Minimum-Workforce Legislation

by Don Boudreaux on January 1, 2007

in Work

Why doesn’t government require each employer to hire a minimum number of full-time employees?  If, as the proponents of modest increases in the minimum-wage argue, "reasonable" government mandates that raise the costs of running a business have little or no ill effect on the labor market, why not also legislate – in addition to a minimum-wage – a “minimum workforce”?

Oh sure, economists with their brains kicked into reverse by supply-and-demand curves would argue that a minimum-workforce requirement would cause some firms to go out of business, and some other firms who would have otherwise opened for business never to materialize.  These economists would insist that the very purpose of the legislation – to create more jobs – would likely be undermined by the legislation.

But surely if the minimum-workforce requirement were set at a reasonable number of workers – say, four full-time employees per firm (or, perhaps, one full-time employee per firm for every $75,000 a firm earns annually in gross revenue) – then the ill effects would be small and the potential upside effects worthwhile.  The owner of that aroma-therapy kiosk in the mall, for example, would hire four full-time workers rather than just two.  Likewise for that daycare center down the street, the house painter across town, and the mom’n’pop pet store on Main Street.

Workers who today can’t find jobs would be more likely to find them if employers were forced, if just a bit, by government to behave as if they consider the welfare of others when making their hiring decisions rather than focusing so selfishly on their bottom-lines.  Nothing about the unhampered market leads it to consider fully the welfare of people willing to work but who can’t find gainful employment.  A minimum-workforce statute would correct this market imperfection.

Economists (ever the nay-sayers) might also point out that the unemployment rate in the United States today is quite low – less than five percent.  So the number of potential workers who stand to be helped by this legislation is small.

No matter, replies the champion of this legislation.  If this legislation results in a net increase in jobs, then some real flesh-and-blood human beings will be helped.  Because it’s impossible to raise a family if you’re unemployed, such legislation would benefit workers who need jobs.  It would reduce the ranks of the unemployed by requiring that employers – who, after all, are in the business of employing workers – each to hire a fair share of workers.  The absolute number of workers benefited might be small, but it’s real – as opposed to the textbook-and-chalkboard speculations of Ivory Tower economists who have “models” that suggest that net employment might fall.  Such legislation — by employing persons who would otherwise remain unemployed — would even help to reduce income inequality.

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Tim January 1, 2007 at 5:39 pm

Don't even suggest this in jest! It gives numbskulls ideas.

Tom Kelly January 1, 2007 at 7:13 pm

What a great idea! At one worker per $75,000 dollars in annual revenue no one will be able to earn more than $75,000.

Since millions of people who currently earn more than $75K will quit working and just live off their accumulated capital, it will open up even more jobs for low productivity workers whose work is worth less than $75K.

Why we might be able to replace millions of workers earning $100K with two millions of workers earning $50-75K each!

See you in paradise!

Matt C. January 1, 2007 at 10:34 pm

The scary part about this is, as Tim points out, that some politician might actually believe that this is possible.

The difference between the two proposals, requiring a minimum number of employees and increasing the minimum wage, is the fact there is an idea that all employers can employ all workers and that employers have unlimited ability to pay employees.

Unfortunately there is a perception out in the world that the prices of goods are associated with production costs. If employers' labor cost this will just be transmitted onto the consumer. But as Mises pointed out, prices are not determined by labor and production cost, rather a subjective value put on the item by consumers.

The commonality between the two proposals is that government has the ability to know what employers are and should be able to pay. Government does not have the ability to centrally plan the work force. The Soviet Union is a real world example of how a minimum workforce requirement hurts the ability of an economy to sustain itself. The government could require more employees in different industry and they could produce all the widgets it could possibly produce, but if the thingamabob industry doesn't have enough workers it could effect production. Then the machine that needs both widgets and thingamabobs won't be able work because they can't produce enough thingamabobs. Leonard Read's, narrative about how a pencil is made would look a lot different in this type of structure.

