Thursday, June 2, 2016

George Reisman on Harmful Effect of Minimum-Wage Laws

"It should already be clear that minimum-wage laws cause unemployment. It should also be clear that the extent to which they do so depends on the extent of union activity in the economic system. The more the unions close off employment opportunities, the greater is the number of workers forced to seek employment else- where, and thus the greater is the downward pressure on wage rates elsewhere. Thus, the greater is the number who will be unemployed as the result of a minimum-wage law, which, in effect, closes the gates in the occupations still free from the imposition of union wage-scales against the workers streaming in from the branches of production subject to union wage-scales."

"An important implication of these facts is that the problem of low wages, which a minimum-wage law is intended to remedy, would be far less serious in the absence of the ability of labor unions to impose their artificially high pay-scales. If the power of the unions to impose such pay-scales ceased to exist, wages in the portion of the economic system that presently manages to remain free of union pay-scales would be higher, because fewer workers would need to seek employment in these industries, since they would be able to be em- ployed in what are now the industries subject to union pay-scales."

(Source: Capitalism by George Reisman; Chapter: The Productivity Theory of Wages)

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