The previous chapter explained how wealth is created by individuals acting alone or in concert while working at an occupation or job. Wealth is virtually infinite, yet we commonly hear that the means to that end- jobs- are limited. Let's examine how this seeming contradiction has been created by aggression -through-government.

The Marketplace Ecosystem: Honoring Our Neighbor's Choice

In the early days of our country, new immigrants were at a disadvantage in the established marketplace ecosystem. Usually, they couldn't speak English. Their customs were different and disquieting. Frequently, they were unskilled and could produce little wealth. Employers had little incentive to hire them. The immigrants decided to change that.

The immigrants created a niche for themselves in the marketplace ecosystem by offering employers who would take a chance on them a greater-than-usual share of the jointly created wealth. By helping their employer, they also helped themselves. Instead of paying for expensive schooling to learn new skills, they got on-the-job training by accepting, for a time, lower wages than the experienced, American-born workers. Once they learned the language, trade, and customs, they could create much more wealth than before. The immigrants were either given a greater share of the jointly created wealth by their employers, or they took their experience and moved on. Sometimes they opened their own shop, sometimes they went to an employer with greater appreciation for their newfound expertise. Some eventually became quite wealthy. In offering to serve their first employers well, they ultimately served themselves.

Young Americans sometimes use the same technique to get that important first job. For example, as an undergraduate, I worked in the laboratories of various scientists after class. Sometimes there was a little pay involved, sometimes course credit, sometimes no visible compensation at all. The scientists who hired me really didn't have a job to give, so like the immigrants, I created my job, my niche in the marketplace ecosystem, by offering them a better deal than any of my classmates would even consider.

My peers thought I was crazy working for "slave wages." A few years later, they changed their minds. The experience I gained, plus the recommendations of my mentors, turned out to be quite valuable. These intangibles gave me an edge over those with comparable formal education when I applied for more advanced positions. Offering my first employers a good deal resulted in later employers offering me a good deal. Letting myself be "exploited" was one of the smartest career moves I ever made.

The balance of the marketplace ecosystem evolves naturally. Workers without experience who are willing to create a low-wage job can gain the necessary experience and skills to create more wealth. Almost everyone is able to create some wealth, so everyone can find a starting niche. As expertise evolves, so does the niche- one way or the other. In serving their first employer well, unskilled workers serve themselves.

Usually, an employer will reward workers as their capacity to create more wealth increases. By providing an improved work space, more benefits, and/or increased wages, employers provide positive feedback, appealing to the employees' own self-interest to create even greater wealth. More wealth creation means more profit for the employer and the employee to split. By helping each other, they help themselves. Both serve their own interest best by making sure that their partner in creating wealth is taken care of.

Unenlightened employers who don't reward their workers for increased productivity lose them to employers who do. Employers who choose employees on the basis of color or sex or anything other than ability to create wealth find that their shop creates less wealth than it could. Less wealth means less profit for the employer and employee to share. Lower profits provide the employers with negative feedback. Discrimination on any basis other than productivity is costly. Employers reap as they sow.

We can observe this "yin-yang," or balance, of the ecosystem within the marketplace right in our own community. Our fictitious neighbor George decides to hire a neighborhood youth, Elaine, to paint his house because of her willingness to work for a very nominal sum.

Elaine created a job by giving her employer a better deal than the other teens in the neighborhood. Had Elaine not made such an offer, George would have let the house go unpainted for another few years. The creation of wealth in the form of a well-kept house would have been delayed. By offering to serve George well, Elaine also helped beautify her neighborhood. In the process, Elaine helped herself as well.

In the fall, Elaine asked George to put in a good word for her with the corner grocer. As a result of George's glowing recommendation, Elaine was hired instead of other youths with no one to vouch for them. The following summer, Elaine's references from the grocer helped her get a temporary job with a nearby factory. When Elaine graduated from high school, she was offered a well-paying job by a local banker. Elaine was chosen because her former employers could vouch for her conscientious performance. Her friends, who had mocked her as she worked for a "pittance," were rejected because they had no experience. By serving her employers well, Elaine also served herself.

