Capitalism Can’t Fix An Artificial Labor Shortage

– June 3, 2021 Reading Time: 3 minutes

If you want to act in movies or on television in Hollywood, you must be a member of the Screen Actors Guild. That’s why the accession of a “SAG” card is such a momentous achievement for actors. It means they’re Hollywood legal as it were.

So why does acting professionally require union membership? The answer is very simple: SAG wants to prevent those yearning to be stars from flooding the market, and subsequently bidding starting wages down to zero.

It’s as old as the hills for actors and actresses to wistfully proclaim that “I just want a chance to show them what I can do.” Since they’re all looking for a break, it’s not unreasonable to speculate that most actors would take next to nothing (or nothing) just to be in a television show or a movie. If it’s all about getting in the door, why not give the labor away for free with the long-term in mind?

In reality, a wholly free market for actors would likely result in negative wage minimums. Any ambitious entertainer would logically and happily pay Steven Spielberg for the opportunity to act in one of his films. Why not? The exposure achieved in a film directed by someone known to helm blockbusters would be much more valuable than negative wages endured amid production.

All of this explains why SAG limits the number of actors legal to work, all the while pushing up minimum wage floors for its limited membership. In a figurative sense “everyone” wants to work in movies and television, so SAG erects barriers to supply and price so that excessive supply combined with a willingness to work for “anything” doesn’t push down actor pay.

The Screen Actors Guild stands athwart market forces in order to keep entertainment compensation artificially high. Capitalism is not fully at work in the movie business.

This came to mind while reading a recent piece by New York Times economics writer, David Leonhardt. The columnist believes he’s got an easy answer to the present labor shortage in the U.S.: capitalism. The problem, one not diagnosed by Leonhardt, is that the present labor shortage he’s writing about has nothing to do with capitalism, and everything to do with the fleecing of capitalists.

To see why, let’s stop and consider why there’s a shortage of labor in the first place. It’s a consequence of a much-too-belated opening of the U.S. economy after over a year of needless lockdowns. With them finally ending, labor-intensive businesses are finding it exceedingly hard to hire workers.

Leonhardt says the presumed shortages are nonsense, that the “capitalism” he routinely attacks in his column is ready-made for fixing the shortage. In Leonhardt’s words:

“When a company is struggling to find enough labor, it can solve the problem by offering to pay a higher price for that labor — also known as higher wages. More workers will then enter the labor market. Suddenly, the labor shortage will be no more.”

Leonhardt’s diagnosis is much more than naive.

Stated simply, labor is a price like any other. Just as SAG keeps the price of hiring an actor artificially high by limiting supply, so has government to some degree done the same over the past year. With unemployment benefits abnormally high due to Congress’s generosity with the money of others, the incentive to work isn’t as great as it was before the lockdowns began in March of 2020.

Put another way, generous unemployment benefits are bidding workers to the sidelines. The able-bodied have a choice right now: they can either resume working again, or they can receive unemployment checks that in all-too-many instances are greater than what they would earn if they were working. In which case capitalists are hit hard in two ways: government intervention has made it artificially expensive to hire, plus that same government is also limiting supply of workers; thus making it more expensive to hire from a shallower pool of labor.

Leonhardt believes that the labor shortage problem is as simple as businesses offering better pay, that increasing compensation to lure individuals back to work is the capitalist way, but he conveniently ignores that the labor shortage is a direct consequence of a lack of capitalism. Government has intervened in the labor market, and created an artificial shortage. Much more galling about the shortage is that it was created by government taking from the capitalists.

Lest readers forget, governments have no resources. They only have spending power and faux swagger insofar as they arrogate to themselves a rising percentage of the production created by capitalistic endeavor. In other words, capitalism is the source of congressional largesse. In 2020, Congress chose to use the wealth extracted from capitalists in order to make hiring quite a bit more expensive for capitalists.

The mystery about all this is why Leonhardt can’t see the obvious contradiction in his thesis. Government is paying individuals not to work, and more than a few are biting. Labor shortages are the result.

Reprinted from RealClearMarkets