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Old 07-26-2019, 06:26 PM
Wrenching Spanners is offline
Join Date: Jun 2011
Location: London
Posts: 544

Discussion of wage setting for a particular scenario

In a Great Debates thread, Scylla makes the following statement:

Originally Posted by Scylla View Post
The problem here is that I agree with your sentiment. I really do. It should work this way. Who would disagree with the basic concept of an honest dayís work for an honest dayís pay? If someone goes out busts their ass for 8 hours doing a job, they should be earning enough to put food on the table, and a roof over their head. That is fair and just.

I mean that. Saying ďwell tough shit, the world is not fair, life is not fair, deal with it!Ē Is callous, insensitive and most damning..... it is easy.

But itís not. Sometimes an honest and full dayís work is just not worth much. Maybe itís only worth $6/hr. If the minimum wage is $15, that work may not get done and nobody gets anything. Maybe $6 would have helped somebody who now gets nothing. You have taken away his choice, his chance.

The fact is that some people, especially at the level of very basic unskilled labor come with issues and baggage that lower their $worth/hr.

I know a landscaper who mows lawns near here, and he pays an hourly wage on a sliding scale based on how many days in a row somebody manages to show up and work a full day, because some of his employees are hungover and sleep in the truck all morning if they show up at all. Others work a couple of days and make enough money to make it through the rest of the week and donít show up. He basically needs to stock his crew at 150% to count for no shows, and if they all show up he has to pay them all. He has other problems, too that lower the value of the workers who take his jobs. When he finds reliable people he usually gives them a crew and a truck and pays them very well. Even at this level he canít find enough people who are capable of driving a truck, and responsibly running a crew of 3 other people and 4 lawnmowers to mow lawns on their own. Such a man, when he does find one gets an hourly wage AND a percentage of the earnings generated. He has been running this business the 25 years and he has two of four trucks going, because he canít find anyone responsible to run the others, and we are talking around $1,000 week such a person could earn.

Then too, business carries risk, and can run on temporary hard times where the choice might be to close or pay less.

A farmer can break his back planting a field, but there is no guarantee that locusts wonít eat his crop generating a huge loss in which case his labor had a negative value, or that his crop will recoup his investment. Itís unfair, but itís true. Itís difficult but not impossible to pass these risk on to oneís labor. The trade off is that if I work that farmer, I get paid regardless of his outcome. If he canít meet minimum wage and canít plant his crop, his crop, and my labor and the goods that they could provide are removed from the economy.

So... it has very real negative consequences.

I don't want to hijack the other thread, but find Scylla's post interesting. Thus I've opened a new thread.

My thoughts:
1) Your lawn mowing company owner friend is encountering market inefficiencies. Markets are not efficient. In aggregate, over the long term, markets appear to be efficient. However, this is not applicable to any single example. The specific inefficiency here is that it's difficult to assess the quality and corresponding value of the resource being purchased - in this case the labour of the prospective employees.

2) Your lawn mowing company owner friend is attempting to purchase reliable employees. However, he's not paying fair market value for reliable employees. Over the long term, with sufficient pay, he should be able to find reliable employees. However, by paying below fair market value wages, heís accepting unreliable employees as a substitute for reliable employees.

3) If the fair market value for a reliable lawn mower is below the living wage in your local market, that is indeed a problem for your lawn mowing company owner friend if heís required to pay a minimum wage that equates to a living wage. His only response is to raise prices, and if thereís insufficient demand for lawn mowing at the higher prices, heíll go out of business. Thatís a negative, but itís not dissimilar to the negative that occurs when business with high production costs unrelated to labour costs end up being unsustainable.

4) Farming is a different societal/economic category than standard retail products such that it deserves special economic considerations and some relief from pure supply/demand pricing. Every country must maintain its food supply chain, or face destruction. Additionally, prices need to be set not based on market forces, but on what societies lowest wage earners can afford. For rich countries, that means providing subsidies to agricultural produces in order to maintain the food supply chain. A living wage for agricultural workers increases the amounts of those subsidies. However, itís a very bad idea to risk the food supply chain collapsing due to market forces.