Gary H. January 2, 2007 at 7:40 am

Matt C. really has nailed it on the head to why this idea would not work realistically. You don't have to be an economist and shouldn't have to be very smart to understand that a lot of smaller businesses do not have the luxury of unlimited money to pay their employees. With the minimum wage in place, many small businesses are limited to how many employees than can employ full-time. In addtion, a lot of businesses, like one that I use to work at, have the limit of how many employees are needed to actually run the store. Using the cited example of the "aroma therapy mall kiosk", or even the yogurt/ice cream shop I use to work at, if the customer business then the need for additional labor is not there.
Also, a lot of these mall businesses are barely open over 10 hours a day with the exception of the holidays. With "full time" employment being termed at 8 hours a day then your suggestion would be for waste both labor and money when no business is coming into the store.

That's just one of the holes in your idea.

Flynn January 2, 2007 at 8:20 am

@Gary – Ever read A Modest Proposal? You should.

CWuestefeld January 2, 2007 at 10:32 am

Don, I think you got a bad deal on your new calendar — you were cheated out of the first three months of 2007. Today is January 1, NOT April 1!

Half Sigma January 2, 2007 at 11:15 am

Why doesn’t government require each employer to hire a minimum number of full-time employees? If, as the proponents of modest increases in the minimum-wage argue…

Straw man argument. A "minimum workforce" has absolutely nothing more to do with a minimum wage than does the solar minimum.

David Z January 2, 2007 at 12:19 pm

Half Sigma,

Taking the traditional approach: GDP = Income = (Wage x Workforce x Hours Worked)

Whether we manipulate the wage, or the number of workers, or the number of hours worked, it's all part of the same identity.

Brad January 2, 2007 at 12:35 pm

Unfortunately, we've lost this debate this round. The House will pass a minimum wage increase in the first 100 hours. The Senate will follow suit and the President will either sign it or reject it. If we're lucky, it will be pure minimum wage and not coupled with entrepreneur tax credits. I say "if we're lucky" because then we have a ready made "told you so" laboratory. Find industries where this marginal cost of labor drives outsourcing or offshoring or automation in the next couple of years. Paint the minimum wage as a Pigovian tax. We won't have to worry about it again for another 15 or 20 years.

Randy January 2, 2007 at 1:04 pm

Half Sigma,

I actually see the minimum workforce requirement to be a logical extension of the philosophy behind the minimum wage.

1. Pass a minimum wage to ensure that all employees receive a "fair" wage.

2. If this results in unemployment, pass a minimum employment law to ensure that full employment is maintained.

3. If this results in business closures or price increases, pass a business continuation act and fix prices at current levels.

4. If business owners participate in slowdowns or close their doors anyway, pass a law to allow them to be flogged in the public square.

The good news is that economic realities will cause a crash long before step 4 is reached – which is why politicians are smart enough to never pass a minimum wage law that has any significant impact.

The minimum wage law is just a political tactic, to which the correct response on the part of the opposition would be "I double dog dare you". "Absolutely, we support the minimum wage – we think it should be $20/hr!"

Half Sigma January 2, 2007 at 2:47 pm

There's no way for the government to determine how many employees an employer SHOULD have. Forcing employers to hire people they don't need is wasteful featherbedding.

The minimum wage has the opposite effect. At a higher minimum wage, you can be sure that the businesses truly need all of those employees.

The idea is so dumb I didn't even bother to explain it before, but it seems that some people don't get it.

And for those waiting for W to veto the minimum wage law: don't count on it, W won't veto anything unless it involves stem cells.

Jeff Hallman January 2, 2007 at 4:10 pm

The analogy doesn't actually work. If the firms owning kiosks all had to employ at least four people, they could just merge until it was no longer a binding constraint. Perhaps you actually mean there should be a minumum-staffing requirement: each kiosk has to be manned by 4 employees. This is traditionally known as "featherbedding" and is usually associated with outdated work rules in unionized workplaces.

