> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.
> Just as a monopolist can set prices higher than would be the case in a competitive market, a monopsonist can set prices artificially lower.
A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job.
That's why minimum wage laws and workers rights are important. Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker. The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies.
>> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.
This sentence is just wrong. First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit.
Textbooks actually say that a worker will be paid no more than the marginal product of labor, and if labor is in short supply, they will be paid very close to their marginal product of labor. If there are a huge number of workers willing to work for $5/hr then workers won't tend to make even a penny more than this.
Information asymmetry and differences in negotiating power will further distort this, but the initial premise is already a strawman of basic microeconomics.
>> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.
> This sentence is just wrong. First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit.
In the econ 101 textbook simplified free market that the author is refering to firms do not make any economic profit. If a firm in a free market is turning an economic profit more firms will enter that market, raising supply, lowering price and driving profits to zero.
I know boxing is the "Sweet Science", and a quick search seems to indicate that "Gay Science"[1] comes from Nietzsche, and seems to refer to... poetry or song?
A better translation from the original German is probably "Joyful Science", though.
Not sure if that's where the parent was going, but I learned something new today.
Calling Nietzsche a nihilist is a complete misrepresentation of him. He wrote on nihilism a lot, but only to criticize it. Nietzsche believed holding a nihilist viewpoint to mean that one, in short, has failed at life.
It's more accurate to call Nietzsche an existentialist, as long as one keeps in mind that this term can refer to a wide spectrum of different moral and ontological ideas.
There are a lot of flavors of nihilism, so I'm not sure that having a pessimistic worldview precludes joyfulness.
I'd call myself a realist -- and I think there's a lot of overlap with nihilism there, in that I try and see the world "as it is", and not "how I wish it was".
The world is a messy, ugly, dark place. It really is, and it's kind of amazing how people go out of their way to pretend that either that darkness doesn't exist, or that it's somebody else's job to keep it at bay.
There is a light in our world, though -- it's us, if we choose to be.
And so, regardless of the futility in the grand scheme of things, I invest effort to find joy in all that I can, and bring that sense of joyfulness to those around me, because it makes my corner of the world just a little brighter.
> There is a light in our world, though -- it's us, if we choose to be.
I can easily argue the opposite. The world itself is beautiful. Just sit at a mountain top or in the forest or on a beach and take in their beauty. Look at stars, galaxies, how they interact, it's absolutely stunning. Or zoom in looking at microbes, cells, molecules, atoms. The world is a gorgeous place.
What brings darkness is people. So much hate, greed, awful intrigues, all over the place. Look at the U.S. today, it's the epicenter. Everybody could be so happy. But no, hate because somebody wants to raise taxes. Or wears a gun. Or "wants to take away your 2nd amendment". Or is a misogynist. All covered over with a culture that expects everybody to find everything amazing, wonderful, best country in the world, or hate, cancel, exclude.
There's still darkness without people. Sickness, suffering, etc, exist without humans. Hell, even torture exists. Orcas play with their food as they're killing it. I believe cats do as well.
If you can zoom out from that at see it as some grand, beautiful, process, then you have to apply the same filter to all of the evil stuff humans do as well, IMO.
Fair point. Animals eat each other, and that process is pretty cruel at times. Do animals have a mental concept of cruelty though? Of guilt? I suspect most don't. That does not make their actions less cruel, but it reduces the blame perhaps.
We humans know exactly what's going on. Wr do it anyway. We keep animals in horrible conditions. And we know it. Yet we keep doing it. We treat each other horribly. We have really terrible weapons. We use them anyway. It's cruel and we know it. We spread hate and participate in racism and dehumanisation. Many of us thrive in either participating or at least watching conflict. We celebrate movies depicting humans mistreating or killing each other. We know it and we like it. Oh but it's only against the bad guys!!!1
> Do animals have a mental concept of cruelty though? Of guilt? I suspect most don't.
What if a human, or groups of humans, don't feel any guilt or don't believe what they're doing is cruel? I don't think that would help you sleep better...
It shouldn't be surprising. We are animals, after all.
> We humans know exactly what's going on. Wr[sic] do it anyway.
Perhaps that makes it worse, but I don't know that it means that animals being cruel doesn't count as "darkness" as in the grandparent comment. (It certainly doesn't refute the point that cancer is still a thing from nature and it's pretty damn dark)
But I'm pretty sure that animals would do the same stuff we do if they ever developed the capacity to do so. I see no reason to assume they wouldn't. Again- we are animals. We evolved from the same ancestors. I'm sure if my dog learned how to farm for meat, pretty much all of dog-civilization would play out with a lot of the same themes as human civilization. Not because I'm not creative enough to imagine other outcomes, but because I have no reason or evidence to assume that their form of life is fundamentally different from ours.
I'm fairly sure that aliens would observe us and the Orca who throws the crying seal in the air as the same. They would either see both as sad, or neither because "That's just what Earth life does. They kill others. They form packs and fight over territory. Some exhibit anti-social behaviors."
Sure, if animals would be like humans, they would behave like humans. But that's not an argument to excuse what humans are doing.
If I was just like some serial killer, then I'd also behave like a serial killer. Does that mean the other serial killer should not get punished? No. It just means that I should be pun8ished too if I was like them.
But I'm not really arguing humans-vs-animals. I'm arguing against world-is-dark-humans-are-light. It's the world that's light and humans who make it dark, for other humans. With exceptions of course.
Cancer is a bad example. It doesn't have an agenda. It's just a side effect of some mutation or such. Sure we can consider it dark. But compared to humans who actually have an agenda, i.e., they choose to be dark, that's a different ballpark.
I think the parent comment implies that generally you cannot avoid human interaction to survive, therefore you cannot separate the beautiful scenery from the hatefulness people bring into the picture.
Fair warning: I'm going to get a little poetic here. :)
Oh, there certainly is a lot of beauty in the world as well.
But it comes at a cost.
Every year or so, I try and get in at least one overnight backpacking trip, or at least one day of off-trail hiking. I'd do more, but I live in a country that cranked the "civilization" knob to 11 about a thousand years ago, and hasn't looked back since.
You really begin to appreciate things like "a hot shower" after a couple of days in the backcountry.
We can journey to those breathtaking vistas, relax, and bask in the majesty of creation because civilization makes that possible. With aircraft, roads, park rangers, clean water, nearly limitless food, all the rest.
Subsistence hunters, fishermen, and farmers certainly got to enjoy that same beauty, but I rather doubt it was as relaxing for them as it is for us.
And the reality is that violence is the price of civilization. There is not one civilization on the face of the earth that has escaped a baptism of blood and fire.
This has only gotten worse as our technological prowess has progressed.
Spending time, alone, in nature, you realize just how... vulnerable human beings are. Last time I went hiking, solo, in the US, I heard an animal approaching about twenty yards ahead of me. Turned out to be a bull, of all things.
I'm glad he was obviously used to humans -- and I was sure to give him all the room he wanted, and then some -- because, combined, my bear spray and my subcompact 9mm would have just pissed him off.
Nature, for all her beauty, is indifferent to suffering.
Human hunters work hard for an instant kill. Most other predators only work hard enough to disable their prey, and then eat it whether it is alive or dead.
As for humans being ugly... well, that's what I mean by choice.
You're totally right -- there's plenty of happiness to go around.
Part of the problem is that there's money to be made in making people unhappy.
Happy people buy less stuff.
But at least the stuff-sellers give you something. The real hustlers are the people that take your money for "the cause", whether the cause is Jesus, or Social Justice, or something else where you can be convinced to part with resources in exchange for a feeling of moral superiority.
It really is kind of amazing how wealthy politicians, preachers, and pundits can get when they successfully engineer or leverage a large social movement.
It is even more amazing how little they actually need to deliver.
That's what real greed looks like.
Another part of the problem is comparing yourself to your neighbor. I think that's even a cognitive bias, but I forgot the name -- that isn't not absolute wealth that we value, but that instead, we want to have more than the people that we can see around us.
Unless you master envy, you can never be satisfied in a world where you are always comparing yourself against the apex of whatever it is you value: wealth, strength, beauty, etc.
But all of those horrible things about humanity -- greed, envy, hatred, all the rest -- are things we can choose to overcome.
We can be better than the worst parts of our nature.
There is nothing inherently unhappy about nihilism or what Nietzsche wrote about. Personally, going into existentialism/nihilism has felt freeing since I do not feel obligated to follow societies view on what happiness is or how I'm supposed to have fun or that I have to share a common set of morals. TL;DR "The universe certainly doesn't give a shit, so why not have a bit of fun before it's over?"
The economic definition is for a “perfectly competitive market,” one with extremely low barriers to entry. And one of the arguments about these markets is that they are the least profitable markets because firms in a less-profitable market will want to jump the extremely low barriers to switch into that market; this dilutes per-firm profits in the competitive market and concentrates them in the less-competitive market.