Aggression Disrupts the Marketplace Ecosystem

We'd never dream of putting a gun to George's head and threatening him if he didn't pay Elaine more than what they had jointly agreed on. After all, our neighbors know better than we do what will work for them. Pointing a gun at George would probably end any feeling of camaraderie we might have shared in the past. There's something about looking down the barrel of a gun that isn't consistent with "loving our neighbor." George is likely to call his local sheriff and have us arrested or make sure that he retaliates with sufficient force to prevent us from threatening him again. In trying to control George, we might very well find ourselves controlled.

Even if we successfully intimidated George, he might decide not to hire Elaine, rather than pay her more than he wished to. Without George's recommendation, Elaine might never get the grocery job. Without experience at the grocer's, Elaine might not be picked to work at the factory. Without these part-time jobs, Elaine would not have the experience so valued by the bank. Our attempt to protect Elaine from George's exploitation by using aggression would probably backfire and hurt the person we most wish to help.

The marketplace ecosystem operates in our neighborhood if we let it work its magic. We wisely refrain from threatening our neighbors when they are interacting and contracting with each other without using force or fraud. The individuals, after all, know their situation better than we do.

Exactly the same principles apply in the national work force, but somehow we see it differently. We view low wages as evidence of employer "stinginess" instead of schooling with pay for the unskilled. We try to correct the behavior of these selfish others by voting to force employers to pay a minimum wage- at gunpoint, if necessary. Through our government, we become aggressors, the first party to threaten violence. Our aggression yields the same results on a national scale as it does in our neighborhood.

For example, in the chair factory where George works, employees are paid at different levels ($4 or $5 per hour) depending on their experience. If the minimum wage is raised to $5 per hour, several things could happen.

If the employer pays the least experienced people $5 per hour, he will have to raise the price of the chairs. The people who were earning $5 will probably complain because they are being paid the same wage as the novices. The employer will have to give them a raise too. The price of the chairs goes even higher. Fewer people can now afford to buy the chairs, so the factory will cut back production. Workers will be laid off; the least experienced will be the first to go. Instead of earning $4 per hour, some of the inexperienced workers will be unemployed, while others will be making $5 per hour.

Some employers will be able to replace the unskilled workers with machines that cost $4.50 per hour instead of the $5 now mandated by law. The workers from the factory that makes the new machines are very skilled and already make well above the minimum wage. They now have extra orders for machines, so their factory must hire more skilled labor. At the chair factory, some of the more experienced workers make $5 per hour, while some of the unskilled workers are unemployed and make nothing. The machine factory hires more skilled labor.

Other employers might simply eliminate part or all of the job that the people earning $4 per hour once did. Maybe their job was to paint the chairs; now finishing is left to the buyer. More unskilled employees are laid off.

Some employers will not be able to use any of these options. There may be no substitute for the unskilled labor and no way to raise prices without losing too many customers. To comply with the law, these employers may cut back on other employee benefits, such as health insurance, vacation time, etc. The unskilled workers make $5 per hour, but lose some benefits that may have been worth more to them than the wage increase.

If none of these options are available, employers may have to forgo some of their profits. To avoid cutting their profits, these employers may close their factories and either retire or switch to a business that needs only skilled workers. In either case, the employees will be laid off. The skilled workers will have an easier time becoming employed again, because they are needed in places such as the machine factory that is expanding because of the demand for labor-saving devices. The unskilled workers will find themselves in less demand and will have more difficulty.

Each employer will react differently to the minimum wage increase, but the result is always the same. Fewer inexperienced employees will have a job. Instead of making $4 per hour, some will make $5 per hour, and others will make nothing. The best of the low-paid workers get a raise, but the most disadvantaged are forbidden to create what wealth they can.

If we support minimum wage laws, we destroy jobs, especially those that would have gone to the unskilled or disadvantaged. By using aggression, we limit wealth by destroying the jobs that create it. No wonder welfare to the newly unemployed increases when the mandated minimum wage goes up! (1)

The Poor Get Poorer: Discrimination Against the Disadvantaged

Because minimum wage laws hurt the disadvantaged the most, they are frequentlyused to "legalize" discrimination. In South Africa, white unions lobby for minimum wages (called "rate-for-the-job") in order to "reserve" particular jobs for whites.(2) If the unskilled blacks are forbidden by law to negotiate a training wage, they can never gain entry into these professions and are effectively barred by law from creating wealth in those occupations.

