It is naught, it is naught, saith the buyer: but when he is gone his way, then he boasteth (Proverbs 20:14).
Once again, Hazlitt returned to the issue of government price fixing. In Chapters 13, 15, and 16, this price fixing was in the form of price floors. It is in this chapter, too.
A minimum wage law is a government-mandated price floor on labor services. It does not apply to machines, It does not apply to computer programs. So, to the extent that a machine or a computer program can perform labor services at a cost per hour lower than the minimum wage, to that extent the law is unenforceable.
Another set of owners possess the ability to deliver labor services. These people are eligible to rent out these services.
A third set of owners will decide at some point whether to purchase goods and services that have been produced by a combination of business capital and labor services. They will determine retroactively which sellers prosper and which do not.
They key fact of ownership is personal responsibility. God holds owners responsible, because He is the original owner. These individuals are His stewards.
In this system, people who hire workers seek to locate people who rent out these services at some price. Economic exchange always depends on an agreed-upon price. Buyers compete against buyers. Sellers compete against sellers. Only in the final stage of the hiring process does face-to-face bargaining take place: would-be employer vs. would-be employee. The prospective employer does not know how little money the prospective employee will accept, and the prospective employee does not know how much money the prospective employer will pay. In this zone of ignorance, there may be negotiating. But probably not. Time is not a free resource. Employers usually make this offer: “Take it or leave it. I am too busy to negotiate.”
The employer acts as an economic agent of future customers. He will give them an opportunity to buy the output of his production process. The employer also acts as an economic agent of his employees. In order to earn money, employees must sell their services to customers. The employees do not know how to market their services directly to customers, but the employer believes that he does. So confident is the employer that he is willing to pay money to the employees to perform certain tasks, irrespective of the near-term decisions of customers. The business pays these employees until the lack of customers makes it evident to the employer that he has misjudged customer demand. Only then will he fire some or all of his employees.
The wage is a signal to other workers and other employers regarding the prevailing conditions of supply and demand. If this wage is a market-clearing wage, there will be no rival workers offering to work for a lower wage for the same job, and there will be no rival employers offering to pay more.
In the year that the first federal minimum wage law was passed, 1938, union members who lived in the North faced competition from manufacturers located in the South, where wages were lower. They preferred not to face this competition. Northern manufacturers were happy to support a minimum wage that was lower than what they paid, but which was higher than what manufacturers in the South paid.
(For the rest of the chapter, click the link.)