Economists consider those least-profits an “opportunity cost” of spending your time in the first place, and if you include that as an explicit cost then the “profit” is indeed zero.
This is correct, but it doesn't address a fundamental misunderstanding of the parent comment. The prediction that wages = MPL alone does not predict a lack of profit, since the marginal product of labour is generally less than the average product of labour due to the law of diminishing returns. (I would agree though that "the value of what he produces" is an ambiguous phrase and seems closer to APL than MPL).
It is true regardless that the theory predicts an economic profit of zero, but to see why it's necessary to consider the rental cost of capital. Also, since many firms own rather than rent capital, they often have a positive accounting profit even though economic profit is zero (economic profit is less since it takes into account opportunity cost: if you are using your own capital then you can't rent it out to someone else).
It's always difficult to jump into online discussions about economics because you need to give the entire econ 101 micro course in single comment just to make sure everyone is talking about the same thing.
Fair enough. I had a much more verbose comment earlier and it took me a second attempt to get it more concise while still conveying the essential point. The Blaise Pascal quote comes to mind, "I would have written a shorter letter, but I did not have the time."
In a free market you would be bidding up worker salaries to hire and retain the most efficient workers. Demand would often increase the price of labor and perhaps the output.
In almost every sector of the modern American economy, the rules benefit capital over competition. In my area in New York, there were dozens of small bakeries pumping out good bread... today we pay more for shitty frozen stuff baked at the supermarket. ISPs were plentiful, now they are a monopolist service that costs 10x more than they did in 1999. We broke up standard oil decades ago... That monopoly is mostly reassembled today and we have weaker competitive forces around prices of fuel commodities than we did in the 90s.
> In a free market you would be bidding up worker salaries to hire and retain the most efficient workers. Demand would often increase the price of labor and perhaps the output.
That's not necessarily true. You assume that demand for workers exceeds supply. That is true for some vertical skilled labor. The often unspoken truth is that most jobs are commodity positions and people can be interchanged (from a labor standpoint). There is no upward trajectory of salaries for those positions.
Capitalism pretends to be an efficient competitive utopia of personal opportunity but in reality it's monopolistic, oppressive, hostile to small businesses, and even more hostile to resilience and collective initiative.
It inevitably generates huge concentrations of capital which have immense political, social, and economic leverage, with no effective democratic checks and balances - except patchy application of anti-trust action.
I think it’s time to pull out the ‘splitting’ distinction between “industrial capitalism” and “financial capitalism”. I’m an economist, but in no way enamoured with free markets and laissez-faire attitudes as the default for solving everything. I think Mark Fisher had it right in his Capitalist Realism that Capitalism has totally blinded modern western (and other) societies to the existence of any possible alternative form of organisation. However, the kind of financial capitalism we now live under in most of the West—the kind that generates huge income inequalities, concentrates power in the hands of the financial sector, disproportionately favours incumbents, and corrupts our political systems by means of lobbying by special interest groups—lacks all the oft-cited advantages that Capitalism is supposed to bring in tow in exchange for its shortcomings.
> First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit.
The sum of the production of workers is not equal to the production of a business.
Otherwise, if a business increases revenues significantly by simply replacing its CEO, does it mean that the CEO contributes to the increased revenue all alone?
The CEO probably was able to increase per-worket productivity.
With the possible exception of lights-out facilities, the sum of the production of workers is equal to the production of a business, and even with lights out facilities, you would attribute the production of the facilities to those who build and maintain them.
Yet, I have stock in companies whose stock massively increased after a new CEO. The stock never rose above a certain point for years, until the new CEO made it drastically rise. The workers seemingly did nothing different, yet the CEO made tweaks here and there and crafted communications in specific ways.
Stock price = company value of a publicly traded company.
A CEO differs from a General Manager.
"A chief executive officer (CEO) is the highest-ranking executive in a company, whose primary responsibilities include making major corporate decisions, managing the overall operations and resources of a company, acting as the main point of communication between the board of directors (the board) and corporate operations and being the public face of the company. A CEO is elected by the board and its shareholders." ~ https://www.investopedia.com/terms/c/ceo.asp
I am willing to work as the CEO of Walmart for say $750k per year. The fact that I don't work there means that either:
1. Voting Walmart shareholders think that the having Doug McMillon for $24M/year is a better deal than having me for $750k/year
2. Voting Walmart shareholders are unaware that reasonably intelligent people with no executive experience are willing to work for a lot less than McMillon.
3. There are other forces at play; e.g. CEOs as Veblen goods or good-old-fashioned corruption. Maybe the board members are also C level employees (at different companies) and they are colluding to keep the C level compensation high.
#2 seems rather unlikely so pick one of #1 and #3.
#1 Certainly does not contradict my use of intentionally, since they believe that McMillon
>> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.
> This sentence is just wrong. First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit.
It's correct. You're assuming whatever the worker produces is sold at cost.
No? If value isn't defined as the price at which the product is selling (could easily be above cost), what is it in basic econ?
1. Worker(s) make a thing.
2. Worker(s) sell a thing.
3. All the above worker(s) (if there's more than one) receive a portion of the proceeds. If it reflects their actual contribution to that thing at its selling price, it's their marginal product of labor, putting aside things like reinvestment and power imbalances. This leaves nothing left over for profits, for owners / investors to take, who did not contribute the labor to production (otherwise, they'd also be workers and we'd call that part of their compensation, not profit).
Each employee is payed the marginal product of labour, but the output per employee is the average product of labour. Due to the law of diminishing returns, the average product of labour is typically greater than the marginal product of labour, and therefore there can still be a profit.
the rational actor would pay the value of production if the actor worked in a worker co-op. then 'profit' doesn't make any sense. if the value of the group's production increases, so does the actor's wages.
addiction to profit is a hell of a habit to kick, but it's not impossible.
No, the Capital Asset Pricing Model has nothing to do with this discussion. It takes the payoff distribution of capital assets as exogenously given (and known), then makes assumptions about investors' utility functions to find the price they're willing to pay for these assets, then employs an equilibrium argument and some neat maths to arrive at a linear relationship between the expected excess return of an asset and its beta.
If we wanted to go into more detail, we could consider production as a function of the cost of labour and the rental cost of capital, rather than restricting our attention to labour and assuming capital is fixed. In this case, the law of diminishing returns typically disappears, since in theory we can rent more capital and scale all operations proportionally. Therefore, due to the link between profit and the law of diminishing returns that you've explained, there should be no profit if all capital is rented. The reason profit still exists in this model is that capital is often owned rather than rented. So in this sense profit derives ultimately from the ownership of capital. That is not Marxist theory, that is mainstream economics (e.g. Mankiw & Scarth).
The other question is what does labor get when there are temporarily low or negative profits?
I used to work at a company which gave 10% of its profits to the workers each month as a bonus. But I was only there during some money-losing months so I got zero bonus. Imagine if that had been my entire pay!
> what does labor get when there are temporarily low or negative profits?
good question - the current system ensures that labour gets paid, regardless of profits being negative or not (until the company collapses). This is enshrined into law - you cannot leave wages unpaid, and it sits above creditors in seniority.
It looks like excellent solution for startup: just pay 100% of startup profit to workers by giving them 100% of shares, so they will self-insure themselves and be OK when startup will fail.
The socialist solution is actually centralized planning over multiple industry sectors. The workers would be paid profits from a huge, diversified conglomerate, mot merely the one industry sector that they happened to be working in. Of course, this leads to all the known drawbacks of central planning.
Marx didn't actually claim that labour should "get all the profits" - in fact he went to great lengths to explain his criticism of the contemporary socialist movement for demanding that (in Capital, Volume 1). Instead he differentiated profits from surplus value, the latter also containing the share of profits needed for reinvestment, further capitalization of the company etc. He criticized the 19th century socialists for demanding all profits should go the workers, because that would mean the inevitable failure of the company (the competition would reinvest, furthering productivity, and in the end outcompete the company paying out all profits).
Instead, Marx argued for worker control over the profits.
if labour owns the capital, then that "somebody providing the capital" still exists. Coops demonstrates that profit still need to exist, which is contradictory to the idea that labour should get all the profits.
The only way "labour gets all the profits" is under the umbrella of communism - and even then, the state still extracts profit anyway (just under a different name - that of central allocation).
In a co-op or partnership structure, the workers provide capital and superintendence/control in addition to labor. That's why the workers can get all the profits. And it's also why "pure" co-ops or partnerships are generally restricted to low-capital-intensity businesses - by definition, it's going to be quite hard to raise external capital. You could do it by issuing bonds, but the risk profile is unattractive for all involved.
>>First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit.
