This is the speech I gave recently to the Liberal National State Council on the labour market.
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Ladies & Gentlemen,
The labour market is a particularly important issue facing our society at the present time. It affects many different areas of our society, including the unemployment rate, workplace conditions, people’s income and job satisfaction.
In particular, I’d like to discuss the ups and downs of different approaches to the labour market and what I think is the optimal approach.
The labour unions have long advocated a highly regulated approach to the labour market. They strive to enshrine workplace conditions, salaries and the content of workplace contracts in law.
One area in particular that unions actively try to enshrine in law is salaries. The unions have long tried to regulate incomes in the form of minimum award wages. This approach is fundamentally misguided. Legislated minimum conditions achieve only one thing – to make it illegal for people to work. If someone has a productive capacity of $6 an hour and the minimum award wage is $5 and hour, that person will have no difficulty getting a job. If we now increase the minimum award wage to $8 an hour, that person is not going to get a salary increase to $8 an hour – they’ll be out of work. And all other labour market regulations have a similar outcome. They price people out of jobs, undermine their ability to negotiate the terms of their workplace contracts, and make the labour market extremely inefficient and uncompetitive.
I advocate a different approach altogether. There should be only one workplace law, and that is to enforce contract. The contents of a contract ought to be something that is freely negotiated between the employee and the employer. But once that contract is signed it needs to be respected – by both parties. And enforcing this contract should be the role of government.
The unions are very critical of this approach. They argue that people deserve better conditions than what they agreed to in their contracts and they resort to extortion tactics to achieve these better terms of contract. They engage in strike action, immoral political lobbying, rallies and sometimes even violence to achieve this objective.
The unions also argue that they are there to represent workers. Let there be no mistake, unions do not represent workers – they represent paying members. They represent people who pay a significant amount of money to be represented by these organizations. As a result, people who choose not to join a union are left at a competitive disadvantage. Even worse, people without jobs are at a huge competitive disadvantage because not only do they not receive any union representation, but they are priced out of the market by artificially high minimum award wages.
Essentially what unions do is to artificially pump up salaries and conditions that are not commensurate with productivity gains. This has exactly one effect, and that is to create inflation. When people earn more, without a corresponding increase in productivity, people have more money to buy goods with, but the amount of goods to buy hasn’t changed. So money loses its value, which is inflationary and results in higher interest rates. And when interest rates increase, people are paying more on their mortgages, more on their car loans, more on their credit card debt, and so any gains made by increasing their salaries is completely wiped out by the higher interest rates. This is completely counterproductive.
There is no better person to decide the terms of their contract than the prospective employee. Employees don’t need to have their terms, conditions, and salary dictated by either unions or the government. In a free society, people should be at liberty to negotiate these things for themselves.
You are tackling unionist activism in general, which I think is fair enough. But to me there`s a serious problem to your view of minimum wages. Quote:
“Employees don’t need to have their terms, conditions, and salary dictated by either unions or the government. In a free society, people should be at liberty to negotiate these things for themselves.”
They should be, but they`re not! The fundamental problem with minimum wages is not about a raise from 6$ to 8$ per hour. The fundamental problem is certain branches paying 4,3,2$ per hour on full-time jobs or less. Wages that people can`t live off. Try negotiating that and you`re out, precisely because there`s someone else desperate enough to accept. If competitive situations are systematically taken advantage of like this, we`re talking about exploitation.
I don`t necessarily advocate minimum wages. The pros and cons are complex. But even in highly industrialized countries poverty remains an issue that must be included when discussing minimum wages. The poor have no power whatsoever to engage in contract negotiations of the free society you are talking about. While I see no way to change this, discarding unions certain won’t help improving this situation.
i appreciate your thought processes, but I counter with the following – i advocate a welfare system which ensures that everyone *can* live off what they earn. in this context the argument that people can’t live off $2/hr is not as relevant. in that situation, if people are offered 20 cents an hour, they can simply refuse to take the job without fear of being exploited or left starving on the streets. so having a sufficient welfare system is critical to my argument – without welfare you’re arguments are valid.
actually, on that note, if i’m not mistaken germany is an example of a country without a minimum award wage. but, because they have a sufficient welfare system there is little exploitation. am I correct that germany doesn’t have a minimum wage?
It doesn’t. And there’s a heated debate about minimum wage in single branches. In this particular scenario a sufficient welfare system is no guarantee to prevent exploitation. Actually, I think it doesn’t here. First, the German welfare system is indeed sufficient, in that you can somehow live off it. It’s nothing more. It’s certainly not convenient, and I think rightfully so. People should be motivated to get employed, so that they can earn more money and improve on their standards of living. But since you referred to Germany, here’s the rub: Out of unemployment quite a number of Germans can only apply for jobs so poorly paid that they end up with about as much or rather as little income as welfare provided them with without working at all! (Which is not welfare’s fault, but that of dubious working conditions.) This is a serious motivational, social problem, and one closely tied to missing minimum wage. Again, living off German welfare is not desirable to anyone with plans for their lives! It’s dull and depressing. Without a properly paid job alternative, your perspective is a loss-loss situation. But yes, this scenario does not apply to many academics and highly qualified personnel. Anyway, low profile jobs are THE vital part of society, aren’t they?
Still, I know that minimum wage leads to macroeconomic disadvantages. It’s messy, indeed.
Footnote: I am mistaken. Actually, there already are branches with minimum wage in Germany, e.g. roofing, facility cleaning etc. Today, minimum wage has been introduced to 500.000 people working in care for the elderly. Wages ranging from 8 to 11 € per hour.