covered by subsequently higher prices permitted by public utility regulation or

Covered by subsequently higher prices permitted by

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covered by subsequently higher prices (permitted by public utility regulation) or by taxes. And if such managers are told to hire according to some non-market-related criterion, say, to have equal proportions of males and females, they are more willing to do so, because, again, their institution’s income is less dependent on the market value effects of the new mandated policy. A similar effect occurs with respect to unionization of employees. Government agents, as employers, bear less of the costs than do private employers when agreeing to union demands. The government can resort to taxes to finance the raise. One can surmise why unions in the public 736
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sector are more likely to be strong and supported by the political authorities. LEGISLATIVELY MANDATED BENEFITS Suppose a benefit were mandated by legislation, rather than voluntarily agreed to by employer and employees. Only in the short run, before competitive forces have been completely felt, would the employees who want those benefits have gained. If maternity leave or childcare centers are mandated, the currently employed mothers will gain initially, while future women employees will not gain. (1) The gain to the employees favored by the legislation comes at the expense of the resources that are immobile and now less valuable elsewhere. (2) In time, as competition increases among job seekers for jobs with bigger benefits, the money wage will be competed downward. The new competitive market-clearing full-wage package will be loaded with elements more favorable to working mothers. Afer full adjustment in wage scales, the effects won’t differ much from levying a tax on all employees and using the tax proceeds to provide childcare centers. But initially the employees will have obtained a short-run gain at the expense of the employers, who suffer a loss of value of resources. [print edition page 649] EXAMPLES OF EVIDENCE OF THE DEDUCED IMPLICATIONS A study of legally mandated health insurance indicates that money wages fell by about 85 percent of the cost of mandated health insurance paid for by the employer . If your monthly salary were $2,000 and the monthly premium for the mandated health insurance were $80, your monthly salary would be reduced from $2,000 to $1,932 (= $2,000 − $80 × .85), a decrease of $68. The legally mandated benefit costs $80, but the employees take a reduced wage of only $68 to get it. Who will have benefited? Possibly no one. Each employee to whom the insurance is worth less than the $68 will have lost compared to being paid $68 more. If any employees value the insurance at more than $68, they will have gained. If the aggregated costs for the insurance for all the employees were less than the aggregated worth to the employees, the insurance would not have to be mandated. When the cost of the mandated benefit exceeds the worth of the benefits to the employees, the current employees may get a short-lived 737
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gain. Suppose an employer were required by law to provide free haircuts to employees each two weeks at a cost of $20 per haircut. Probably few employees would regard that “free” haircut as worth $20 reduced pay.
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