The value of their production is NOT the value of the production of the enterprise in which their production is employed.
Take a worker, whose work is worth $5 an hour according to market forces. Employing him to operate a $40,000 bakery, which generates $40 an hour in operating profits sans labor costs, does not mean the worker's labor is suddenly worth $40 an hour.
You can 100% pay workers what their labor is worth, and make a profit, and believing otherwise is a layman's understanding of the factors of production and the definition of value, and exactly the fallacy that underpinned Marx's quackery.
I see so many of these comments in Hackernews, which misunderstand basic economics, endeavor to expose some Big Lie allegedly being promoted by Economics/capitalists, and seek to defend some allegedly exploited underdog who needs laws limiting private-property/contract rights to be protected from said exploitation.
Also, there is no indication of information asymmetry playing any role in contract negotiations. Signals like market prices are an emergent phenomenon that are easily accessible to all prices.
They are easily accessible because well-resourced parties are incentivized to carry out actions that make them accessible, like a firm advertising a job opening and the pay offered as widely as possible, to maximize the number of potential applicants that see it.
> A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job.
I'm generally in favor of stronger job protections and so on, but I'm not aware of any definition of "free market" which supposes that all players have equal leverage. As I understand it, an economy with powerful corporations and relatively weak workers could still satisfy the definition for 'free market'; in other words, power dynamics are orthogonal to market freedom.
> I'm not aware of any definition of "free market" which supposes that all players have equal leverage.
bog standard microeconomics 101 uses as an assumption that no player can thru individual choices affect prices in the market, i.e. all players do have equal leverage, zero.
"free market" has more than one usage, but economics's conclusions are valid only if the assumptions are met.
Keep in mind that "free market" and "perfect competition", whilst commonly used interchangably, are in fact distinct terms. Few standard economic texts even mention "free market" whilst "perfect competition" is a standard microeconomic term (along with monopoly/monopsony and oligopoly/oligopsony), referring almost entirely to marginal value analysis, price/quantity behaviours, allocations of producer/consumer surplus, and deadweight losses.
"Free market" is a political term regarding the level of government regulation.
Neither "free market" nor "competitive market" adequately describe all (or even significant) levels of power differentials between economic (and social) actors.
I did consider rooting my comment higher up the thread. But the points I was addressing were most appropriate here. Point remains that "free market" is a loaded and political term.
> no player can thru individual choices affect prices in the market
That might be Econ 101 with fully continuous utility curves, and realized price equilbria, but anyone who has traded on a market knows that as soon as most bids are fulfilled it causes a dislocation of the price, so in reality the opposite is true: all individual choices affect prices in the market.
There is an old concept that rolls through bernanke, krugman, keynes, marx, smith, and aristotle (you're in very smart company if you make this mistake), that somehow prices represent an equivalence class of values. That's a very mistaken view of the world and also, in a perverse way, considering the progressive bona fides of some of those smart people, reflects an illiberal fetishization of the power of money and numericism.
It’s knowledge of settlement that causes the “dislocation” of price. Actual settlement has minimal affect.
Price, at equilibrium, is a true representation of value. But other market forces ensure that equilibrium is seldom met. Tax, tariffs, subsidies on the product and its components skew price away from value.
Also, this kind of analysis only works at market level. Individual actors all have different values. It has to be viewed in aggregate. Think anecdote vs data.
there is this pervasive assumption in economic theory that if two things have the same price they have the same value in some global sense. To make an obvious example: If you are allergic to peanuts, then the value of a peanut to you is quite extremely different to the value of that same peanut to someone else. This is unaffected by the price of the peanut.
> there is this pervasive assumption in economic theory that if two things have the same price they have the same value in some global sense.
Um... quite exactly the opposite? Very nearly the most basic assumption of all economic theory is that wealth is created through trade (which includes trading labor for a salary) because each party values the thing they are receiving more than the thing they are giving away.
> because each party values the thing they are receiving more than the thing they are giving away.
We're not disagreeing. I think I could have been imprecise. It seems a lot of arguments made by economists who should know better quietly use models which which effectively ignore the "most basic assumption" or average it out, which is a nonsensical operation.
The quantity in question here is "price", not "value". Prices only exist when buyer and seller agree. You're right that values will be different, but I think you've missed the subject of the previous post.
I'd argue that the economic sense distinguishes market price and individual value (market value === marginal consumer value), but that much political-economic rhetoric, particularly from free-market fundamentalists, does not.
You make a good point, but obviously different datasets and scenarios require different methods, and the detail of any approach is less important than starting out with valid assumptions.
If I'm allergic to peanuts and the price of peanuts is $100/pound, the value of a pound of peanuts to me is still $100... because I can sell them and buy something I'm not allergic to.
There are a lot of assumptions required to have that statement be sensical including a lack of transaction fees (including, just, effort - you're assuming the time it takes for you to arrange the purchase and resale is without value) and extreme price stability. 100$ worth of peanuts isn't worthless to someone with a peanut allergy but it is certainly worth less than it is to someone without since to the person with an allergy the only value of peanuts is as a bartering currency.
not really. If you are planning an arbitrage operation, then their resell price (and thus value to you) must be at least MORE than $100, otherwise you wouldn't buying them and going through the hassle and opportunity loss of the arbitrage.
If you don't bother buying them, then the total value to you is probably less than the value of $100 for you.
It's possible that the value just happens to be equal to the value of $100. That's a vanishingly unlikely coincidence.
True. Value to an economist is an aggregate of all the individual’s values. Your individual value is likely to have not influence on the market value (unless you’re buying a lot at a different price).
Fair enough; we're using 'leverage' differently. I didn't realize it had a formal economic definition. Never the less, my point stands: that employers can afford to wait for a given worker's labor prices to come down to the market price for their labor is affirmative evidence that the labor market is free whereas the OP considers this evidence that the labor market is unfree.
I think this is a question about timescales. Employers especially larger ones can afford to wait much longer than any singular employee. People break union lines because future better pay is not worth starving to death today. The average minimum wage American cannot afford to miss 1 paycheck without serious economic trouble.
if you could wave a magic wand and create a system for deciding labour allocation: Let's keep it simple: You must harry potter sorting hat people into, some salaries in the real world in parentheses: instagram influencer, video game tester, poet laureate, astrophysicist, molecular biologist (~35k USD), code monkey (~80-200k USD), oil rig worker (~80k USD+), road paver, garbage collector (~70-100k USD+), lyft driver (~40k USD -- though I made 50k doing that), and farmer (< ~20k USD)... How would you do it, and how "free" would it be, and what is your operational definition of "free"?
Sounds like you define "free market" such that all parties have equal wealth, or at least equal runway to wait for a better price. Per my original comment, I'm not familiar with this definition.
> employers can afford to wait for a given worker's labor prices to come down to the market price for their labor
That seriously underestimates the cost of a business being idle. Ample evidence for that is the devastation wreaked on businesses from the recent lockdowns.
The lockdowns are (incidentally, effectively) a case of collective action. It's not a case of one worker withdrawing from the market, but all workers.
Individually, with any positive level of unemployment, any one worker's nonparticipation is mooted by a ready waiting pool of available workers. Eventually the hold-out gets hungry. Or starves.
Blacklists operate similarly: businesses can afford the exclusion, the (unorganised) excluded cannot.
[I]n every part of Europe, twenty workmen serve under a master for one that is independent... What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.
It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen....
If that were true, every job I've had would be at minimum wage. But I tended to be well-paid, despite being at the bottom of the organizational pyramids.
As for blacklists, there are solutions. Blacklisted people can join together and start their own enterprises. One of the nice things about a free market is you can't stop people from doing that.
The five following are the principal circumstances which, so far as I have been able to observe, make up for a small pecuniary gain in some employments, and counterbalance a great one in others: first, the agreeableness or disagreeableness of the employments themselves; secondly, the easiness and cheapness, or the difficulty and expense of learning them; thirdly, the constancy or inconstancy of employment in them; fourthly, the small or great trust which must be reposed in those who exercise them; and, fifthly, the probability or improbability of success in them.
> One of the nice things about a free market is you can't stop people from doing that.
The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it.
Ibid., Book1, Chaper 8. Immediately follows my first cite.
Here's the thing, it's power that is relevant here. Not how it originates, but how it is weilded, by whom, and to what ends.
Who buys and sells those guns? Using what currency? And do you really want to kick the hornets' nest of slaver repressions, traders, anti-union violence, including multiple open wars, range wars, the Johnson County War, the Great Potato Famine, Opium War, British occupation of India, China, Egypt, Palestine, et cetera, et cetera, et cetera? All in the name of commerce and markets.
I'll let you find the passages in Smith yourself where he talks of the joint-stock-company created and operated garrisons in India, Africa, and the Americas.
