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From: mck@ratex.UUCP (Daniel Kian Mc Kiernan)
Newsgroups: net.politics
Subject: Wage Rates: Unions, Minimum Wage Laws, and Employer Oligopoly
Message-ID: <811@ratex.UUCP>
Date: Tue, 29-Jan-85 22:28:52 EST
Article-I.D.: ratex.811
Posted: Tue Jan 29 22:28:52 1985
Date-Received: Thu, 31-Jan-85 02:31:27 EST
Distribution: net
Organization: Terran Mystery Poodles
Lines: 41


     In a Free Economy, wage-rates are established by the Law of Supply and
Demand.  At each possible wage-rate, employers will have a corresponding
demand for labour, such that the amount of labour demanded will generally
decrease as the price of labour increases; this is because
employers will hire employees as long as it pays to, and it will pay to so
long as the price of labour does not exceed the MVP (marginal value product)
of the worker.  At each possible wage-rate, workers will offer a corresponding
amount of labour; empirical evidence and common-sense indicate that the
amount of labour supplied will generally increase with the wage-rate, altho
theoretically there are other possiblities (which I am willing to discuss).
If the wage-rate starts out higher than that corresponding to the rate at
which supply equals demand, there will be more workers seeking jobs, and
fewer employers seeking workers; the surplus workers will bid down the wage
rate until supply equals demand.  If the wage-rate is lower than that at
which supply equals demand, there will be more jobs being offered, and
fewer workers seeking jobs; employers will bid up the wage rate until
supply equals demand.
     Unions and Minimum Wage Laws coercively prevent surplus workers from
bidding down the wage rate (assuming, of course, that the wage-floor set is
below the equilibrium wage rate).  Wages are high, but there are associated
costs.  Employers continue the practice of hiring until wages equal MVP,
but at this higher wage rate, this means that they hire fewer workers, thus
there are workers who would have had jobs at the lower wage rate but are
now unemployed.  Additionally, workers who would not have been attracted by
the equilibrium wage rate are attracted by the higher wage rate; this adds
to the unemployed (assuming that we define 'unemployed' as seeking but not
having a job).  It should be seen that the higher wage-rates attained by
unions and Minimum Wage laws are not evidence of market-power on the part
of employers, any more than the higher-price of dairy products attained by
price supports is evidence of market-power on the part of consumers.
     If the work-week is reduced, without corresponding reductions in
weekly pay, this will amount to an increase in the wage-rate; in the long-
run, this will mean increased unemployment.  Even if weekly pay is
proportionally decreased (such that the wage-rate is kept constant),
economies of scale will be lost (at a given wage rate, it's generally
cheaper to hire 10000 workers for 40 hours per week than 400000 workers for
1 hour per week), and further unemployment will obtain.

                                        Everybody clear?
                                        Daniel Kian Mc Kiernan