The rigidity of the labour market, partly owing to high minimum wages and prescriptive labour laws, is excluding the youth and low-skilled workers from the economy, driving unemployment, says US free market economist and Carthage College economics professor Yuri Maltsev.

High minimum wages cause companies not to risk employing inexperienced people, preferring those who have work experience, as labour laws make it difficult to dismiss employees, often making job creation a risky exercise for companies, he explains.

“If we have lower minimum wages, more people will be employed because more companies will be able to afford more employees. Currently, these potential employees are not employed at all and are hostages to State grants, without any chance of working their way out of poverty.

“The law is saying to people who are below the productivity minimum, at which com- panies benefit from the costs of their services and which is influenced by minimum wages, that they are not allowed to work, despite many of them not having a job.”

Higher minimum wages generally exclude new entrants, such as school-leavers, as well as low-skilled people, from entering the labour market.

Prominent US economist and George Mason University economics professor Walter Williams, who came from an impoverished background, has noted that the low minimum wages in Philadelphia enabled him to get a job and earn money, subsequently enabling him to enter university and improve his skills and value.

Minimum wages restrict human freedom, as they exclude sections, specifically the least-skilled sections, of the economy from gaining employment, reinforcing poverty and State dependence, says Maltsev.

Minimum-wage laws are intended to defend workers against exploitation. However, without legislation, market forces, which are the collective effects of individual choices on the value of goods and services, would lead to a minimum-wage level below which people would not work, as it is unrewarding.

“Freedom is the ultimate defence against exploitation. If companies are free to decide the wages that they offer and people are free to work for the wages that they themselves deem fair, then an equilibrium will be reached, as people will move between different sources of employment and companies will adjust wages, which, in turn, will stimulate employment.”

Wages are not assigned randomly. They are determined through the marginal product of labour that people receive for functions performed in companies that generate value. People producing below the value of the minimum wage are, thus, excluded from the economy, he adds.

“Exclusion of people from the economy may not be the intention of minimum-wage laws, but this is exactly the effect that they have,” says Maltsev.

While unions may argue that minimum wages are necessary, their arguments are in defence of their own vested interests as employed people, which sacrifices the chances of new entrants entering the labour market owing to fear of a reduction in the wages of all workers. This rigidity also makes companies less competitive and sustainable, retarding growth, he concludes.