And just to preempt a likely upcoming reference to Weber, his famous [hrase has three conditions, not one: it conerns the monopoly on the legitimate use of force.
Absent government, what is lost isn't violence, but the monopoly on legitimacy. Ony entity that succeeds in reimposing that monopoly is by the definition a government, and absent monopoly or legitimacy what remains is illegitimate and/or multiparty violence.
(A nominal government itself may lose its claim to legitimacy, as recent public protests in the US and elsewhere have suggested).
You've managed to have numerous horses shot from under you with no apparent grieving on your part in this exchange. In sympathy with the horses, I think I've pursued this as far as I care to.
But you might care to examine your premises and their foundations a bit more carefully.
To the OP's credit, I think there's a difference between "a company can continue without filling a specific role for a very long time, while a worker must find a job quickly" and "a company can continue without any employees for a very long time" which seems to be more consistent with your lockdown example.
The OP's position is IMO wrong in that (rational) employers aren't incentivized to wait for the absolute lowest-price worker because of opportunity cost. Consider the example of a successful restaurant looking to fill the role of 'marketer'. The company is already profitable and could continue indefinitely without filling the role. However, the company is looking to fill this role precisely because it believes that it stands to profit a lot, and every day that the role goes unfilled they're losing out on that profit. So here the worker has some leverage. Further, the restaurant isn't the only game in town, the worker can have offers from multiple employers and parlay them against each other for still better offers. The wage ultimately depends on the size of the opportunity (the company won't pay the marketer 100% of the opportunity or it won't be worth hiring them) and the supply of marketers. Ultimately, the restaurant wants to hire the least-expensive marketer (ignoring variance in worker quality for sake of argument) without waiting too long (losing out on the opportunity). This is what a free market looks like--the OP is arguing that because an employer can theoretically avoid bankruptcy indefinitely without filling the position that the market is not free, but I think they misunderstand what "free market" means.
The company can pay you anything between the legal minimum and the marginal product of your labor. As the labor market can never be perfectly competitive (i.e. an econ 101 textbook market), there will always be an employer who rationally calculates that paying more than minimum wage will be profitable - which in turn has an impact on the decisions of the other employers. This has nothing to do with them being nice guys.
No. In the text book case, you could be paid your marginal product well above minimum wage, and it would be compatible with neither you nor the firm having negotiating power.
A lot of the analysis and conclusions economists make are based on these kinds of assumptions. That is how they concluded in the past that minimum wage was a bad thing or many of them was against labour unions.
Although Adam Smith grasped this better than many modern economists and was hence a strong supporter of Labour Unions.
Of course Smith had not gotten his brain poisoned by excessive reliance on overly mathematical models of the economy.
If you're having a rational conversation with reasonable people, sure. But there are plenty of people who will insist that anything making a market less free is harmful, a bad idea and bad public policy. If you try to reconcile that, you may infer that they seem to be working with an unusually constrained definition of "free market", but that's usually not the most straightforward explanation.
Free Market used colloquially is very broad and usually means free from government intervention.
Free market in the microeconomic context is a market in which no one entity can significantly move the prices of a product but deciding how much to supply, therefore they don't have price setting power.
A second condition is relative ease of entering and exiting a market for competitors.
Coase's theorem is a good place to look for when thinking about power dynamics in a free market. Essentially, perfect information is a requirement when it comes to optimal decisions. Absent that, some party will be able to absorb some surplus, one essence "getting a better deal"
Yes, the example we're discussing is very contrived and over simplified. Notably, I'm implicitly assuming "perfect information" for both parties for simplicity (spherical cows and all that). There's lots I'm glossing over because this is an HN post, and I was responding to the specific claim that an employer's ability to avoid bankruptcy without filling a position gives them the ability to fix labor prices such that the labor market is not free.
ec101 often assumes perfect competition. google defines that as.
>the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.
Perfect competition is definitely taught as a concept, mostly as a benchmark to measure real-world markets against, but I don’t think it’s literally an assumption of everything you learn in Econ 101.
Most of the theoretical results of basic economics (i.e. Econ 101) are built on really sketchy assumptions, including perfect competition. I recommend Steve Keen, Debunking Economics, for one amusing reference.
Most generally, transactions can be freely negotiated by either party. I.e. no force or fraud. Contracts need to be enforceable. Individual liberties must be guaranteed.
> working well
Delivering on prosperity.
To clarify, imperfect information is not fraud.
Force in this context is something proactively applied, such as your signature will be on the contract or your brains. Force is not withholding something you have that the other party needs.
Charity, voluntarily helping others in need, etc., is perfectly in line with free market principles. Unions are perfectly in line, too, although laws bestowing monopoly powers on unions are not.
A free market does not have to be a perfect free market in order to deliver prosperity. Even small amounts of free markets can have outsized positive benefits, as the Soviet Union discovered when it allowed farmers to farm small plots, sell the produce, and pocket the proceeds.
Life expectancy was a good proxy in the 1800s because it improved dramatically, but now it has asymptotically approached a biological limit so is less useful. The same for average height.
That's kinda the point. We define what a spherical cow is to be able to compare the real world against it. The problem for economists is that lay persons take that spherical cow to be truth and base whole ideological systems on those spherical cow.
Economists take the spherical cow as, if not the current state of cow-dom, the perfected nature of cows and what cows would be if they got to make the rules.
> Economists take the spherical cow as, if not the current state of cow-dom, the perfected nature of cows and what cows would be if they got to make the rules.
Well, sure in a way, but that includes the parts that lay people ignore like the perfect information element and perfect value optimizing decisionmaking of the rational actor model, and the absence of externalities. But most economists recognize that people aren't omniscient, don't always optimally apply the information they so have, and that you can't avoid econonicndecisions having impacts on people other than those voluntarily participating in them.
Far fewer economists (basically, just the Chicago/Austrian schools, the latter of which does so as pretty overtly an article of faith) think that if you can't magically handwave those elements of the model into reality, the rest of 101-level simplified regulation-free markets still remains desirable as an ideal.
I'm not really sure I understand what you are trying to say here.
The almost purely "logical" and "ideological" statements of 19th and early-to-mid 20th century economics have been supplanted with with more empirical methods.
You know the supply and demand curves, from Econ 101? How they meet at one point to determine the price of the thing? The demand curve can actually have any shape, so you can have any number of points where the two curves meet, and the supply curve has the problem that a firm making extra things both will and must not change the overall number of things made.
This is a straw man argument. The issue at hand isn't "whether a free market is eminently desirable", but whether or not the relative ability for employers (or any buyer) to wait for a better price on a good or service renders a market unfree. My position is that a market in which one party (the employer in this specific case) can wait for another party (the worker) to come down to market price is entirely congruent with the definition of a free market.
Not really sure where there's a straw man here. I've addressed your concern on whether power dynamics are orthogonal or not. I've described the academic definition of what a perfectly competitive market is and referred to Coase's Theorem which essentially concludes such markets rarely exist in reality.
You say they are orthogonal, and I provided evidence that they are not.
It's a straw man in that no one in this thread is arguing that a free market is eminently desirable or otherwise making ideological arguments (contrary to the implication in your post). There's the chance that you weren't talking about "arguments made in this thread" and were simply digressing to "arguments made by other people elsewhere in the world" which is differently bad (off topic).
To be clear, I wasn't remarking about any comments you made about my orthogonality claim.
Yeah, I was talking to the immediate commenter, not the parent. I can understand where you're coming from with my off-topic comment; it was not intended to imply anything about anyone on the thread as such, nor was it a response to the op. It was just a lament of a frustrated person when it comes to their field of study.
I think this is a difference without a distinction. I was using "leverage" in a non-standard way (I didn't realize it already had a formal economic definition). The parent cited the relative ability for some employers to wait for lower labor prices to be evidence of an unfree market--such a definition of 'free market' seems like it would preclude differences in wealth (and thus runway to await better market prices) between any two players in a market.
>As I understand it, an economy with powerful corporations and relatively weak workers could still satisfy the definition for 'free market';
Sure, this can be true.
> in other words, power dynamics are orthogonal to market freedom.
No, they are certainly not orthogonal. One needs to only perform a simple thought experiment and increase the corporations' power to the point which constitutes a monopoly, to see immediately that they are not orthogonal. Do the same thing with increasing the power of unions and workers and you will again quickly leave free market territory.
It's a bit astounding to make the (false) claim power dynamics are orthogonal to market freedom.
> but I'm not aware of any definition of "free market" which supposes that all players have equal leverage.
You'll find it in the same chapter of the textbooks that state “that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.”. This is also called “perfect competition”, and you won't find a textbook to say that the marginal cost equals the marginal value without summoning this hypothesis.
That actually does not satisfy free market. Free market is freedom from coercion. When you have monopolies you're not free to participate in the labour market.
