Basic Economics X

Chapter 10: Controlled Labour Market

[Please note: Thomas Sowell is informed by libertarian principles: this is a precis of “Basic Economics”]

Job Security: France, Germany and India all have job security laws make it difficult and costly for a private employer to fire anyone. Countries with such laws typically do not have lower unemployment rates, but instead have higher unemployment rates, thancountries without widespread job protection laws. Firing is so difficult that some companies don’t even bother hiring. The constant quest for newer and better ways of getting work done and more goods produced – makes it impossible to keep on having the same workers doing the same jobs in the same way. Agriculture is an excellent example where there was no job security. In that business, millionms of farmers realized that their profession was not profitable and moved to industry. More than 17 million workers throughout the American economy lost their jobs between 1990 and 1995. But there were never 17 million Americans unemployed during this period. Job security policies save the jobs of existing workers, but at the cost of reducing the flexibility and efficiency of the economy as a whole, thereby inhibiting production of the wealth needed for the creation of new jobs for other workers. Ironically, when France tried to deal with its high yout unemployment rate of 23% by easing its stringent hob security laws for people on their first job, students at the Sorbonne and other French universities rioted in Paris and other cities across the country in 2006.

Minimum Wage: Governments confer the benefits of minimum wage solely on the workers, but even these people can be harmed. The real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum-wage, because they lose their jobs or fail to find jobs when they enter the labour force. Making it illegal to pay less than a given amount is an artifical imposition on the economic system.

Unemployment: there is a correlation between unemployment and minimum wage laws, according to Sowell. Canadian minimum-wages cause a higher unemployment rate than America’s lower minimum-wage rates. Newfoundland had an employment rate of 16.7%. Countries have allowed the real minimum wages not change despite inflation to avoid the political risks of trying to repeal these laws. Labour unions benefits from minimum-wage laws even if they always get paid more thatn miniwage because their experienced labourers compete against unskilled miniwagers for employment. Employers aren’t going to want to hire an inexperienced worker at $10 per hour. The higher the minimum wage goes, the more the unskilled and inexperience workers are likely to be displace by more experienced and higher skilled unionized workers. Unions protect their workers using minimum-wage but pretend to be have a social consciousness. The poorest people have been the ones who have most often lost jobs. 85% of Canadian and 90% of American economists believe that is the case. When governments decree higher pay, there are unfortunate side-effects.

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