TGGP January 2, 2007 at 5:05 pm

Half Sigma, you are right that this is the reverse of the minimum wage, it is pointed out that both are faulty ideas. There is no such thing as "truly need", there are just varying degrees of "want". With a high minimum wage employees that an employer would have wanted at a lower wage will not be hired, and the only remaining ones will be those that the employer wants at this high wage. With a high minimum employment the employer will still hire people that he wants to some extent, it just won't be optimal (perhaps there will be a shift in investment to labor from capital).

Slocum January 2, 2007 at 5:16 pm

Minimum-Workforce Legislation isn't all that far-fetched. Labor unions have, after, negotiated even more extreme requirements. The Big 3 auto companies have been required by contract to maintain a minimum workforce (with their jobs banks) regardless of their revenues and profits (or lack thereof). And we all know how that has worked out for both the Big 3 and their employees.

ben January 2, 2007 at 5:38 pm

Something similar used to operate in India, and may still do so. Firms wanting to close had to obtain permission from bureaucrats first. Often firms would instead be subsidised to stay open.

Russell Nelson January 2, 2007 at 7:47 pm

Half Sigma, the point here is that there is no way for a government to determine how much an employer SHOULD pay. You still don't know how to think like an economist. Until you do, you will continue to post nonsense.

Russell Nelson January 2, 2007 at 7:50 pm

Half Sigma, the point here is that there is no way for a government to determine how much an employer SHOULD pay. You still don't know how to think like an economist. Until you do, you will continue to post nonsense.

True_Liberal January 2, 2007 at 9:04 pm

Here's a "fair and balanced" story about the Ohio MW hike – what it means to businesses and their customers.

Anyone believing a business can just simply pay an increased wage, without downstream effects (higher unit prices, lower unit sales), has no concept of the elements of economics.

Nate January 3, 2007 at 1:41 pm

If I was a politician, I'd do something much simpler. Just pass a ban on scarcity!

Why bother with minor tweaking such as that recommended by Dr. Boudreaux when one of our heroic pols could just do in with scarcity once and for all?

Half Sigma January 3, 2007 at 3:24 pm

"the point here is that there is no way for a government to determine how much an employer SHOULD pay."

Minimum wage is a pretty easy law to administrate. You may not like it, but it's easy to implement and administrate.

Minimum workforce laws would be a nightmare of administration, and companies would avoid it by merging, and it would essentiall make small businesses with a single employee illegal.

So it's like we're comparing apples to gigantic 500 lb fruits fall from the sky and killing people.

BobDoyle January 3, 2007 at 4:27 pm

Yes! And I've never yet understood why the pro-min-wage cohort is so niggardly in their proposals for minimum wages if setting the minimum really will not have an adverse effect on employment, in general, and on the employment levels of the poorest in our society, in particular? Why only $5.50 or $7.50 an hour — why not $10 or $25 , or $50, or $100 — what do these proponents have against the poor to limit them to such low levels? If we can fix the problems of the poor by enacting laws about the minimum wage they they must be paid, why not really go for it and set the minimum wage at 110% of the U.S. median wage!

And, in a conceptually related, but different application of this concept, I want to know why we let the medical industry profit at the expense of those with cancer. If our politicians were not in the pockets of our physicians, we'd have eradicated cancer by now by simply enacting statutes making cancer against the law!

Nate January 3, 2007 at 4:45 pm

Cancer ban too! I like it. I'll slip it into the fine print of my scarcity ban bill. Anyone need an earmark added? 'cause I could use a new car…

BobDoyle January 3, 2007 at 5:09 pm

Yes! Yes! Even better! Make a law against scarcity! Then we don't have to worry about employment levels or wages — nobody ever has to work again!

Brilliant! Brilliant! I'll have another Guinness Stout!

ben January 3, 2007 at 9:35 pm

"So it's like we're comparing apples to gigantic 500 lb fruits fall from the sky and killing people."

True, but the quality of thinking behind both schemes is comparable.

Half Sigma January 3, 2007 at 11:08 pm

"True, but the quality of thinking behind both schemes is comparable."