Freidman and Hayek both emphasize this point in their works.
Power dynamics are not at all orthogonal to market freedom.
Academics hold all the power in the "free" market and have
their snouts in the trough. In a truly free market Milton Friedman would be on minimum wage at best (or find a rich sponsor).
Right, many minimum wage opponents focus on the scenario where someone is worth e.g. $14/hr to a business, and rightly point out that this person won't be hired with a $15/hr min wage.
BUT without a minimum wage, someone worth $50/hr can be paid $5/hr if anyone can do the job. It strikes me that this situation is far more common than the first scenario, and minimum wage opponents tend to ignore it in their arguments.
Minimum wage sets a floor for the market. That could theoretically increase unemployment in some industries with razor thin margins, but it's far from a given.
If a company can hire someone worth $50/hr for only $5/hr and therefore make huge profits/margins, couldn't another company easily come along and undercut them? I don't think a scenario like that could exist very long.
>couldn't another company easily come along and undercut them?
Not necessarily. A lot of factors might give one company an exclusive position. Another coal mine can't just open up. There might be a large barrier to entry into the market or it might just take time for a competitor to surface.
If the other company can also do the same, why would they piss into their own cereal by reducing their profit?
And if the other company is a newcomer looking to gain market share by undercutting, they'll likely find themselves strongarmed or bought out of the market.
> If the other company can also do the same, why would they piss into their own cereal by reducing their profit?
Because that's how newcomers gain market share.
> And if the other company is a newcomer looking to gain market share by undercutting, they'll likely find themselves strongarmed or bought out of the market.
But then the high margins are still there, so the dynamic that attracts new entrants is still there.
The markets that maintain high margins are the ones with barriers to entry. Which, of course, we try to avoid as a matter of policy, so any policy that relies on their existence is quite problematic.
Patents are government-created monopolies and aren't free-market. The same goes with FCC and/or utility regulations. Copyright for the code running on those chips is another government-created monopoly. It is the most egregious because they establish those monopolies for a hundred years.
Services like Straight Talk and others that sublease towers and bandwidth from companies like AT&T or Verizon have massively cheaper costs due to the lack of contract phones (lower risk), lower support costs, lower advertising costs, etc. These lower costs are then passed on to consumers in the form of lower prices to the point that Verizon or AT&T prepay services have changed in an attempt to compete and even their main contract service prices have lowered somewhat.
As an aside, AT&T or Verizon actually rent most of their towers from other companies like American Tower or Crown Castle. They market how they're upgrading their towers, but that's not entirely true (they're basically bidding against each other on priority for tower upgrades).
I went looking for a new phone recently, there were brands I hadn't seen before on the shelves. Why you would need your own chips is beyond me, when you can buy them for a pretty small price.
They sure could and do if labor is limited. If the supply of labor exceeds the demand, you wouldn't need to undercut; you and your competitor would advertise $5/hr and you would both get a worker. In our current world, we don't see chipotle trying to out compete mcdonalds on wages, so clearly for many classes of worker there is an oversupply of labor.
Sometimes even in the real world things do flip, and there is a demand for low skilled labor that isn't being met. I overheard a few restaurant owners talking about the pandemic and their business while I was in line outside the grocery store a month or two ago. They bemoaned how no one wanted to come back to work at the restaurant since they were making more on unemployment. Neither brought up the idea of paying more if they failed to find labor at that price point in the market. Instead, they quipped back and forth about how lazy their staff are behaving after these owners themselves laid them off not too long ago and put them on unemployment in the first place. This anecdote is American capitalism in a nutshell, imo, just pure cognitive dissonance between the realities of the working class and the perceptions from the capital class.
The minimum wage workers around here are of two types:
1. teenage children of the upper middle class or higher
2. poor adults with a history of bad decisions
It's kind of a weird mix. Where are the children of the poor? You'd think they might want money much more than the children of better-off families do.
Surgeons, business owners, passenger jet pilots, software developers, and corporate executives all send their teenagers off to work minimum wage jobs. The point seems to be to learn about answering to a boss and/or to learn why success in school is important.
I'm not sure where you live, but my experience has been the complete opposite. When I was a poor working kid nearly every other poor kid I knew in high school started working at 16. Some of my friends from wealthy families did as well, but not nearly as many and usually only during the summer and not during the school year. Most did not have their first job (not including internships) until after college.
I am not talking about the intrinsic worth of a human. I’m talking about the price of their labor. Someone’s labor being worth $50 or $5 is a function of supply and demand.
The parent was comparing the value a worker brings to the company against the worker's compensation. To illustrate how the worth of a transaction can be different from the cost: If I offer to give you a $50 bill in exchange for a $5 bill, is that bill not worth $50 just because I lost on the deal?
Both the value of the worker and this situation both ignore the supply side. A $5 bill is worth $50, assuming there is a supply of people willing to pay $50. Likewise, a worker is only "worth" $50/hour if there is a supply of people willing to pay them $50/hour. If they're working for $5/hour, there's a good chance the supply of people willing to pay them $50/hour is slim to none. I would argue at that point that they are actually worth $5/hour, and $50/hour is a fiction like saying my shares of Hertz are worth $10,000 a piece.
I think there is a miscommunication in "worth" between some of the posts here.
Definition 1. - your version
"a worker is only "worth" $50/hour if there is a supply of people willing to pay them $50/hour."
Definition 2.
"a worker is "worth" $50/hour if they add $50/hour value for the business." (who then goes on to pay the worker as little as possible, maybe only $5/hr)
I would certainly value that piece of paper at $50 but apparently you value it at something less than $5 because you are willing to accept $5 for it. I haven't a clue as to why you would value it at less than $5, perhaps you get some entertainment value in giving away money?
This doesn't seem like a particularly helpful illustration.
You arrived at the conclusion that something can be worth more than you paid for it, which is the point I was trying to illustrate (because the person I was replying to assumed that the lowest price you can pay = worth). So it seems like the illustration did its job to me.
Yes but it is wrong to do so because wages are not set only by the worth a worker is to a company. That is only one side of the equation (demand). The labour market also have a supply side component which is the ability for the company to find labour.
You seem to be refuting a claim that no one made. We aren't only talking about wages, but the amount of value the worker contributes to the company. The latter is typically significantly higher than the former. In a profitable company, this is true by definition (at least on average across all the company's employees).
Another way to look at it is: what is the maximum a company could conceivably pay for a particular role, even if that amount was way above the market rate? That number would presumably be a bit below the value that role is expected to contribute.
>That could theoretically increase unemployment in some industries with razor thin margins, but it's far from a given.
It's not a given when you're talking about a small region like Seattle. However, increasing the minimum wage to the entire US would dramatically increase unemployment in the poorest areas. The minimum wage is why territories like American Samoa and Puerto Rico have the highest unemployment.
> Guam’s minimum wage is on the low side, about $1 higher than the federal minimum.
There are, if I counted right, 19 states and all other federal districts except DC and the Virgin Island at (well, below for American Samoa) the federal $7.25 level (American Samoa's level is also a federal level, but it's federally set lower than the rest of the US), and a few more states at the same level as Guam; so it's pretty close to the middle, not really much on the low side.
I must have been thinking about another territory rather than Guam. It looks like unemployment was counted before the pandemic for the US territories and after the pandemic for states.
Puerto Rico has structural issues related to endemic corruption that discourages business investment, and that is why companies generally avoid doing business there despite the very generous tax incentives for doing business in Puerto Rico.
PR's minimum wage has very little to do with it, except for being a convenient scapegoat.
Corruption that discourages investments is one side of the high unemployment. The other side is tiny businesses that can't even afford to pay minimum wage. They're allowed to pay less than the federal minimum wage if they're sufficiently tiny, but that means that they can't expand.
But then you have to ask, how can they do that? And the answer is, of course, the network effect of their social network. The value derives predominantly from that and not what the employees are doing -- if they did the same work for someone else who doesn't control a popular social network, it wouldn't create the same returns.
In economics this is called a barrier to entry. Industries with lower barriers of entry are more competitive (see: restaurants) and have lower margins. Industries high high barriers to entry tend to gravitate towards monopolies. For industries with the highest barriers to entry (like tap water) markets don't work and we have to use heavy handed regulation to avoid letting the industry completely screw over the populace (see: water barons).
Of course it is pretty weird to think of a social network as a utility.
They've conned their users into doing 99.9% of their work for them for free in the form of collecting, collating, and entering many petabytes of personal data to be ready for sale. I'd have super-high margins if I could do this in ANY industry.
It's not always easy to quantify. Consider people like janitors or security guards. They may be absolutely critical to the business running even though they don't produce revenue directly. Even if minimum wage was set to $100/hr for these jobs, it would still be worth it for many companies to hire them, since producing any revenue could be contingent on having people in those positions. At the same time, they are very competitive labor markets, so without a floor, the pay could go very low despite being essential to the business.
