The Minimum Wage: How To Prevent Job Creation
Much of the developed world is suffering a jobs crisis, and the experience for Ireland is worse than most. The Irish legal framework for the jobs market, beyond a basic minimum wage, has also had a complicated system of “Joint Labour Committees” which are capable of imposing additional wage requirements on particular sectors of the economy (affecting about 200,000 people). This system was found to be unconstitutional last summer. Replacement legislation is coming down the pipeline now, with the government promising to extend an employer’s right to plead “inability to pay“.
The current legislative proposals permit an employer – subject to certain conditions – to apply to the Labour Court for a derogation from the wage rates set in the sectoral wage agreement on the basis of inability to pay.
The derogation can be granted for between three months and two years – provided an employer has not been granted an exemption within the previous five years for the same workers.
The Labour Court must be satisfied that without the exemption, there would be a substantial risk to jobs or to the sustainability of the employer’s business.
The change is described by a government spokesman as “minor”. They don’t want to be seen to be undermining the wages of the low-paid, but the truth is that this system does no good at all for the people who need the most help, who are just below the bottom rung of the jobs ladder: those who are looking for work.
Involuntary “unemployment” would not exist in the free market; anyone who can work would be hired, if they would only lower their asking price. When market-clearing wage rates are illegal, however, unemployment is inevitable.
Thought experiment: Imagine that the price of a new car was set by government at an artifically high level, as a result of the government having been lobbied by manufacturers of some of the more expensive models. Imagine that you could only negotiate a lower price if you presented your case formally to a special government committee, who would decide whether or not you could afford it. Do you think that more or fewer new cars would be bought?