Excellent post. I’d add that allowing this race to the bottom would be a disincentive to the improvement of business productivity and efficiency. Why invest in new machinery when you can hire near-slave labor to to the same job for less. This is not just theoretical - some big companies who manufacture in Asia have found that it doesn’t make sense to invest in automation since the depreciation for the machinery is more than labor.
Reducing productivity is bad for society as a whole.
If other countries can have a $21/hr USD minimum wage and a guaranteed minimum income (which, to be fair, is exceedingly rare, IIRC), I’m afraid I’ll have to see more proof for the doom and gloom scenarios.
You know you have the freedom to fire your employee… you don’t have to pay them. And, you can decide for yourself what your minimum wage is, and if you can’t pay that to yourself maybe you should just fire yourself and quit as obviously, you fail at business.
Is every other business owner in town also wondering how he’s going to pay his utility bills? Because minimum wage laws mandate that all of you are facing the same minimum wage situation.
If your competitor is paying minimum wages and making a profit and you’re paying the same minimum wage and going broke, then that’s the free market whispering in your ear. It’s telling you to get out of this business. Your competitor is doing it better than you.
If the playing field was level, don’t complain because somebody else won.
hkepotat and WhyNot Explained it well already.
But I can see yet another reason why the dissent was really silly.
History has shown that efficiency has improved in more than 80 years with minimum wage laws in place.
Speaking of merit, virtually all developed nations have minimum wage laws or sector or regional variations of it. One big exception was Germany, they got by by having some sectors with a minimum wage and collective bargaining for the rest to give many a living wage, but they are joining the modern world too:
I think the argument presented in the OP might be valid if employers were required to retain employees regardless of their productivity. But the claim that the employer has no recourse if an employee wasn’t earning their keep is bullshit. Any such employee would quickly become an ex-employee. Nobody is required to lose money paying employees who are worth less than their wage.
If society says that people must make a certain amount of money a year, that obligation belongs to society and not to an employer (incidentally, I’m believe I’m paraphrasing a pre-depression ruling striking down a minimum wage). No one starves to death in America and virtually everyone at every level of society owns some luxury goods. You should contribute your money in the form of taxes because we as a society have decided that people should make a certain amount of money and taxes are less expensive and distortionary than artificially raising the price of goods via a minimum wage. In addition, a minimum wage overwhelmingly raises the cost of inexpensive goods and services, while having less of an effect on more expensive products. Welfare funded by taxes is cheaper and more progressive than a minimum wage. Why aren’t in favor?
On the other hand, there are some good economic arguments in favor of a minimum wage. Strongest among them (for me at least) is information asymmetry; if one side in a negotiation has more information than the other, the decision will be in favor of the party with more information and sub-optimal for society as a whole. Employers quite clearly have more information than their employees, often by orders of magnitude. A minimum wage set at a market-clearly price (which from what I have read is about $5 an hour) or slightly above it could potentially reduce the effects of information asymmetry while getting more people into the labor market than no minimum wage at all. I’d support that, but not a minimum wage at current levels or even (god forbid) 10 or 15 an hour.
If things are going that badly, then I would have to have a talk with some employees and cut hours and maybe let some go, picking up the work to be done myself. I would not ask, and certainly not require, that they should not be equitably compensated for their work. If I can’t keep the lights on, well, then I go out of business, a risk I took. Blaming it on minimum wage or other regulations that are applied to the entire market is just making excuses for bad luck or bad management.
This may be anecdotal, but I have been on all sides of the employee/manager/owner relationship, and I have found that the largest complaints about paying employees came from the most ineffective managers who did the least amount of productive work themselves, having an attitude of being above such menial tasks. It’s an attitude of looking down on employees as being less than, and less deserving than yourself. It’s disturbingly common, but it’s simply wrong.
You perhaps didn’t read the dissent? This is in fact a special burden on the employer in that he disproportionately bears the burden, and now must factor that into his business model or fail. The “race to the bottom” comments, and yours, suggest to me a misunderstanding of economics. In a given market, there is no “slave labor” advantage (wow, what a comically chosen scary term) in that the price will stabilize at economic equilibrium, unless the employers are in collusion. An employer who wants to pay $2/hour likely won’t be able to find anyone who will work for him, because the guy down the street values their services more and will gain an advantage by paying more. I can no more force the price of labor to a “slave labor” level than I can for the cost of gasoline or raw goods or copy paper, etc. Is your employer paying you more than the minimum wage? Why do you suppose that is, why he didn’t just start the race to the bottom that would force him and all his competitors to pay you next to nothing? Why? Because markets don’t work that way. Employers, like all buyers, pay the rate the market sets, not the one they’d prefer. If that economic equilibrium point is one they can bear, good for them. If not, their business model will fail.
And an employer doesn’t have the unlimited ability to simply raise prices in response to rising expenses, and if you believe this is an unchecked capacity, you misunderstand again. Price will impact demand, which will impact revenue and profits. Some companies will be able to shoulder the impact, maybe most. Some will not and they’ll fail. But ALL will have their profitability unfavorably impacted, including those small businesses with a razor-thin margin. All will be bearing an undue burden on their livelihood, one that ought to be borne more broadly and proportionately by the taxpayer if we truly believe these people’s basic human needs aren’t being met.
If you raise a company’s costs, it will impact their profits, all other things being equal. Our hope with minimum wage can only be that this irresponsible method of forcing some other guy to bear all of a certain societal obligation for a given person isn’t bad enough to hurt him. I suspect it isn’t many times, but it’s still not right IMO. The value that person has to that business has nothing to do with what that person needs. I’m not trivializing those needs. I’m just saying they aren’t his employer’s obligation alone.
