It looks like local schools are being forced to experience what happens when the government imposes wage controls. The Affordable Care Act (ACA), popularly known as Obamacare, mandates that businesses with 50 or more employees provide an "affordable opportunity" at health insurance to all full-time workers, which the ACA arbitrarily defines as those above the 30-hours per week threshold. Schools are now finding that they must reduce the hours of teacher's aides and substitutes. Some will be losing their jobs.
And so it goes with all government interventions into the economy. Governments seem to be ignorant of economic law. That, or they are exploiting the economic ignorance of the citizens. They always offer a free lunch and, as we all know, there ain't no such thing. They act as if prices are random and can be changed at will without negative consequences. Perhaps if we understood how prices, including wages and compensation such as insurance, come about on the market, we would be less likely to allow them to meddle with them.
One of the main themes in economics is the investigation of how demand for goods and services is to be met by an adequate supply. For example: How can we make sure that enough food is produced and, once it is produced, how do we make sure it is distributed to all who need it? When there are people literally starving in places like the African and Asian continents, it is clear that something is not working. Supply is not meeting demand. But why? Why is the amount of poverty that is found in Western nations so minuscule when compared to that of the third world?
Prices are what balance supply & demand. Indeed, many economists say prices are where supply meets demand. And only on a free market, as Ludwig von Mises showed in his brilliant essay Economic Calculation in the Socialist Commonwealth, can true prices form. Let's say I am willing to spend $5 on a glass of lemonade (I must be really thirsty) and I know of a lemonade stand that will sell me a glass for that price just a few blocks away. But when I get to my destination, I see that a rival lemonade stand has set up shop across the street. This new stand is selling lemonade for $2.50. I can now get two glasses for what I would have spent on one. Or I can buy one glass and still have $2.50 left over to spend on something else. The demand for $5.00 lemonade plummeted as soon as someone offered it for $2.50. Unless the first lemonade stand offers a more competitive price, they will not be able to move their supply and they will be driven out of the market. But by lowering their price, they increase the demand for their product. Of course, prices are bid up by consumers vying for a glass of lemonade in the same way. If I offer $2.50 for a glass of lemonade, but the guy behind me in line is willing to pay $5.00, I must either pony up or bow out. The market price will be the result of this competitive bidding by both sellers and buyers.
Now let's imagine that the government intervenes. They decree that no one should have to pay more than $1 for a glass of lemonade. Even if we assume that lemonade is still profitable at $1 a glass, we still are heading for trouble. Why? Because supply & demand are about to be thrown out of balance. The lower price will increase demand. There will not be enough lemonade for everyone to purchase it at that price. You will have long lines of people hoping to get their glass before the supplier runs out. Also, with the lower price, profits will be reduced. Less profits means less entrepreneurs will be attracted to the lemonade market, which means that there will be a reduced supply. Supply decreases while demand increases. That's what we call a shortage.
Take away the price control and what happens? Prices are allowed to rise until supply meets demand. Supply increases and demand decreases. Everyone who is willing to pay the market price is able to acquire a glass of lemonade. So, when you see the vast areas of the earth where people can't seem to feed themselves, you should immediately suspect that something is wrong with their price system. Someone has intervened, if not with direct price controls, then by debasing the currency or being destructive of private property rights. For a sound currency and strong property rights are the necessary foundation of a free market and, as I noted earlier, a free market is necessary for the formation of market prices.
How does this apply to the wages of local teacher's aides? Wages are also prices. They are the price of labor. Employers will compete against each other to bid wages up to the maximum level they can pay and still profit. If an employer is paying a wage of $10 an hour while making $15 an hour from that employee's production, then another employer will see an opportunity to undercut the first employer and still make a profit by bidding $11 an hour. It should be becoming clear by now why government intervention cannot improve upon this arrangement.
The Affordable Care Act demands that employers increase the wages of "full-time" workers by way of paying for their insurance. But the law does not call new resources into existence. It is merely redistributing already existing resources in a manner the government prefers instead of the manner that the market prefers (the market being you, me, and everyone who exchanges goods and services). The increased price of school employees by federal edict has reduced the demand for their services. Supply & demand will always balance, one way or another.
Apply this same logic to the FDA, EPA, OSHA, or the Department of Education, and you will soon wonder if the federal government is worth the price you pay.
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