When someone is directly contributing to revenue, like a factory worker or salesperson, it's a bit simpler since you can look at their output, but you still need more information than gross margin to know the maximum a company could profitably pay an employee, since a company might design their operations very differently depending on the price of labor.
$100/hr is considerably more than I make as a software engineer. if my employer was required to pay a janitor $100/hr, they would fire them and have all the junior engineers spend the last hour of their day cleaning. having someone clean the building is essential for any business with a physical presence, but it's only worth hiring a person specifically to clean if they can be paid less than your core employees or if they can do it much more efficiently. this is why restaurants typically do not employ janitors.
The article is subheaded "Three decades of research have led to a rethink", and it is all about how economists largely do not oppose minimum wages anymore.
Wait, your contention is that paying poor people more doesn't effect poverty rates, and you are asking other people for citations, not citing something of your own?
Minimum wage doesn't mean "paying poor people more". That's a extreme simplification.
Minimum wage means "All employees you hire must be paid at least $X/hour". Note that if this means that employers decide to fire all employees below that wage (or not hire them), the average amount of money going to poor people would be less than before. Maybe employers fire some, and raises the wage for others, and it's wash. Maybe they do raise the wage for everyone below the minimum, and poor people do end up earning more.
I'm not claiming knowledge of which of these cases will happen. My point is that we shouldn't simplify complex situations to simple descriptions and argue against strawman arguements.
Another way of putting it: if it really was the case that minimum wage means "paying poor people more", why don't we just set minimum wage to $20/hour? $30/hour? $50/hr? Surely that would give even more money to poor people, and poverty rates would be reduced even further! (Because there are tradeoffs involved, and we need to balance them carefully.)
The only way you can claim that their argument is that is if you believe that the minimum wage simply means "paying poor people more", and nothing more, which is an absurd simplification, and ignores a lot of nuance (ex. employers don't have to pay the minimum wage, they can simply fire the employee [0]).
If it's really the case that minimum wage means paying poor people more, surely we could just set the minimum wage at $30/hr and pay poor people even more.
I'm not even opposed to the minimum wage myself. I just don't think it's good to simplify a complex situation, and then use that to strawman someone's legitimate point (that it is not a given that minimum wages will reduces poverty rate).
[0] - Another example is that minimum wages vary across jurisdictions, and employers are able to arbitrage that fairly effectively for many jobs.
Which is why instead of mispricing labour through minimum wage you can have a negative income tax which makes up the difference. The nice thing is that it will apply to everyone -- working or not, sick or not, on mat leave or not, can't work because of covid or not. You top-up people's income and that's paid for through taxes.
You take the benefit of efficiency and productivity from the entire economy and return it to the people at the bottom.
You don't have a right to a job, or a particular income. You have a right for society to not leave you dangling when in need. Your ability to get a job or have more income should be determined by market forces.
Put a negative income tax in place and ensure a minimum level of funds for every citizen and see how quickly Amazon's treatment of its warehouse workers improve. Far more than any union could provide.
Having a negative income tax is reasonable without removing minimum wage as they deal with different things.
Removing the minimum wage is effectively a subsidy for companies and industry’s that would then pay below the old minimum wage. Considering how often people in the US make below minimum wage even when it’s illegal, it seems like a bad idea. Instead even higher minimum wages can be used to drive automation.
I don't think a minimum wage is ethically justified in a minimum standard of living society unless that value in progress through automation is justified.
The arguments for minimum wage are always to insure it provides a livable wage, but economists generally rightly dislike it for limiting labor opportunities to ones above that wage threshold.
In the absence of a minimum standard of living you rightly should cling to minimum wage laws like the lifeboats they are for the working poor. Once participation is voluntary forfeiting minimum wages seems like a very promising bargaining chip against capital to get a negative income tax / UBI actually put into law.
I think I'd rather see UBI / NIT and have progress towards the singularity slowed for lack of a high minimum wage to pressure automation than the status quo of extreme unhappiness and poverty (and the corresponding social unrest, drug abuse, crime, mental illness, physical ailment, etc). Of course if we can have our cake and eat it too that would be great... I'm just saying to leave the minimum wage on the bargaining table, insuring survival seems like the more important goal.
We have no shortage of resteraunts even when servers, dishwashers, and cooks are all paid $15 an hour.
Arguably most competent endeavors are capable of paying minimum wage.
Cratering the truly incompent is a service to the market and reallocates resources to more capable players and retaining a minimum wage fosters automation and forces capital to give a larger share to labor. Either is desirable. I understand the concerns you have about automation. They are potential not fate.
> I don't think a minimum wage is ethically justified in a minimum standard of living society
The owner class does not make decisions based on what is ethical they act to secure their own benefits everyone might consider doing the same.
> Once participation is voluntary forfeiting minimum wages seems like a very promising bargaining chip against capital to get a negative income tax / UBI actually put into law.
In a democracy we ought to be able to vote our own interests as soon as enough people see the merit of the idea. Fuck negotiations. If democracy remains in truth eventually inequality will make selling this idea a trivial sale beforehand its unlikely to come to pass here in the US.
Automation is not a fixed thing. Many industries look to be people heavy but can rapidly swap, ie taxi cabs in a driverless car world. Speeding that up seems like a net social and economic benefit if we don’t need to worry about structural unemployment.
I’m not all that educated on negative tax rate - what’s to prevent companies from just setting wages to obscenely low, knowing the government will just pick up the bill and pay out the difference?
The fact that everyone will get the negative tax even if they stay home (or volunteer, or work on a passion project). If you're only going to pay an extra dollar per hour, nobody will take the job.
Negative income tax is not a negative tax rate (it's a credit plus a progressive, always positive, rate.)
(EITC has a negative rate in the lower portion of it's range, but EITC is a weird thing.)
> what’s to prevent companies from just setting wages to obscenely low, knowing the government will just pick up the bill and pay out the difference?
People's lack of willingness to work for low wages, which increases when there is reduced economic coercion to take whatever minimal scraps are thrown at you because of the income floor provided by UBI or negative income tax (different names for the same thing.)
The government doesn't foot the bill. People and businesses do. We pay taxes. Government has no money.
The transfer payment is taken from the entire economy through a tax. A slice off the top.
If a business has higher profits it would also pay larger portion of that transfer to low income persons.
A key feature is indexing the maximum amount i.e. what a person with 0 income would receive to typical cost of living at state or country level. This way it auto adjusts. Then it is in the interest of everyone paying taxes to figure out ways to reduce costs of living.
>A key feature is indexing the maximum amount i.e. what a person with 0 income would receive to typical cost of living at state or country level. This way it auto adjusts.
If you pick a value too low it does not actually keep someone alive, fed, and housed.
If you pay enough to live half the shitty jobs everyone hates become not worth doing.
The amount of tips isnt guaranteed,and you don't get access to them independently of whether you also choose the low-paying job, so I don't see how it's at all similar to UBI/NIT.
If people got the average rate of tips for a tipped job without doing the job, you think they'd take the job on top for the tipped minimum wage ($2.13/hr federally)? I don't think so.
Couldn't that be continuously offset by increasing/decreasing taxes at the top? I imagine a self-regulating system might be difficult, but not impossible.
You also get the benefit of not pricing low skilled workers out of the labor market. It is much better for the government to subsidize a person at 40% while they are obtaining skills and building their social network, than subsidizing them at 100% while they are on their couch.
Your point on mispricing labor is often overlooked. It is important that society knows the real value of a specific skill/labor. This is important information that will drive innovation/efficiency as well as giving young people or those going through transitions in employment more guidance in decision making.
What is more likely to play out is that assuming that when currently minimum pay for a hour is $10 and tax 0% then with negative tax X and no minimum the pay would become $10 / (1-X/100). The worker will get the same (hopefully) and the company will pay less.
Getting paid less is a fine outcome assuming the NIT fulfills its purpose of guaranteeing a minimum standard of living.
It means the worker has voluntarily participated in selling their labor, even if its for a lower price than they would have made before, and they would always have the option to stop doing it and do something - anything - else.
If the NIT is insufficient to provide the necessities of life than its institution failed in its primary objective, albeit I would still argue any NIT is better than none because it raises the poverty floor some amount above zero.
> Put a negative income tax in place and ensure a minimum level of funds for every citizen and see how quickly Amazon's treatment of its warehouse workers improve. Far more than any union could provide.
We ALREADY have negative income taxes. 20% of the population are given more in refunds than they paid in. 40% pay zero taxes. When you add in government benefits and programs, 60% of households take in more from the government than they pay in.
The point here being that hourly wages from these companies ALREADY account for theses factors. We could abolish these programs and raise wages, but that would be unpopular among a decent portion of the country.