Of course, usually the people arguing against the minimum wage and increasing it are also the same people who want to eliminate government programs to help the poor.
So then what?
Then why isn’t everyone, in every profession, currently making only the minimum wage and no more? Certainly minimum wage workers have less leverage, but the market works the same way for them: the value of a supply is not set at the buyer’s discretion. Employers will pay as low as the market will bear, but no lower. They can’t if they want people to work for them.
If the market price for unskilled labor is such that basic human needs can’t be met, that’s something society needs to deal with. But it doesn’t make it the employer’s problem that there may be an enormous supply of people with very low-value skills. The fix for this shouldn’t be “pay them more then they’re worth, because they need it.” If we’re all so worried about these people, raise taxes and take care of them.
I don’t know. We smack them down? Society needs a safety net. I think minimum wage is a poor one, but frankly it doesn’t seem to be creating too much havoc and it ain’t going away. So it’s all pretty academic.
I’d love to. But the same people (largely) who have been successful in the last 20 years and keeping the minimum wage from meaningful raise to keep pace with the cost of living have also been successful at cutting social safety net programs. My “side” tried the strong safety net, and y’all killed that, so now we’re trying the minimum wage angle and, shockingly enough, having a little localized success. Who woulda thought?
Really, it’s not about what is best or ideal, but about what you can get people to vote for. I don’t actually disagree with you that it might be better to achieve a living wage for everyone by providing it through the State (and then letting all employment essentially be for pin money and luxuries for those who chose a better standard of living). But there’s absolutely no practical way to get that successfully passed in this country, at least not at the moment.
That’s a reasonable position, from my perspective. I disagree with it, but I understand it. You install what you can, and if you believe this is the only thing possible that creates a greater societal benefit, you do what you can, not what you wish you could.
You’re wrong, here if we talk about “living wages” rather than minimum wages. Let’s ignore completely morals.
Your worker can work for you only if he stays alive (and in good health). Absent a society, you would have to pay him a living wage or to go without worker. Or else he would die or fall ill. Having a worker doesn’t just require that you pay him what his work is worth, but that you maintain him. Same as a machine. You can’t say “this machine doesn’t produce enough value, so I’m just going to cut power and stop repairing it” and expect to have your machine still running at this reduced cost (or to have society providing free power for the machine).
So, paying a living wage, strictly speaking, is definitely something that you have to do as an employer. Even as a slave-owner you would have to. And if you decide not to pay this living wage and expect society to fill the difference, you’re precisely acting as a parasite, relying on other people to pay part of the costs of having the work done. A living wage is the absolute minimum you have to pay someone, and it’s not at all arbitrarily shifting a burden, as you say. No living wage, no worker, unless someone else is willing to pay.
You can’t say “it’s society responsibility to maintain a pool of workers conveniently alive and in good health at everybody’s expense, so that I can hire them for 2 dollars a day when I need 2 dollars worth of work done”. Which is essentially what you’re asking.
It’s basically the Econ 101 argument about the effects of price floors and ceilings. IOW, inflation and higher unemployment at the lower income levels.
In reality, the effects of minimum wage are actually a lot more complex on the economy as a whole. As a couple posters pointed out already, if employers will not pay a living wage then the balance must often be picked up by society in the form of welfare and other social safety nets or increased law enforcement, private security and other reactions to the negative effects of income equality.
There is also an argument that a minimum wage actually benefits the economy as a whole by giving lower income people more money to put back into the economy to stimulate overall growth.
You don’t have to take my word for it, just look it up - the law is very clear about the fact that there is no legal distinction between the owner and the business in sole prop.
Sole prop is one of 3 basic types of small business entities A small business can also be an S corp. in which there are legal protections, or an LLC. In fact LLC means limited liability to (your liability is limited to the investment in the company).
So there are legal protections under 2 of the three types of entities. Sole prop, though providing no liability protection, is the easiest to set up and can be more tax friendly if the business is very small. It is very common for a business to start out as a sole prop. and then switch to being an S corp. or LLC as the business grows.
Except people refuse to raise taxes.
So… the masses won’t let taxes go up, we’ve got a bunch of people who can’t (for whatever reasons) make a living wage, we don’t want revolution…
We get minimum wage laws. Because business owners are a sufficiently small minority they can be “taxed” to keep the lid on social unrest over their protests.
And it’s not that every unemployed worker has “very low-value skills”, the problem is that in some areas there are vastly more skilled people than job openings, so those skilled-but-unemployed workers, who HAVE TO make a living somehow, apply for what they can get - which may be a low-skill job.
The workers may, indeed, be “worth more” than they’re currently getting, but their current jobs aren’t worth more. One current problem is an undersupply of jobs for a large pool of people, not just that people don’t have skills.
Our tour guide in Scotland told us the minimum wage amounts to over $40000 USD. Although the exchange rate is supposedly $1.70 per British Pound, we saw that what costs a dollar here costs a pound there. I think there is a connection.
I think the Scot minimum, if it actually is so high, is too high relative to the value of minimum wage work.
And, I agree that minimum wage workers immediately put their wages right back into the economy, and that if all businesses employing similar jobs have to pay the same minimum, no one is really hurt and the economy is somewhat benefitted. My point is that the minimum wage should not be so high that inflation results.
You can provide a safety net to keep workers/citizens alive one of two ways.
Welfare, food stamps, and so on.
Liveable minimum wage.
The first involves a government system. No flexibility. Rules that don’t always make sense. No inherent incentive to improve things, cut cost. Inherently wants to get bigger. Often discourages work and encourages no work.
The second allows the miracle of the free market to reach optimum solutions given the fixed parameters of the game.
I’m betting the second one works better.