Question

Two local competing construction contractors sign a public pledge that, for the best interests of both companies and the surrounding community, they will both pay their construction workers $20 per hour -- no more, and no less. $20 per hour is generally considered a very healthy wage for construction workers; indeed, the agreement represents a fairly substantial wage increase for both companies' workers. However, the construction workers feel that this activity is illegal and file a lawsuit against the two companies, claiming that the agreement is a violation of Section 1 of the Sherman Act.

Answer 1

Two construction companies are being sued for agreeing on a fixed wage, which construction workers believe violates the Sherman Act. These kinds of agreements can be seen as illegal collusion, which contradicts antitrust laws aimed at maintaining fair competition in the market. Understanding this involves both legal and economic perspectives on antitrust regulations and labor market economics.

Step-by-step explanation:

The question involves a scenario where construction workers are contesting a wage agreement between two competing construction companies on the basis that it violates Section 1 of the Sherman Act. This relates to antitrust laws which stipulate that businesses cannot engage in practices that restrain trade or competition in the marketplace. In economic terms, setting a fixed wage could be seen as a price floor, typically used to create a minimum wage to protect low-paid workers. While price floors in the labor market, like the federal minimum wage, are legal and socially intended to help workers by ensuring a reasonable standard of living, when businesses agree among themselves on fixed wages, it can be considered illegal collusion that interferes with market competition.

Using the example of living wage laws that lead to situations where labor surplus may occur due to the intersection of supply and demand at higher wages, the question hints at the complexity of wage setting in economics alongside the legal boundaries set by antitrust laws. This situation involves both legal and economic analysis, focusing on whether stipulating wages in such a manner constrains market forces and falls afoul of the antitrust regulations protecting free trade and competition.