Pay and employment conditions are not always a result of free market competition. Either or both may be controlled by law, custom, or organizations of employers or employees. Among the major factors behind such controls have been desires for job security and for collectively-set limits on how high or how low pay scales will be allowed to go in particular occupations or industries.
Here as elsewhere, we are concerned not so much with the goals or rationales of such policies, but with the incentives created by these arrangements and the consequences to which such incentives lead. These consequences extend beyond the workers themselves to the economy as a whole, where labor is one of the scarce resources which have alternative uses.
'Virtually every modern industrial economy has faced issues of jot) security, whether they have faced these issues realistically or unrealistically, successfully or unsuccessfully. At the most simplistic level, some people advocate that every worker be guaranteed a job, with the government if necessary. In some countries, laws make it difficult and costly for a private employer to fire anyone. Labor unions try to do this in many industries and in many countries around the world. Teachers' unions in the United States are so successful at this that it can easily cost a school district tens of 'thousands of dollars -- or even hundreds of thousands in some places -- to fire just one teacher, even if that teacher is grossly incompetent.