Wage regulation
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Wage regulation refers to attempts by a government to regulate wages paid to citizens.
Like all policy objectives wage regulation is open to attack. An economic analysis of the law holds very simply that any intervention in a contract between two parties creates an inefficient market. Wages kept artificially high, by imposing administrative or monetary costs on employers distorts the market equilibrium. For a national economy in a globalised world, that means jobs will go overseas and the unemployment rate rises. If the aim of wage regulation is to improve the living standards of society, this is a self defeating practice.[citation needed]
However even neo-classical economists can recognise it is not acceptable to have citizens not able to fulfil their basic needs. They are willing to concede defeat on short term morals, but hold that long term economic growth achieved benefits more people a greater amount. Yet they cannot answer why inequality continues to grow between people (without claiming the poorest are getting stupider and the richest, smarter). Furthermore orthodox theory fails miserably to make a distinction between a market for people and a market for, say, cabbages. A leading orthodox economist, Richard Posner says, “Economics is not a theory about consciousness. Behaviour is rational when it conforms to the model of rational choice, whatever the state of mind of the chooser.” (Economic Analysis of Law 5th Edition 1998, pg. 4)
However, people are not cabbages and labour is not a commodity in one important, not only moralistic, respect. The price of cabbages is determined by external forces and anyone but the cabbage itself. The price of labour is determined both by external forces and the person itself, if that person has skills, which he knows are in high demand. So for those in control, those whose skills are demanded highly and who have an incessant economic incentive to lower ‘labour cost,’ consciousness is unavoidable. So a minimum wage can simply prevent abuse and says to employers, ‘if you cannot pay at least this pittance, you should not be in business anyway.’ Facts do not refute this, since jobs have increased, not decreased since 1998 in the United Kingdom.
That private parties should regulate their own affairs without state intervention remains a strong moral argument. By the late 1970s union membership covered over 80% of the labour force and played a major element in bargaining for fairer wages within companies. However the only power to do so was through breaking one’s promise in the contract of employment, by strike. Now that membership stands at around 25% of the labour force (most of that in the public sector, tied to the purse strings of taxation) it is fair to say that the vast majority of workers have no control whatsoever over the terms and conditions of their contracts.