More than 50% of the population think that transferring wealth from the rich to the poor is a good idea. I leave that to others to determine whether this really is a good idea.

But given that society has determined that some transference is going to take place, minimum wage laws seem to me to be a good way to transfer wealth. It has only a minor impact on the economy so long as the minimum wage isn't raised by some idiotically high amount. Minimum workforce laws, on the other hand, would be an incredibly dumb way to transfer wealth.

So no, the quality of thinking is NOT comparable.

Randy January 4, 2007 at 6:16 am

Half Sigma,

The minimum wage is simply a tax on the employment transaction. Who will ultimately pay the tax depends on a variety of factors. The most desperate employers may end up paying it, but more likely that the customers of most employers will pay it, and not infrequently, the employee will pay it. As in most cases it will be the customers who ultimately pay the tax, it is in essence a sales tax, and therefore a regressive tax, and therefore an incredibly stupid way to accomplish wealth transfer. If we want wealth transfer, which as you point out, many do, then the EITC is the way to go.

P.S. I have suggested before that a good way to get the public to really understand the minimum wage would be for all business to start adding a line to their sales reciepts for a "minimum wage law compliance fee" – right underneath the sales tax line.

Xevec January 4, 2007 at 9:16 am

Half Sigma,

I've been arguing this idea about why not raising it higher. One proponent basically says it relates to inflation. That raising it above the rate of inflation will cause problems. Government is simply raising wages in accordance to inflation. He says that since minimum wage hasn't been increased in a while, but inflation has…people's purchasing powers are worse off. If we simply increase in according to inflation, things will be fine.

Of course, he does believe government legislation CAN and DOES raise the wages of individuals. But he refuses to follow out his own logic. He also says high increases will cause problems, and that it is a strawman argument, but modest increases will actually be beneficial.

Keith January 4, 2007 at 1:04 pm

"More than 50% of the population think that transferring wealth from the rich to the poor is a good idea. I leave that to others to determine whether this really is a good idea."

And that is really the root issue: you won't say if you think it's a good idea. You seem to be against minimum workforce legislation, but only because it wouldn't be practical or could be avoided.

Have you wondered which 50% of the population thinks transfering wealth from the rich to the poor is a good idea? I wonder if you'll have an opinion when somebody decides you're rich enough to have your wealth transfered to somebody else?

Half Sigma January 4, 2007 at 2:05 pm

"The minimum wage is simply a tax on the employment transaction."

No, tax is money you pay to the government. Minimum wage can be best described as a government created cartel of the least skilled workers. Cartels work very well in enriching the members of the cartel so long as members of the cartel don't cheat.

"Have you wondered which 50% of the population thinks transfering wealth from the rich to the poor is a good idea?"

Primarily poor people who will benefit and the rich people who feel guilty about being rich.

Half Sigma January 4, 2007 at 2:13 pm

"And that is really the root issue: you won't say if you think it's [wealth transfer] a good idea."

Actually, for me the root issue is that I get mad when I see sloppy reasoning and analysis. I'm fine if Don Boudreux says that he's morally opposed to wealth transfer (even though he would be slightly hypocritical saying so because he has a cushy government job, a transfer of wealth from hard working Virginia taxpayers).

Randy January 4, 2007 at 3:08 pm

Half Sigma,

The way I see it, the government is providing a service with money taken from other people. The fact that the government doesn't actually lay its hands on the money is irrelevant. Without the necessity of a middleman, it might actually be a rather efficient tax, but its still a tax.

Robert Speirs January 5, 2007 at 10:08 am

Actually the government already requires more men per enterprise than are really needed to do the work, simply by cranking out reams of useless and harmful regulations. I don't know how big an operation has to be before it employs an extra man to do government paperwork, at no net rise in productivity, but I bet it's pretty small. And the minimum wage increase will raise the cost of all those extra men. Because, as we know, the minimum wage does not just raise the price of employing those who receive it. Many men being paid more than the minimum will agitate for and receive increases in their own higher wages, to "keep pace".

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