Let Labor Markets Trade Freely

You could have a steam train
If you'd just lay down your tracks
You could have an aeroplane flying
If you bring your blue sky back
--Peter Gabriel

Patrick Barron suggests that one of the most effective things that could be done to improve urban wastelands like Detroit is to take a sledgehammer to regulations that restrict the free trade of labor. We have stated it many times on these pages. Intervention in labor markets, such as minimum wage laws, amounts to compulsory unemployment.

This has particularly negative effects on marginal, unskilled wage earners. By law, they are unable to offer their labor to employers below the legal limit. Employers hire fewer workers, and are prone to look for lower cost environments in which to operate. Perversely, as labor markets are choked off, more and more workers face the marginal situation.

Channeling Mises, Barron dispels the urban legend of 'labor gluts. Unless we face limited supplies of other factors of production, it is the supply of labor that limits economic expansion. As the pool of available labor increases, people are prone to specialize more. More specialization generally increases productivity, meaning that more goods are produced per hour of labor. This increases overall wealth and general standard of living.

Because individuals have insatiable desires to constantly improve their standard of living, there can never be too many goods. On the contrary, there is always more work to be done than there are people to do it. Therefore, in markets that trade freely, there is no unwilling unemployment.

Regulation suffocates the labor market, and forces willing workers to the sidelines.

A worthy first step in getting cities like Detroit back on their feet is to allow buyers and sellers of labor to trade with no restraint.