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The labor market fixes wage rates at the height at which all those intent upon hiring workers can hire as many as they want and all those anxious to find a job can find one. If wage rates, either by government decree or by union pressure and compulsion, are raised above this height, there are two alternatives. Either prices are raised concomitantly, so both demand and sales drop, production must be curtailed and a part of the previously employed workers must be discharged. Or prices remain unchanged, although the cost of production is increased, so that firms that are producing under the least favorable conditions and, therefore, with the highest costs will suffer losses and be forced to go out of business or at least to restrict the quantity of their production. Again workers will have to be discharged. Thus, whatever is done to impose wage rates higher than those the free unhampered market would have determined results in unemployment of a part of the potential labor force.
If a union succeeds in forcing the employers to pay higher wage rates than those they were prepared to pay under the prevailing state of market conditions, this is not a victory for "labor," i.e., for all those who are anxious to earn wages. It is a boon only for those workers who will be employed at the new rates. It is a calamity for all those whom it condemns to lasting unemployment.
The effect of raising wage rates above the potential market rates, i.e., unemployment for some, is not denied by any economist. Even Lord Keynes did not question it. He realized very well that there is no other means to fight unemployment than to adjust wage rates to the height consonant with the state of the unhampered market. The characteristic mark of the Keynesian approach to the problem of unemployment is that, for practical and tactical reasons, he suggested bringing about this adjustment by inflation and its inevitable consequence, a rise in commodity prices. He thought that "a movement by employers to revise money-wage bargains downward will be much more strongly resisted than a gradual and automatic lowering of real wages as a result of rising prices."[1] As everybody knows today it is impossible to delude the unions and their members in this way. People are nowadays index conscious.
The outstanding fact is that it is impossible to raise wage rates by coercive measures, be it a direct government minimum wage decree, or labor union violence or threat of such violence, without bringing about lasting unemployment of a part of those looking for jobs. The exceptional powers the governments granted to the unions do not benefit all those anxious to earn wages, but only a part of them. The others are victimized. Experience with labor union policies and governmental minimum wage rates has confirmed what economic theory teaches: There is no other method of improving the well-being of the whole class of wage earners than by accelerating saving and the accumulation of new capital.
If a union succeeds in forcing the employers to pay higher wage rates than those they were prepared to pay under the prevailing state of market conditions, this is not a victory for "labor," i.e., for all those who are anxious to earn wages. It is a boon only for those workers who will be employed at the new rates. It is a calamity for all those whom it condemns to lasting unemployment.
The effect of raising wage rates above the potential market rates, i.e., unemployment for some, is not denied by any economist. Even Lord Keynes did not question it. He realized very well that there is no other means to fight unemployment than to adjust wage rates to the height consonant with the state of the unhampered market. The characteristic mark of the Keynesian approach to the problem of unemployment is that, for practical and tactical reasons, he suggested bringing about this adjustment by inflation and its inevitable consequence, a rise in commodity prices. He thought that "a movement by employers to revise money-wage bargains downward will be much more strongly resisted than a gradual and automatic lowering of real wages as a result of rising prices."[1] As everybody knows today it is impossible to delude the unions and their members in this way. People are nowadays index conscious.
The outstanding fact is that it is impossible to raise wage rates by coercive measures, be it a direct government minimum wage decree, or labor union violence or threat of such violence, without bringing about lasting unemployment of a part of those looking for jobs. The exceptional powers the governments granted to the unions do not benefit all those anxious to earn wages, but only a part of them. The others are victimized. Experience with labor union policies and governmental minimum wage rates has confirmed what economic theory teaches: There is no other method of improving the well-being of the whole class of wage earners than by accelerating saving and the accumulation of new capital.
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