What hinders employment?

Work does not create welfare?
Most people agree, I believe, that they live better if they work better. This statement illustrates the direct link between labour and well-being. So labour is a man’s action intended to create wealth. However, this is not always true. Take, for example, government-mandated reporting. Fair enough, this is work, but it doesn’t create any wealth nor bring any benefit for people. Quite the contrary. Energy and resources which could be used to produce more goods and services are wasted away. When government intervenes to close down some business, it works as well. But this work does not create anything either. What’s more, it destroys.
There are many reasons why the desired benefits of labour may not be achieved. These could be our limited capacities or objective conditions of the surrounding world. But the most frustrating of all reasons are government interventions and directives which restrict people’s activities and cripple motivations. Here, the only role of the government is not to disturb people in their efforts to create what they are able to create.
Those who uphold this position trust people and rely on their abilities. They believe that people can do one another more good by seeking self-interest rather than by leaning on government. This understanding is essential. The next concern revolves around how we switch from the existing to the desired system.
Popular myths about employment regulations
Before discussing how labour policy and employment regulations can be revised, we should recognise the fundamentals of labour. First of all, work is always performed by man. Although evident by all appearances, this truth is frequently forgotten. We often hear people talk about Lithuanian production or exports. People thank the prime minister and the president for dispensing the fruits of labour. But they forget that it is men but not Lithuania or its government who produce and create.
Another fundamental truth is that people have different abilities and are assigned roles as best fit their abilities. For this reason, people exchange both the results of their labour and labour itself as a source of wealth.
Agreements by which one party uses the labour of another one may differ in legal character (labour contracts, commissions, etc.) Agreements which are formalised by labour contracts have specific items regarding such things as working hours, assignments or workplace. Obviously, if relationships other than labour are required to be sealed with a labour contracts, these relationships are perverted. Adherence to such requirements may create absurd situations: a company’s driver may not be allowed to replace a bulb, a secretary to water the flowers, neighbours to do some voluntary work, or children in children’s homes to do their beds. Naturally, laws are not applied in such an absurd manner in real life but government’s interpretation may be unpredictable.
Employment regulations are often based on incompatible principles. Here, let me mention the third tenet of employment. Labour law should be based on the general principles of freedom of contract, equality of parties to a contract and a binding commitment to a contract. Employment regulations, however, make it their goal to refine the principles which have guided society for millennia. Freedom has been replaced with restrictions, equality has been replaced with protection, and the natural obligation to execute a contract has been supplanted by various regulatory riders.
The position of trade unions is one of the most conspicuous examples of how the said traditional principles are defied. Trade unions enjoy special privileges. First, the employer is under an obligation to sign a collective agreement with the trade union. Second, if the employer fails to do so, the trade union may instruct the employers to flout the agreement and go on strike. Third, collective agreements apply not only to a given trade union and its members but also to other employees who have nothing in common with them. Finally, in some countries membership in trade unions or similar formations is mandatory.
Such ill-judged privileges entail many harmful consequences. The interests of employees are not represented properly. Employment is constrained. Trade unionism turns into a sure business, and lobbying gains ground. All new rights and privileges extended to trade unions, and ostensibly prompted by good intentions, are unjustified, discriminating and beneficial only for trade unions.
Undoubtedly, good intentions were behind the adoption of many other measures to control business affairs: regulation of wages, working hours, vacation, labour safety, employment of foreigners and teenagers, fixed-term labour contracts and many others.
Take the minimum wage. The minimum wage requirement is based on a myth that it is a safeguard against employee abuse on the part of employers and that an increase in the minimum wage brings a general rise in wages. This myth is harboured by trade unions, which need to “fight” for something, and governments, which need to “boast” about something. The damaging effects of wage regulations are rarely assessed. The statutory minimum wage means that those who are below its level lose the opportunity to find legal jobs. Consequently, unemployment proliferates, low-skilled workers drop out of the work force, the destitute continue to sink in misery, and public funds are swallowed up by welfare benefits and allowances.
The opponents of deregulation overlook the realities of life. All around us there are people who, regardless of all regulations, earn less than the statutory minimum wage and, regardless of all controls, are forced to work overtime to reach the established wage level. The choices they have are to remain outside the law and have at least a minor source of income or to stay within the law and live off the welfare.
The question of removing the minimum wage guarantee will hardly be put for referendum in the near future. It is just as unlikely that another minimum-wage hike will be resisted. At least this is the experience of many democratic nations. In Lithuania, the minimum wage issue is left to the discretion of the government. In reality, however, it is determined through transactions between trade unions and a group of employers.
How to reverse the trend?
Labour policy and employment regulations require a fundamental revision which should be based on a comprehensive analysis of the expediency, implications and costs of employment regulations. Before we do that, however, we should change attitudes so that employment regulations would no longer be regarded as a sacred cow.