Denial about the fact that labour laws cause unemployment

There is widespread denial about the fact that labour laws cause unemployment because they increase the cost, risk and difficulty of employing people. There are no “free lunches”. All benefits have costs, and the cost of making things better for people with jobs through protectionist labour laws is that things are worse for people without jobs. Mandated “living” wages and “decent” jobs for some subject others to zero wages and destitution; one person’s minimum wage is another’s zero wage. The choice for less-preferred workers is not between high pay and low pay, but high pay and no pay.

There is no need to “create” jobs; jobs exist to the extent that there are unsatisfied human desires. All policy-makers have to do is discontinue measures that separate the people with jobs from people wanting jobs.

Labour is no “special case”. It is subject, like everything else traded, to the “price mechanism”, whereby people buy less of what costs more. The only way to have full employment and high wages (with splendid working conditions) simultaneously is to have pro-market policies with more investors increasing demand for labour.

Labour policy, in particular, and economic policy in general are the main determinants of high or low rates of unemployment and economic growth. Since policies are a matter of choice and not destiny, the government and the electorate decide whether their country prospers or stagnates.

Ironically, the most vocal critics and enemies of people who create wealth and jobs (employers) tend to be people who do neither: government and trade unions.

AUTHOR Leon Louw is the Executive Director of the Free Market Foundation. The above bulletin is an excerpt from one of the chapters in the new FMF book Jobs Jobs Jobs, in which fourteen authors discuss various aspects of South Africa’s mass unemployment and put forward proposals for addressing the country’s most serious socio-economic problem.

FMF Feature Article / 24 January 2012