Goverment Encourages Citizens To Go Postal

One surprising factoid that I learned just before arriving in Germany was that it had no federal minimum wage, which stands in contrast to most other rich countries in the world. What surprised me further was how even left-leaning newspapers in Germany support having no minimum wage, concluding reasonably that the costs of instituting a minimum wage outweigh its benefits. I was thus disheartened to read this article a few weeks ago which informs me that Chancellor Merkel has approved a minimum wage for postal workers, paving the way for other industry wage floors and perhaps eventually to a federal minimum wage. Many arguments can be proffered forth against a minimum wage: that it raises unemployment (especially among the low-skilled), that it hurts small business, that it is a very blunt tool for helping the poor. These arguments are strong in and of themselves, but I would raise another contention as well.

The price of labor (i.e. a wage) is no different than the price of any good or service in that it aggregates dispersed knowledge and functions as a signal to the market. Just as the price of shrimp is both a cause and consequence of hundreds and thousands of other related prices (e.g. scallops, nets, copies of Forrest Gump DVDs sold, etc.) so is the price of labor. When the price is set by market forces, it functions as a signal to job seekers as to the relative and absolute value of a given job, and reflects an astounding array of information that no one person could ever possibly know.

If postal workers are being paid paltry sums for their toil, it is because an appraisal has emerged from the decisions of millions of market participants that the job's value is relatively low. The market signal is unambiguous--less people should become or remain as postal workers. The German government has now distorted the price to signal just the opposite; namely, that more people should enter the postal service. This is, on the face of it, utterly absurd. The market price is certainly bad news for postal workers, but to propose that the response to bad news should be to rewrite it as good news is juvenile. Political action may be able to change prices, but it cannot change the underlying reality behind the prices.

Germany has recently emerged from an economic slough in large part due to reforms which diminished price distortions in the labor market--a shame that this small reversal might be necessary in the sausage factory of politics in order to continue along such a promising path.