A more interesting discussion is Consumption taxes -- taxes on spending your money. Consumption taxes account for 17-18% of all taxes. These taxes kinda slide under the radar for most people despite accounting for a huge portion of the taxes they pay. These are also the MOST IMPORTANT taxes because they affect goods and services directly (corporations pay attention even if most individuals do not).
A lot of states still charge sales taxes for things like food, diapers, and personal hygiene products (most at a reduced rate). These taxes definitely disproportionately affect the poor and should be abolished. Likewise, most states exempt prescription drugs, but still tax OTC drugs which also adversely affects the poor who are less likely to visit a doctor and/or have healthcare coverage.
Taxing services to "improve or repair personal property" exists in almost half of states and is also a bad idea. It disincentivizes maintaining things and all the important things like cars, property, buildings, etc are already taxed (and most are subject to tax increases based on improvements). Then they ALSO tax the person doing the improvement service effectively taxing one improvement THREE times. This is especially important when looking at small businesses or contractors who have to pay extra overhead to deal with the additional accounting. The most egregious part is that only two states tax white-collar jobs because the white-collar workers are rich enough to lobby while blue-collar service jobs like janitors or construction workers cannot afford such luxuries.
Finally, I'd love to see vehicles under $10,000 be tax-free (value as assessed by the state). Reducing vehicle costs for the poor would drastically increase their access jobs and offer an easier way to leave impoverished areas. In contrast, the electric vehicle incentives are almost entirely tax breaks for the well-off and disappear before the vehicles are cheap enough for the less well-off (if battery prices ever drop low enough for that to happen).
A free market does not mean that both sides want something with equal desire. I need food to survive much more than Krogers needs my business to survive. This does not mean that grocery sales are not a free market.
A free market means that the supply and demand of goods rely on price signals rather than a centralized planner. Labour is absolutely a free market. As wages in one particular area increase, people respond to that price signal by learning the relevant skills and working in that field and getting greater salaries. It's also why Amazon (and essentially no business) pay $7.25 an hour, even though they legally could.
Free markets are also free of monopolies, and generally expect the actors how have good “information” about the market.
This simply isn’t true for the labour market, ignoring the monopoly aspect for the moment, workers don’t have good market information.
Worker pay is usually heavily obfuscated by employers so it’s almost impossible for an individual worker to accurately gauge how much they can demand.
Addition workers have very limited time and resources to spend on gather information on the labour market. How are they supposed to discover better paying jobs, or better industries without constantly job hunting?
Compare this to companies who in comparison have a huge amount data. At a minimum they know the wages of all their employees, they also have the resources to be constantly surveying the labour market and adjusting to it.
All of this compounds to produce a heavily skewed labour market, that skews in the favour of employers.
The free market is very good at solving information asymmetries of the kind you are talking about. If it isn't being solved, it's probably because of regulation (regulatory capture). Or maybe it isn't a real problem.
I'm going to guess in this case it's more the latter than the former.
I've always considered this a very naive idea of how a free market works. It ignores how irrational and short-sighted humans can be, not to mention that many consumers are price sensitive.
A free market will not solve climate change as long as coal and fossil fuels are inexpensive.
A free market prioritizes one thing: Profit. That is all. A free market only solves problems when it is profitable to do so. Yeah, charities exist, but they typically aren't big enough to solve the big problems on a big scale.
This is an unbalanced opinion of free markets (but I generally agree with downsides of unregulated capitalism).
> Profit. That is all.
Free markets also have intense competition so "Profits" that you talk about don't just go out of control - Prices are set at the intersection of supply and demand curves. Companies would need to shave off profit margins to stay competitive.
I think it is fair to say that there are no ideal free markets. There are always asymmetries, downsides, side cashing and a whole bunch of complexities in any market - nothing is ideal.
So, we should have regulations that control those asymmetries.
This view was already expressed, except with some elaboration, hours before your comment. Why add to the noise with a post like this? Saying "no" is what the downvote button is for.
Usually, that's covered by the adjective “perfectly competitive” rather than “free” modifying “markets”, but it is an aspect of textbook idealized markets.
> I need food to survive much more than Krogers needs my business to survive
Yes, but you can buy from anywhere other than Krogers and the cost of switching is almost negligible. A job is very, very different in that regard.
Responding to your edit:
> As wages in one particular area increase, people respond to that price signal by learning the relevant skills and working in that field and getting greater salaries.
Learning the relevant skills costs time and money. If your wage is too low, you won't be able to learn new skills. And moving and changing jobs is not that easy for most people.
Yes, but you can buy from anywhere other than Krogers and the cost of switching is almost negligible. A job is very, very different in that regard.
It doesn't matter who I buy from, I need food much more than any retailer needs my business. I can sell my labour to many different companies with a relatively low switching cost. The average time people between jobs is lower than it has ever been.
Learning the relevant skills costs time and money. If your wage is too low, you won't be able to learn new skills. And moving and changing jobs is not that easy for most people.
If the price of steel increased, building new mines to extract iron ore would cost great sums of money as well. It is not easy for all mining companies to do this. It doesn't mean that the market is not relying on price signals to coordinate the production of goods.
> I can sell my labour to many different companies with a relatively low switching cost.
Well, I disagree on this. Maybe you specifically can do it, but housing prices, healthcare costs, transport cost, family charges, etc, can make the cost and risk of switching prohibitive. Not to mention that "just switching" doesn't mean prices will be better. Just have a look at the latest stats on working poor people to imagine whether those can easily switch jobs and get better education.
> If the price of steel increased, building new mines to extract iron ore would cost great sums of money as well. It is not easy for all mining companies to do this. It doesn't mean that the market is not relying on price signals to coordinate the production of goods.
So there's a high cost of entry? That's very much a non-perfect market. A free market doesn't just "respond to price signals", that's a very low threshold as you'll hardly find a market that doesn't respond in any way to price changes. A free market has to respond to them in an elastic way.
> people respond to that price signal by learning the relevant skills and working in that field and getting greater salaries
Many people stay in jobs they don't like or that don't pay enough because they need the healthcare or don't have the resources (including time) to learn new skills and move to a higher paying job. So the fact that people can't freely respond to price signals means that it is not a free market.
Again, a free market doesn't mean that everyone can easily buy or sell any good or service. Plenty of things prohibit this, including geographical challenges, language barriers, import tariffs, and other natural and contrived barriers to trade.
A free market means that the distribution and production of goods and services do not rely on centralized planning, but on price signals.
Ok, maybe labor is technically a "free market" because the price signals exist and there is no centralized planning, but the issue still is that there are too many barriers for labor to move around.
I would personally rephrase the previous comment as one of choice: for a free market to function you must have a reasonable choice to say "yes" or "no"; if you're strongly incentivised (or even forced) towards saying "yes", then that's not a very free market.
And that what's skewed here: as a (low-income) labourer, I often don't have all that much choice but to say "yes" since my bargaining power and alternatives are extremely limited. Often times people can't really "compare options".
>A free market means that the supply and demand of goods rely on price signals rather than a centralized planner.
That's one definition but it's not one of the more common ones.
It also begs the question what counts as a centralized planner. Does Boeing count if it sets the price of jet planes that only it and Airbus sell? What about when Singapore fixes the price of medical care even though anybody who wants can cross the border to have it done? Or Venezuela that fixes the price of its own money - at a rate literally nobody pays?
And what happens when those signals are distorted?
Remove the state and there are still many things that can go wrong with a market. Price signals become a way of laundering this fact past a certain point.
> companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time
This will be the case as long as we have monetary policy based on the idea that "100% employment is the apocalypse".
It seems like it is accepted as fact that 100% employment would lead to hyperinflation, despite the fact that this has never occurred. It is a totally untested theory that is suspiciously convenient for employers and shitty for workers.
This is one example that shows how economy is skewed against workers. If salaries rise because there is a shortage of workers, this should be accepted as normal. Instead, it is seem as a cataclysm for the economy that should be avoided because, of course, this shrinks the profit margin for companies. The monetary policy is designed to maintain the power of companies over labor.
Monetary policy is to benefit the owners; not the workers. 100% employment will drive wage growth as demand exceeds supply. That’s not good for the stock market.
Source? That is an extraordinarily broad statement to make.
Central Banks' (the primary institutions behind monetary policy) primary goal is to promote a stable environment for commerce. This typically means maintaining a stable rate of inflation (2-4% for mature economies, 4-7% for frontier economies). This often requires performing a balancing act between managing unemployment and inflation. We have PLENTY of evidence to suggest that inflation is harmful for everyone, ESPECIALLY for low income workers. The stock market usually has ZERO consideration in the decisions central bankers typically make.
The Federal Reserve has been trying to get inflation above 2% consistently for over 10 years. What are the chances that they get that even now with rates at zero?
