[Market Economy in Your Pocket] Misconceptions About the Labor Market

Many people think labor issues are an exception to the principles of the market economy. They argue that human beings, as persons, cannot be bought and sold in the market. But this is a mistaken view. The labor market is not a market for selling human personality like a slave market; it is a market in which services are provided and compensation is received in return.

In a free labor market, employers pay wages in accordance with workers’ productivity. Receiving compensation in proportion to one’s contribution to the other party is a just relationship among free and independent individuals.

From the standpoint of workers as a whole, labor market regulation is actually harmful to them. If the law raises the wages of existing workers, firms’ ability to pay declines and jobs decrease. Restricting dismissals may benefit workers who already have jobs, but it reduces employment opportunities for young workers.

That is why the stronger the regulations on dismissal or working conditions, the higher the unemployment rate becomes. What ultimately protects workers is not the government or labor unions, but competition among firms seeking to make profits in a free market.

The idea that collective action by labor unions improves the welfare and well-being of all workers is also a misconception. If a company collapses, workers lose their place as well. In the long run, corporate profits and workers’ welfare tend to move together. In addition, when powerful unions at large corporations go on strike, workers employed by related small and medium-sized enterprises often suffer harm. In the end, strong workers reap benefits on the sacrifice of weaker workers. This is precisely at the heart of the recent problem of polarization among workers.

Negotiations between workers and employers should be conducted through their own strength and within the framework of the law. Unfair labor practices should be subject to strict legal enforcement, regardless of whether they are committed by employers or workers. If the law becomes lax, companies and workplaces will be transformed into political battlegrounds.

To respond to the rapidly changing business environment and changes such as multi-product, small-batch production, diversification in employment arrangements is essential, and the increase in non-regular workers should also be viewed from that perspective. Moreover, there is a growing tendency for workers themselves to prefer non-regular positions. Regulations requiring the conversion of non-regular workers into regular workers or prohibiting differences in treatment between them do not protect non-regular workers; rather, they produce the result of protecting only a small number of workers at the expense of the many non-regular workers. The fundamental solution to labor issues lies in the principles of the market economy.

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Original title: [주머니 속의 시장경제] 노동시장에 대한 오해들

Author: Center for Free Enterprise (CFE)

Date: 2005-08-01

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=22&idx=10653