In Europe, Workers Use Minimum Wage Laws to Exclude their Competition

by Ferghane Azihari

Economists often warn about the perverse effects of the minimum wage. It is acknowledged this measure does not increase the salary of less productive workers. It reduces their employability, their ability to increase their skills and experience and thus constitute a powerful barrier to social mobility. But an effect is “perverse” only if consequences are unintended. The recent behavior of the French and German governments, however, leads one to believe that some recent effects of minimum wage laws are very much intended.

Labor unions and local businesses from Western Europe have complained for many years about the “unfair competition” of workers from Eastern Europe. Even when they are cheaper than French workers, Eastern European workers can still make three times more than what they would at home for the same work. Unfortunately, political and unions leaders do not understand the concept of comparative advantage. These political activists claim free movement of labor can only be fair if social conditions are the same everywhere. However, as economic theory shows us, inequalities and differences are precisely why the division of labor is beneficial.

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