President Biden offered a simple, and simplistic, solution to the labor shortage problem at a press conference a few months back when he rather creepily whispered “pay them more”.
Now, that response to the complicated issue of businesses having a difficult time finding people to work for them seems straight out of the kindergarten school of economics, but it’s not entirely off course. Kevin Williamson wrote a piece in National Review recently entitled just that — “pay them more” — wherein he makes a very capable free-market argument.
We find here the assertion coming from two competing camps: on the one hand is the common leftist theme that a “job” is not the property of the employer. This hearkens back to the old corporatist theory, popular among turn-of-the-last-century thinkers including G.K. Chesterton, that when you work at a job, it becomes your property, after a fashion, untouchable by the prevailing dictums of economics.
This notion has served as a spawning ground for plenty of bad economic ideas over the last hundred years. It ties in neatly with the “hate the rich” trope (which has also spawned all sorts of bad economic ideas) and makes “pay them more” seem like such a self-evident solution, as it dismisses out of hand the myriad of factors and considerations that make up economic calculation.
On the other hand, is the argument made by Williamson, based not in utopic central planning fantasy, but, paradoxically, on the hard and immutable laws of economics. He points out that, in fact, paying more is the free-market answer to a labor shortage. Prices (wages, lest we forget, are prices) are set by the strictures of supply and demand — if supply is low and demand high, the price will go up. If there are more jobs than workers who are willing to take them, then wages ought to go up. Adam Smith would approve.
Except for one thing: the missing element is that the principles of free markets assume an absence of political interference.
What is it that is preventing employers from simply raising their wages to draw employees? Well, many of them are, of course. But we still have a labor shortage, so why aren’t those economic laws kicking in and driving wages up even higher?
It’s easy to sneer at a business owner who resists paying exorbitant wages and say that is simply the price of doing business, and if they cannot afford to stay in business they ought not to be. But what other costs are being levied on that business that are, in a sense, artificial? The litany of government-imposed taxes, fees, and mandates on business are already enormous, and growing every year. How much more could a small business owner pay his workers if he or she were offered some relief from the fees that Congress and the state legislature impose on them every year, without which business owners would have the financial flexibility to adjust wages as needed to satisfy their demand for labor?
Of course, a business owner could opt to simply raise prices to account for an increase in labor costs, but that is self-limiting; how much of a price increase will customers bear before deciding they can do without whatever good or service the business is offering? Not to mention that this would be occurring at a time when other inflationary pressures are bearing down, inflation which will nullify the increase in wages.
The discussion is also incomplete without dissecting the causes of the labor shortage. Analysis will be years in the making, but clearly points the vicissitudes of the pandemic and the governmental response to it — overly generous federal largesse and extended unemployment benefits likely making a considerable number of young people question the value of work, a surge in early retirements, more parents (generally mothers) opting to stay home to look after children who, in some places, are still barred from going to school; some of this is a natural response to a pandemic, but much more of it is government created.
Williamson is correct that conservatives ought not be so quick to dismiss the principles of free market economics where they concern wages and labor. But we find a collision between the beneficent workings of the free market and the malignant workings of the interventionists who get in the market’s way. Businesses will pay their workers more if the impartial scales of the free-market demand it. If only government would allow them to.
Kelly Sloan is a political and public affairs consultant and a recovering journalist based in Denver.