The same thing happens in the United States. Minimum wage laws hurt the very people they are supposed to help. Many disadvantaged workers are black; the most unskilled blacks are, of course, the young. As the percentage of jobs covered by minimum wage laws has increased (Figure 3.1A), black teenage unemployment has increased much more than white unemployment (Figure 3.1B). What is particularly distressing is that black teenage unemployment was almost identical to white unemployment before the 1950s! By trying to help the disadvantaged with aggression, we've hurt them more than the selfish employers ever did!

The inexperienced are not the only victims. The elderly and handicapped are adversely affected as well. This was vividly brought home to me in the mid-1980s while renovating low-income housing in the city of Kalamazoo. A young, unskilled man, who was partially disabled, had been watching our progress and asked if he could do some cleaning and yard work for $2 per hour. He was willing to accept such low wages because he could walk to the work site. He also hoped I might be able to give him a recommendation so others would "give him a chance." I explained to him that minimum wage laws prevented me from hiring him for anything less than $3.35. We both knew that I could hire an able-bodied person at that rate who would do more work per hour. We both would have been satisfied to settle on $2 per hour, but we were forbidden by law from doing so. Had we gone ahead, government enforcement agents could have "fined" me (i.e., taken my created wealth) at gunpoint, if necessary.

Figure 3.1 Temporal Relationship Between Increases in Maximum Wage and Decreases in Black Youth Unemployment

The percentage of jobs subject to minimum wage legislation increased as the unemployment ratio of blacks:whites decreased, until both leveled off after 1975.

Sources: Masanori; Hashimoto, MINIMUM WAGES ON-THE-JOB TRAINING, (Washington: American Enterprise Institute for Public Policy Research, 1981) p. 2. Walter Williams, STATE AGAINST THE BLACKS, (New York:New Press, NcGraw Hill, 1982) p. 37.

Why shouldn't this young man have been able to make his own choices? He viewed working for $2 per hour in the same way I had viewed working in the laboratory- as a stepping stone to something better. Surely he could decide what a particular job was worth to him. By supporting minimum wage laws, we've condemned many of the disadvantaged to life "on the dole." Being dependent on others is surely more "degrading" than starting at the bottom and working one's way up!

When we use aggression to control the marketplace ecosystem with minimum wage laws or other mandated "benefits," we set in motion a destructive chain reaction. Instead of providing the disadvantaged with a better financial base, we prevent them from obtaining what they need most: on-the-job training in the art of creating wealth. Because they cannot work, they cannot get ahead. They cannot entice a reluctant or prejudiced employer into giving them an opportunity to show their worth when they cannot offer such employers a better deal.

The Rich Get Richer With Our Help!

If minimum wage laws so obviously hurt those they were intended to help, why do our legislatures keep passing them? Do minimum wage laws benefit someone else with power and influence? Of course they do!

With minimum wage laws, the skilled and educated no longer have to compete with the ambitious disadvantaged workers wh Buse rising through the ranks. Only those who can afford to pay for training can get hired when the disadvantaged are forbidden from creating training jobs for themselves. When fewer skilled people are available, the experienced workers can command higher wages. Unions frequently lobby for minimum wage laws because such laws favor their skilled membership at the expense of unskilled workers, the handicapped, and minorities. (3)

Does this mean that the unions are full of selfish others who need to be put in their place? Not at all! Those who propose minimum wage laws know we have supported aggression in the past when we thought it was for the common good. Perhaps the last time we used aggression, union members were the victims.

Unions and other special interest groups that desire minimum wage laws do not use aggression themselves. Like the proverbial serpent in the Garden of Eden, they tempt us to practice aggression against our neighbors for their benefit. They only kindle the flames of poverty and strife- we control the final outcome. We fan the flame when we direct our government enforcement agents to carry out their wishes. We could choose differently. We could say "No!" to those who advocate minimum wages, just as Adam and Eve could have said "No!" to the serpent. Without our consent, the unions (and the serpent) are powerless. The choice- and responsibility belongs to us.

A Lose-Lose Situation

Usually we agree to the aggression of minimum wage laws because we believe in a win-lose world, where wealth and jobs are limited, where gain can be had only at another's expense. When our choice is between winning and losing, aggression appears to be a useful tool. We don't notice that our aggression is limiting wealth and jobs because we take these limitations as a given. Our beliefs become self-fulfilling prophecies.

