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Let’s use an innocuous example today. I teach several large economics classes at the U of R, all of which require lots of help from a dedicated bunch of undergraduate TAs. The problem is that there is a “minimum wage” that I must pay all of my TAs. That wage is zero (more detail on that perhaps in a future e-mail). Wouldn’t a zero wage seem like a good thing for me? Well, yes and no. Yes because I don’t have to pay anyone with money (I need to pay them in other ways I suppose). No because at a wage of zero I still have “too many” people who wish to be TAs.

In a normal market setting the price of being a TA would adjust until the number of positions I wanted to fill were equal to the number of people who were willing and able to work at that wage. It turns out that teaching classes, working with students and even grading provides a reasonably good work experience and something to put on the resume, so it seems like it would be something that people might “pay” for. Given that I am not allowed to accept money in exchange for hiring a TA I must use other things to determine who gets the position.

We should probably be glad that TA spots are not bought and sold, because in this case I use attributes to hire TAs that seem to be generally desired by my students and I imagine by my University. I try to select the most patient students, the brightest students, the students most motivated to work with others and of course those with the best command of the material. So in this case the sort of discrimination that results from attenuating my rights as an “employer” of TAs does not seem to lead to harm.

But change the situation to where I am a “real” employer trying to hire workers and where living or prevailing wage laws exist (such as here) and suddenly we introduce the possibility of some “ugly” outcomes. If the market clearing wage for my workers would be $15 per hour, but for whatever reason I am not allowed to pay any worker less than $25 per hour, then I am going to find an abundance of people eager to work for me, despite the fact that I club seals. But if I am prevented from catering to my desire for larger profits, and workers are prevented from bidding their offers down, then rationing of the scarce jobs will take place on characteristics other than the price. Suddenly I can now indulge my preference to hire people who like hockey and not baseball. Suddenly I can now indulge my preference to hire people who are as Lilipution as I am. Why? Because if I refuse to hire tall people or refuse to hire baseball fans, there will still be plenty of people eager to work for me. It is essentially cheaper for me to discriminate when my rights are attenuated and markets are restricted. How ethical is that?

Attenuating my rights to hire people for less than a mandated wage also has two related “barbaric” impacts. Since tall people and baseball fans are going to be discriminated out of the market I am hiring in, the wages they will receive in non-discriminating sectors will be lower than they otherwise would be. Of course, this is good for those business owners, so socially this is a wash, but it certainly is a change in the distribution of gains from where they otherwise would be. Second, and more serious, is that attenuating my rights as a business owner raises the costs of transacting with potential workers. Using non-price methods to hire workers must use more resources than if I merely had to rely on the price signal.

I’ll emphasize in closing that there is little moral character in the act of hiring someone or working from someone. I don’t want to push on that idea too hard. But there IS moral character that is inculcated by allowing markets and property rights their fullest realization insofar as it is less costly in the long run for those in the market to behave in ways that seem morally appropriate. Indeed, business owners with a reputation for moral dealing are likely to do well if that translates into better workers, happier customers and lower prices.

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