The standard libertarian response to this, which has some merit, is that the workers are free to find a better job. After all, if Ajax Pharmaceuticals is paying $0.25 an hour, and Omega Chemicals is paying $30 an hour, which company is going to end up with the skilled employees? Ajax can’t protect its workforce, and all Omega needs to do is outcompete Ajax on the salary front. Indeed, if Omega comes in and offers $0.50 an hour, they’ll get all the employees for themselves–that is, they’ll get them until Zeta Inc. comes along and offers $1.00 an hour, and then Ajax counters with $2.00 an hour, and so on and so forth until the fair market value of the labor is reached. Workers can move around, you see, and shop for the best wages.
Except, of course, they can’t. For four reasons.
First, starting up a new company is difficult and requires tremendous capital. When Omega Chemical moves into town and starts their factory, the head of Ajax will (if she’s smart) immediately give employees a raise to, let’s say, $35.00 an hour, thereby robbing Omega of the chance of siphoning off any employees. Ajax, as an established large company, can afford to run at a loss for awhile; Omega, as a small new business, is already running at a loss and can’t afford to compete in a nonsensical price war. Ajax, in other words,can “dump” salaries in order to drive competitors out of business, and then can reduce salaries back to poverty levels once the competitors are gone.
Second, company towns are quite possible. Let’s say that, in an impoverished area, Ajax exists and is paying $0.25 an hour. Omega moves in and offers $2.00 an hour to all workers who sign a 10-year contract; early breaking of the contract requires employees to pay back 50% of their wages. Most workers will jump at the chance to make quadruple their pay, even though $2.00 an hour is still a crappy wage; for the next ten years, Zeta isn’t going to be able to break the market. This is a situation similar to the strip-mall developer above.
Third, there’s the pool of unemployed, employable workers, which hovers around 5% in recent years but has been significantly higher in the past. These folks are always in the sidelines and are looking for work; the lowest tier of workers must compete with them for jobs. Their existence guarantees that wages will go to the minimum level that allows workers to physically survive, absent the presence of an enforced minimum wage.
Fourth, and most importantly, capital is more mobile than workers are. If Lisa lives in a tiny town in which there are crappy jobs, she can of course move to the big city and get a good job. This is just like how Xenotech Inc. can move from the big city with huge labor costs to the small town with low labor costs, right? Wrong: whereas Xenotech can make the move decision based purely on the bottom line, Lisa has got to think about her ailing grandmother, about the home that’s been in the family for three generations, about her love of the land. She’s got to think about whether, with her miniscule bit of capital, she’s going to be able to make the transition to the big city successfully. Yes, workers do this all the time, but the majority of workers don’t: the majority of workers have too many social ties that prevent them from matching the mobility that employers can show.
The truth is, there IS no invisible hand. The market is one force in the world, and it does a lot of good; but there are other forces that act on people’s lives, and they’re equally important. If we leave such matters entirely up to the marketplace, we deny essential aspects of folks’ wellbeing.
Libertarianism, by focusing too heavily on the magic of the marketplace, fails as a reasonable and ethical social arrangement.
I’ll close with an apology: before, when I said that I found most libertarians to be either selfish or naive, that was uncalled for, and I apologize.
Daniel