For this reason, the gains that the skilled worker makes when minimum wage laws disenfranchise the disadvantaged are largely an illusion. People who lobby for minimum wage laws, who enforce them, or who are unemployed because of them produce no wealth. Their activities create no new goods or services. The world as a whole is poorer, and so are we. Our money cannot purchase whatdoes not exist, any more than it could in our desert island example from Chapter 2 (Wealth Is Unlimited!). In a world producing less wealth than it could, we are proportionately deprived. Because the lobbyists, enforcement agents, and unemployed produce no new wealth, part of what we create goes to support them. In trying to control others, we find ourselves controlled.

Wealth is only the smallest part of the price we pay, however. We've encouraged the disadvantaged to think of their plight as someone else's fault rather than a condition best rectified by their own efforts. By supporting minimum wage laws, we've taught the disadvantaged to turn the law enforcement agents on those still employed to feed, clothe, and shelter them. We take turns being victims and aggressors, minorities and majorities. Instead of taking responsibility for our choices and letting others do the same, we point fingers at each other. Self-improvement becomes equated with turning the guns of government on others, begetting "war" as we struggle for control of the enforcement agents. Our belief that selfish others are the problem has turned into a self-fulfilling prophecy.

By ignoring the voluntary choices of the individuals involved, we presume that we know what is best for them. On the average, however, individuals make better choices for themselves than we can by making a uniform choice for everyone. Some employees prefer to accept a lower hourly wage in return for more benefits, better working conditions, more flexible hours, proximity to work, congenial colleagues, etc. On the average, individuals know better than we how to choose the best combination of wages and benefits for their particular situation and temperament. With minimum wage laws, we decrease further the limited choices available to the disadvantaged.

The Easy Way Out

We have a choice. We can just say "No!" to the aggression of minimum wage laws and smother the flame of poverty and strife kindled by special interests. No detailed evaluation of the law or the proponents' motives is necessary. When we find that our enforcement agents will be directed against those who are interacting voluntarily with each other without deceit or violence, we know that poverty and strife will follow. The means and ends are intimately related. Nationwide aggression is every bit as destructive as neighborhood aggression is.

Many people believe that minimum wage laws and other legal restrictions on employer-employee bargaining helped to eradicate the deplorable working conditions that existed during the Industrial Revolution. They fear that doing away with minimum wage laws could recreate this dire situation. In fact, just the opposite is true.

Nineteenth-century workers and their families had to choose between a dangerous, uncertain, and backbreaking existence on their small farms or long hours and low pay in crowded, poorly maintained factories. The creation of wealth was so inefficient in those times that almost every waking moment was spent in creating enough wealth to barely survive. The majority of the choices available to our ancestors would look barbaric by today's standards. Our modern, efficient production of life's necessities has enabled us to work 40-hour weeks, dispense with child labor, and support those who create no wealth at all. These choices were not realistic options for most people until the latter half of this century. If we continue to decrease wealth production with increases in minimum wages and other forms of aggression, we will find ourselves faced with these harsh choices once again.

Without minimum wage laws, what will prevent employers from colluding to pay only slave wages to workers, even when they learn to create more wealth? The natural balance of the marketplace ecosystem keeps employers' greed in check automatically by simply allowing them to reap as they sow. If it didn't, employers would be able to pay low wages to workers even when they had experience! Because employers voluntarily pay more than 90% of the workers who are 24-65 years of age more than the minimum wage, (4) the marketplace ecosystem is obviously regulating the marketplace well without aggression.

Without minimum wage laws, young, inexperienced, or disadvantaged workers could create niches (jobs) for themselves in the marketplace ecosystem by offering employers a greater share of the jointly created wealth in return for training and experience. Since everyone can create some wealth, everyone could be employed. Instead of exploiting disadvantaged workers, this win-win arrangement lets them create some wealth, prove themselves, and obtain a recommendation. Instead of using their limited resources for expensive schooling, they are paid to get both training and experience!

Most job seekers find that the first question a prospective employer wants answered is "How much experience do you have?" Employers know that past performance is the best barometer of future success. In many cases, on-the-job training is more valuable than education of any kind. Without the aggression of minimum wage laws, this opportunity would be within everyone's reach.

