The Wage Freeze

April 28, 2010

World War 2, like all modern wars, was financed by monetary inflation, essentially printing lots of legal counterfeit money. The result, in time, was increasing price inflation, including wage inflation. In a vain attempt to curb price inflation, our government set price caps (and eventually rationing) and a wage freeze.
With 10 million Americans away at war, there was a severe labor shortage. With employers struggling to get the best workers, (mostly producing war goods), and a wage freeze, employers started adding “fringe Benefits”, a package of company-paid pension plans, medical insurance, and expanded paid vacations. Comparisons between job offers became more complex, but essentially they all offered more than the frozen wage as an inducement.
This defeated the wage freeze, but when the freeze ended after the war. Employers were saddled with the added overhead of managing these fringe benefits. Fringe benefits have now come back to haunt employers, as government keeps adding mandated fringe benefits to our employment.
Like all price controls, the wage freeze solves no problems and causes many more problems. People usually manage to minimize the problems by finding “loopholes” in the law, but always with a cost. The black market is the closest thing to a free market we can achieve but has an extra burden of overhead cost to evade the law.
Price and wage controls are a simple minded effort to avoid the unavoidable consequence of counterfeiting. It’s a case of one intervention causing problems which are used to justify one more intervention and so on and on and on. And with each intervention government increases in size, cost, and power, as we become less and less free. As Mises said, “Government is the negation of liberty”

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