Dollars and Jens
Wednesday, November 29, 2006
Price controls and non-pecuniary rationing
Various union-backed forces continue to push Wal-Mart to improve its employee health plans, and Democrats in Congress are all but certain to raise the minimum wage next year. When a price is held artificially high, it generally creates a surplus — quantity supplied exceeds demand, and something like rationing in a non-pecuniary way is required.

If Wal-Mart overpays its employees, or other businesses are required to overpay their employees, what kind of alternative rationing mechanism would be likely to come into play? Wal-Mart already — whether for political or other reasons — offers an attractive enough package that new stores attract far more applicants than there are jobs available; presumably they take higher quality employees than they would if they paid less. For a lot of minimum wage payers, some of the rationing might simply be first-come-first-served, in which the available jobs (and associated rents) go to whoever happens to be in the right place at the right time. It seems to me that Tyler Cowen was suggesting that a minimum wage increase is likely to lead to a worsening in work environment; certainly other, less-regulated or -visible or -auditable forms of compensation are likely to be in play.

Any other thoughts? Is there any literature as to which explanations are most significant?

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