Let the free market dictate the labor market, not the government

Op-EdAppeared in Array on December 29, 2021By Elaine Parker

As we head into the New Year, wages are rising at a breakneck pace. Why? Because available workers have become more rare and companies are willing to pay more to hire them. The market for labor follows the law of supply and demand, just like soybeans or iPhones. The best part is, when left alone, the mechanism benefits everyone involved.

Government policies that throw the labor market out of whack should raise eyebrows.

“Exhibit A” is the looming coronavirus vaccine mandate initiated by the Biden administration. Under the proposed rule, businesses with 100 or more employees will be forced to carry out a vaccine mandate for staff, or workers will be responsible for getting a weekly coronavirus test. Meanwhile, New York City Mayor Bill de Blasio is leaving a parting gift before departing office. Days before his term ends, vaccines will be made a prerequisite of employment for all private sector workers in the city.

While voluntary vaccinations are an important component in the toolbox to defeat the virus, the Biden administration’s executive overreach and de Blasio’s stunt will artificially suppress the labor supply and compromise the economy.

Small businesses will experience an outsized impact. According to polling from the Job Creators Network Foundation, nearly half of small business owners expect employees to quit if a vaccine mandate is implemented. Sixty-four percent say it will make finding new workers more challenging. The new difficulties will pile-on to the already historic labor shortages plaguing Main Street. As a result, businesses will pay a premium to entice job candidates.

Rising wages are typically a good thing and an indication of economic health. But if the compensation level needed to attract a sufficient number of workers increases too much too quickly, business budgets can’t keep up. As a result, some companies may be forced to fold and job opportunities disappear. If naturally occurring, the boom and bust cycle helps strengthen the economy long term—similar to forest fires sparked by lightning strikes that clear the way for new vegetation. But that doesn’t mean we should tell children to go play with matches in the woods.

Efforts to dramatically raise the minimum wage is another exercise in labor market manipulation that should be avoided.

Come the New Year, 25 states and more than 50 localities are set to raise the mandatory wage floor. It includes the usual suspects like California, New York, Washington, and Oregon. And it won’t stop there. For example, a new ballot measure has already been proposed in California for the 2022 election to raise the minimum wage to $18. The consequences, just like the vaccine mandate, will be predictably bad.

Because of the tight labor market, companies that can feasibly increase wages already have. The free market is doing the heavy lifting—no need for government intervention. This is especially noticeable in the hospitality industry where worker wages have jumped by 12 percent year-over-year—roughly four-times the pre-pandemic rate. Retailers—including IKEA, Macy’s, Costco, and Walmart—have also announced voluntary compensation bumps.

But some small businesses are in a more financially perilous situation. They’ve already stretched budgets to the limit and additional forced wage hikes from state or local governments will amount to a death knell. The nonpartisan Congressional Budget Office (CBO) has previously weighed in on the impact of applying a one-size-fits-all $15 minimum wage nationwide. Predictably, it would result in major job loss as businesses close or retool with automation to operate with fewer staff.

The free market in the U.S. makes a wide array of goods and services available to consumers at reasonable prices. Allowing the same mechanism to balance out the labor and wage market will benefit workers and small businesses alike. Government intervention—including vaccine mandates that suppress the labor supply and government-picked wage floors—cause more problems than they solve.

Elaine Parker is the president of the Job Creators Network Foundation.