Imagining a Free Labor Market



A free, open labor market is especially needed in times of economic turmoil. The high unemployment of the 2008-10 recession was caused by two factors. One was the financial meltdown, which made less money available for loans to businesses and consumers. The other was the related collapse of the over-heated housing market, which left a huge surplus of houses on the market and thousands of construction workers without jobs. When those unemployed construction workers stopped spending, the reduction in demand resulted in layoffs in all kinds of other industries. That is why the best use of government “stimulus” spending would have been public construction projects.


But getting those construction workers back to work would also be helped by a free labor market. With all those workers available, any employer who could use their skills could have hired them for considerably less than he was paying current employees, allowing him to reduce prices, increase sales and expand his workforce.  Yes, current employees would see their wages reduced, but there would be more jobs. A job at a reduced wage is a lot better than no job at all.


The problem is, our culture can’t accept wage reductions. We’d much rather lay people off than reduce wages. In Michigan, there is more outrage over UAW retirees’ loss of dental insurance than the fact that 684,000 people are without jobs. And instead of an across the board reduction in state employee wages, we force them to take furlough days to achieve the same savings.


A free labor market as I imagine it will be a drastic change from what we are used to, but it will nearly eliminate unemployment and raise our standard of living. With no mandatory collective bargaining and no minimum wage, employers will be free to pay as little as they wish. They will not, however, be permitted to pay different rates for the same job, and current laws prohibiting discrimination in hiring, etc. will remain in effect. Although unions will have no statutory power, employers will not be allowed to interfere with workers' right to form a union or to discuss their wages and benefits. We might even require employers to post current salaries for all jobs - or maybe even make that information available to the public, like on a website.


Employers will not only be permitted to pay as little as they want, but they will also be free to decrease wages at will. One of the main functions of the personnel department will be to set and reset wage rates. In a competitive industry, attracting and keeping good employees is crucial to survival, as is keeping labor costs to a minimum. Personnel specialists must become adept at setting wage rates for various jobs at levels no higher than necessary to attract and keep qualified workers. Of course, there are other factors besides wages that workers look for in picking an employer, such as how well they are treated, so the smart employer will make the workplace as pleasant as possible in the hope that he can keep employees even when he is paying less than competitors.


At the same time, fringe benefits will not be offered (see Ending Fringe Benefits).


When an employer thinks he can find workers who will accept a wage lower than he is currently paying, he sees an opportunity to reduce labor costs, decrease prices and increase sales. But he must be careful: if he reduces the wage rate, he might lose some employees. He can't let that happen, because with increased sales, he'll need more employees, not less. The successful personnel specialist is the one who can find that optimum wage rate.


I envision employers posting wage rates for various jobs, constantly fishing for qualified people at a bargain wage. If they can find people willing to work at a lower rate, the wage of all workers currently doing that job goes down to match the new rate. If they need more workers and can attract them only by offering more than they are currently paying, all current workers get a raise to the new rate.


You occasionally hear about employers - usually government employers - attempting to determine the market wage by surveying other employers who employ people in comparable jobs. I wonder how accurate those surveys are:

  • Employers don't readily give out information on how they compensate their employees. I speak as someone who has been fired twice for revealing my salary to co-workers. And to be completely accurate, the value of any fringe benefits must be considered. That figure might not be too be easy to come up with, even for the cooperative employer.

  • It is difficult to equate jobs at different employers. The job titles might be the same, but the actual duties could be a lot different.

  • There are considerations other than compensation for why someone takes a job, such how they are treated, the location of the workplace, and other working conditions.

Unions warn that if employers are allowed to pay as little as they want, there will be a "race to the bottom" and everyone will end being paid minimum wage. That won't happen in a system where no labor group, business or government entity is allowed to restrain or restrict anyone from doing business or selling their labor. Production and income are essentially the same, so regardless of wage rates, total income will be at its highest when everyone is working. We have a pretty good example of a free labor market now: 92.8% of private industry workers are non-union (2009). You would expect them all to be getting paid the minimum wage. However, average hourly earnings (including benefits) of non-union workers in private industry is $26.39 (see National Compensation Survey, page 92).


Unions are Killing Michigan
The Wagner Act
What Economists Think
Why the Market Wage is Better
The Illogic of Collective Bargaining
Market Wage vs. Fair Wage
Imagining a Free Labor Market
Rights and Freedom
Destruction of the Middle Class
Employee Free Choice Act (EFCA)
Job Security
Collective Bargaining and Unemployment
Social Costs of Collective Bargaining
Ending Fringe Benefits
Democrats and Unions
Collective Bargaining in Government