Employment Laws and the Price of Labor

People protesting for high unemployment.Many people in America believe that wages of employees are as low as they are merely because of “corporate greed” and that companies want to take advantage of their employees. However, most people that think rationally and for themselves don’t believe this. If the leaders of America would let free markets work, companies and corporations would have to offer competitive pay for their workers to beat out competition. Government regulations and minimum wage laws are the reason why unemployment is so high in America, these problems don’t occur because people on Wall Street are greedy.

The first and most important fact to remember is that a wage is simply a price paid for labor. Employers pay a price for labor much like consumers pay a price for a product in the store. Think of employees, or people searching for a job, as products sold in stores in a competitive market and think of employers as consumers trying to buy products.

The problem occurs when the government tries to set a price for labor that usually isn’t worth what companies are required to pay. The labor of the employee many times isn’t even close to the actual value of the labor they are paying for. (Hypothetical situation) Making employers pay $10 for someone worth $5 is much like making people pay $5 for an apple only worth $2. First of all, no matter what the employee is still worth $5. Just because companies are required to pay $10 doesn’t make people worth more, it only makes the company eat the cost of the wealth that they lose when they hire that person. Secondly, think of all the jobs that business people could create with the extra $5 dollars. They could either employ one person for 10 dollars or two people for 5 dollars (the actual amount they are worth). One job compared to two might seem irrelevant in this example but think of these results magnified across the whole economy.

As an employee looking for work, one needs to make themselves as appealing as they can much like a company will try to make their product appealing. Going to college and receiving a useful degree, being healthy, or being in an apprenticeship are all ways to increase human capital, or the amount someone is willing to pay for a persons labor. These are no different than Apple adding a retina display, Siri, or a better camera to their iPhone. When a worker increases their self worth, it will cause their value of work to go up and in turn, their wages will go up (assuming America is in an economically prosperous time).

Notice: When the price is set above the equilibrium price, the jobs supplied far exceed the number of jobs demanded.To see how this the minimum wage effects employment it is best to take this argument back to the basics of economics: supply and demand. Instead of looking at the supply and demand of goods and services, we can look at jobs being supplied verses the jobs being demanded. Where these two curves meet is what is called the equilibrium price or the market price. When the wage of a worker is required to be above the equilibrium price, which is what minimum wage laws do, an excess supply of jobs is created. The demand for jobs is much less than the supply, causing unemployment. This is part of the reason there is so much unemployment in the United States. There isn’t enough demand for the jobs supplied at the price of the minimum wage.

Think about what would happen if we didn’t have a minimum wage. Many of the jobs that are now too expensive to pay someone to do would star appearing. There might be service gas pumps again or movie theater waiters, both of which younger children could do for a very low amount of money. Most of the child labor laws, which were signed into law during the industrial revolution to help “protect” children, are now harming student’s efforts to save for what they want to buy such as a car or in many cases, save for college. I have met a plethora of 14 and 15 year olds that would absolutely love to have a job but can’t because of the child labor laws in effect. Developing a work ethic when your young is a great thing and if we got rid of child labor laws and the minimum wage, teenagers, children, and later Americans might grow up with a sense of self pride and responsibility.

To recap, minimum wage laws and child labor laws have the exact opposite effect on the citizens they try to protect. Minimum wage laws produce an excess supply of jobs by pricing labor above the equilibrium price and therefore causing unemployment. Child labor laws restrict the abilities of those willing to work at a young age. Many young teenagers can’t work even if they want to and many older teenagers have their hours per week restricted even though they want to save for college and buy other things. These big government proposals are destroying the American work force and have adverse effects of what they want to achieve.