After becoming proficient, employees could seek higher wages, another employer, or businesses of their own. Few people stay where they start. Most employee performance improves with experience. Low-paying jobs are most often a beginning, not a dead end. The self-regulating marketplace ecosystem protects the efficient worker by providing other options. These opportunities make it difficult for employers to exploit their employees.

An example of this type of regulation occurred after the Civil War. Many Southern landowners didn't want to have anything to do with the newly freed blacks. However, wealth creation on their plantations was much more profitable with hired hands than without them. Blacks offered to work for less than whites would, making plantation owners choose between their prejudice and their pocketbook. Many chose to hire blacks to maximize their creation of wealth.

At first, the landowners tried to collude to pay the blacks as little as possible. Even though such action was perfectly legal, the marketplace ecosystem foiled such plans with its self-regulating magic. A few landowners soon found that if they paid the best workers a little bit more than everyone else did, they had their pick of the skilled blacks. Experienced workers created more wealth for the plantation than unskilled ones, so profits increased. Landowners who paid low wages were alarmed to see their best workers leaving to work for these more enlightened employers. They either offered higher wages or found themselves without help.5 Even whites with deep prejudices found themselves persuaded by their pocketbook to treat their black hired hands better than they wanted to. Exploitation of newly emancipated slaves was limited by the employers' own greed. They were still able to discriminate (and many still did) but they paid dearly for it. By allowing them to reap as they sowed, the marketplace ecosystem taught them the hazards of exploitation and discrimination.

Blacks dissatisfied with working for landowners had other options as well. They migrated to Northern factories, opened their own shops, or simply offered their skills to the community as plumbers, electricians, etc. The marketplace ecosystem protected blacks from exploitation by the variety of niches (jobs) through which they could create wealth. As blacks began to gain respect and affluence, however, these avenues for creating wealth were closed to them by our well-meaning aggression, as described in the next chapter.

Every 10% increase in minimum wage makes the worker 2% worse off because companies must offset increased cost with reductions in other parts of the "payment bundle" such as hours, bonuses, etc.

- Albert Wessels, MINIMUM WAGES: ARE WORKERS REALLY BETTER OFF?

...a 20 percent increase [in minimum wage] makes approximately 81 percent of South Carolina workers worse off than before the change.

- James Heckman and Guilherme Sedlacek, REPORT OF THE MINIMUM WAGE STUDY COMMISSION

The minimum wage law is one of the major causes of spiraling unemployment among young blacks.

- Walter Williams, THE STATE AGAINST BLACKS

A rising minimum wage broadens the income gap between blacks and whites, leaving black families proportionately further behind than ever.

- Robert Meyer and David Wise, REPORT OF THE MINIMUM WAGE STUDY COMMISSION

Past studies by and large confirm the prediction that higher minimum wages reduce employment opportunities and raise unemployment, particularly for teenagers, minorities, and other low-skilled workers.

- Masanori Hashimoto, MINIMUM WAGES AND ON-THE-JOB TRAINING

...low income workers as a group are the major victims of minimum wage legislation.

- Keith B. Leffler, ECONOMICS OF LEGAL MINIMUM WAGES

...the responsiveness of labor supply to wage changes seems to be greater among the disabled than among the nondisabled...

- Andrew Kohen, REPORT OF THE MINIMUM WAGE STUDY COMMISSION

One of the most serious effects of minimum-wage legislation is the impairment of on-the-job-training for young workers.

- Masanori Hashimoto, MINIMUM WAGES AND ON-THE-JOB TRAINING

...the minimum wage must reduce total income available to all members of society taken as a whole.

- Sherwin Rosen, REPORT OF THE MINIMUM WAGE STUDY COMMISSION

One of the most significant things that I saw in the South-and I saw it everywhere-was the way in which white people were torn between their feelings of race prejudice and their downright economic needs.

- Ray Stannard Baker, Pulitzer Prize journalist and author.

The effectiveness of a competitive market is in no way dependent upon the goodwill or honesty of its transactors.

- Thomas Sowell, THE ECONOMICS OF POLITICS AND RACE: AN INTERNAL PERSPECTIVE