Wednesday, October 13, 2004

How to Reduce Poverty

According to George Reisman, the best way to reduce poverty is to reduce government interference. Here are some examples:

Instead of raising the minimum wage as the means of increasing the wage rates of the unskilled and poor, abolish prounion legislation. Such legislation, above all, the Wagner Act of 1935, which established the National Labor Relations Board, compels employers to recognize and deal with labor unions and to accept union wage rates. This enables the labor unions to impose the equivalent of minimum wages throughout the economic system, including for semi-skilled and skilled workers, at much higher levels than the government’s own minimum wage.

Just like the government’s minimum wage, the higher wage rates imposed by the unions serve to reduce the quantity of labor demanded, this time, of course, in the ranks of the semi-skilled and skilled occupations as well as among unskilled workers. The effect is that workers are displaced from occupations of their choice and pushed into other occupations, enlarging the supply of labor in those other occupations and either depressing wage rates in them or, to the extent that that is prevented, causing unemployment in those other occupations.

and also:

The repeal or liberalization of licensing legislation, which also serves artificially to reduce employment opportunities in many fields, would result in the same kind of improvement in wage rates at the bottom of the economic ladder as the repeal of prounion legislation. Such legislation presently applies to doctors and dentists, optometrists and pharmacists, barbers and beauticians, and liquor stores and taxicabs, to name a few leading examples. In every case, it serves to hold down the number of those allowed to pursue an occupation and thus to raise the wage rates or prices of the smaller number remaining in the occupation, while depressing wages in the lines into which the displaced workers are driven. And if wage rates in those lines are prohibited from falling, the result, as shown, is a further displacement of workers into still less desirable occupations, with the process culminating in the displacement of workers into the least desired, lowest paying occupations, and resulting either in the lowest paying occupations becoming still lower paid or in unemployment. In either outcome, the heaviest burden is borne by the least skilled, least educated, and poorest members of the economic system.