, their influence on wages and corporate restructuring must be limited, to ensure competitiveness and that a free labor market is maintained. Unionization of government employees however, must be prohibited completely, to ensure there are no obstacles to democratic process, and that bureaucracy does not get in the way of the public’s demands.
Labor disputes must instead be dealt with through the CED in parliament (discussed below).Burdensome regulations are another distortionary culprit for high rates of unemployment. Countries with inflexible regulations on hiring and firing are saddled with large numbers of unemployed. When it is difficult and expensive to hire employees, companies are hesitant to hire them in the first place. The same issue occurs with mandatory non-salary costs of employment. In addition, this lack of flexibility prevents workers from flowing out of dying industries, to where the labor market truly requires them. These costs must be minimized to promote employment, and labor regulations must instead focus on health and safety, working hours, and enforcement of labor contracts. Employees’ financial security should instead be shouldered by the Three Pillars system of income support. Lessons can be learned from Denmark, which introduced its Flexicurity program in the 1990s, overhauling its labor market by maximizing flexibility, while protecting the unemployed and providing retraining; a program, which swiftly reduced long-term unemployment and advanced the Danish economy.