Also, I would disagree with you about the Federal Reserve not targeting the stock market or other assets. Anytime in the past couple of years that the stock market in the USA has dropped roughly 10-15%, the Federal Reserve has jumped in dropped rates. They might say the don't target the market, but in reality that is what they are doing.
I think biggest issue in the future will be how will the Federal Reserve ever raise rates. They can't even go above 2.5% without the market collapsing.
Whatever their goal is, the execution obviously benefits owners of capital disproportionately more than sellers of labor.
If economic growth is more than the interest rate, the owners pocket the difference. If economic growth is less than the interest rate, the owners get bailed out. But in all cases, growth for the sellers of labor always lag the growth for the owners of capital.
> We have PLENTY of evidence to suggest that inflation is harmful for everyone, ESPECIALLY for low income workers.
I'm under the impression that inflation is disproportionately hurts those with large amounts of cash saved. In this hypothetical scenario where we have 100% employment and it causes inflation, wages would rise with inflation, so rising prices wouldn't be an issue... right?
I agree with you in theory, but it seems naive to believe political appointees like a chairperson of central banks give zero consideration to the stock market when that market is fundamentally important to those who appoint them.
I hope they have that kind of integrity but I won’t be surprised if there’s a gap between theory and practice
> 100% employment will drive wage growth as demand exceeds supply.
I hesitate to call this a fantasy thought experiment (like all the atoms in the right place for a brick wall to allow a baseball to pass through). Not to mention the illusion of employment statistics (how it's measured), in many countries.
This stable equilibrium is impractical. The world is not a singular country. Employment within a single country is not representative of labor supply/demand, in this context.
This is the one of the two biggest flaws in most macroeconomics. They act as if the national economy is a closed system. Of course, if wages rise too high, (in addition to automation) the products the wages were producing can be produced in other economies and delivered as finished goods. Immigration is of course another violation of the closed system model, where labor flows to places with higher wages. (The other biggest flaw in macro is treating the economy as an undifferentiated GDP factory)
> This will be the case as long as we have monetary policy based on the idea that "100% employment is the apocalypse"
Can you share where you are deriving this from? I don't think monetary policy is based on this idea. I think it is based more on managing inflation and economic growth, with employment impacts being a side-effect.
> It seems like it is accepted as fact that 100% employment would lead to hyperinflation
I also don't think it is that 100% employment would lead to hyperinflation. It's more that full employment might imply inflation has taken place, meaning that a basket of goods/services might cost more (in terms of number of Dollars). But maybe I don't understand the argument here?
There's a lot of very understandable confusion in this thread about the directionality of the unemployment-inflation tradeoff. It's not that increased employment causes inflation, but rather the idea is that inflation will increase if central banks try to get there by printing money. So the frequently used statement of "increased employment will cause inflation" should only be considered in the context of monetary policy. But the phrasing is unfortunate because it implies the wrong causality.
It seems this targets difficulty depends on the the threshold to get registered outside the labour force and that options incentives vs regitering as unemployed. For example, motivated stay at home parents would need strong incentives to become employed.
I don't enough to say whether 100% employment is good or not, but I do know that this:
> It seems like it is accepted as fact that 100% employment would lead to hyperinflation
is a strawman. The argument is that 100% employment will cause an undesirably high inflation, but serious economists almost never talk about hyperinflation. (It tends to be a boogeyman used by deficit hawks and the like, since it almost never happens except in cases of war or truly disastrous policy).
It isn't a straw man. The theory states that inflation will continuously increase at an accelerating rate as long as employment is above the "natural level". For any definition of hyper-inflation, proponents of NAIRU believe that we will meet that definition at some point if employment stays too high.
> Only with continuously accelerating inflation could rates of unemployment below the natural rate be maintained. [0]
For it to be basically unlimited inflation would mean there is an unlimited amount of cash and capital and capital in the system. That seems on the surface improbable. It strikes more as one of the formulas has gone off the chart and someone is making assumptions.
Why? If prices and wages keep going up in step, why did you need unlimited cash and capital? You just keep raising people’s wages with the increasingly worthless cash you earn in revenues?
Eventually there would be some sort of equilibrium. There can be 'infinite cash' which would be inflationary. But with capital there is a finite amount of it. Most central banks only allow a particular amount of cash into their systems. So the 'printing press' would probably not be true either. But it can if they crank it up. Cash is a short term proxy of capital. Capital is limited as you can not make infinite amount of things. At least that is what I am thinking. There would have to be a ceiling to it. Now if you erode trust in the capital to cash proxy (with massive amounts of inflation/deflation) the equilibrium is met quickly as unemployment would rise as people would not trust cash transactions and bartering would enter the picture again.
This is the downfall of most economic theories people hold. They miss taking it a step or two out and assume all conditions will hold true forever. The market changes. You can eat a bad egg for breakfast and decide you hate eggs forever. Yet the day before eggs would have been an acceptable form of breakfast transaction. Now these theories have a place to play 'what if'. But usually are not that good to follow.
Hasn't the experience, considering Asia, been that the greatest benefit of free markets is for low-paid workers?
I buy a lot of notionally 'American' products (iPhone, computer gear, electronics) that are all manufactured in Asia for cost reasons. A bunch of places have become extremely wealthy in the last century, basically creating a middle class out of poverty, through a strategy of cheap-wages-lots-of-manufacturing. Coincidentally, the greatest reductions in poverty are all in Asia. And one shudders to think what the Chinese could be achieving if their government was a bit more competent and left people alone to prosper.
Is there evidence that the poor in America are prospering under high minimum wages? The stats I've seen suggested it is basically status-quo for the last 50 years. Minimum wage is a small part of the puzzle, granted, but it isn't necessary to generate absurd improvements in the general welfare.
I believe you could make the labor market much more competitive with one simple and easy to implement change:
Make it a requirement that companies publish salaries.
We did this with CEO pay and it resulted in huge increases in CEO pay because it removed the information asymmetry. We make companies disclose important safety and nutrition information to the public so consumers can make good decisions about purchases, why not enable people to make good decisions about employers as well?
We are already seeing Flippy the burger flipping robot taking over jobs originally meant for humans. The technology for Flippy is only getting cheaper and better, the quality of human labor is already at its most optimal point and is only getting more expensive due to laws passed.
Now, you could make Flippy the robot illegal, and maybe x number of businesses would eat the cost of the more expensive workers. But something else will suffer as a result, and I would argue it would involve price, efficiency, quality, and compliance...
Some jobs are too dynamic for automation. Every shift means a unique set of tasks with unique sets of variables, even if they are routine tasks, and it gets very expensive to design and support an automated solution that will continually adapt to changing conditions and replace human creativity and plasticity.
I think back to my minimum wage job working as a grounds keeper at a golf course. To the uninformed, it seems like a perfect space to deploy a roomba with knives and never hire a groundskeeper again. I can tell you that this high tech course would sooner burst into flames than maintain playable conditions for a golf season. For a groundskeeper, the generalized routine is the same, cut the same greens and teeboxes every morning with a shotgun start and the fairways and rough every other day or so, but how you cut those sections changes by the day, even by the minute over the course of a dynamic weather event. What angle you cut, how high or low the cutting surface should be, whether or not the grass is slightly slippery that day and would require more focus with the mower to maintain a straight line, how the grass was cut yesterday and the day before are all variables that an experienced greensmower accounts for subconsciously and instantly. Then you might have a drought which changes how the grass should be cut, or a rain storm which might require a lot of emergency drainage work to keep irrigation equipment functional or to preserve the playing surface before you could even begin regular cutting, which would be with extreme care given the rain soaked earth (you might even opt to roll rather than cut).
A comprehensive automated solution for many jobs is exceedingly complex and highly custom, which could really add up in pricier engineer-man-hours and service contracts, versus having your own maintenance shop hidden on the course and hiring a low skilled crew to operate that equipment. It's so much easier to tell a human to cut grass than to spend 100x the man hours maintaining an automated solution that continually captures all the variability of that dynamic job.
There's a lot of blind faith in "New jobs will appear as old ones are obsoleted".
That's certainly has been true, but I don't think it's absolutely always going to be true.
Further, what we've seen is that primarily low skill high wage jobs have been replaced with high skill jobs. This is evidenced by the fact that you simply can't make a good living off a high school degree.
How many of those jobs are in danger of being automated?
Cashiers,
food preparation,
freight,
Customer service representatives (I know, you're thinking no way, but a lot of effort is going into AI chatbots to cut down on CS requirements).
accounting (In fact, this is what I'm working on),
order fillers,
Truck drivers
What happens to the millions when those jobs are slowly eroded away? It's easy to cheat and say "Something else will probably come up" but I simply don't think that will continue to happen in the next 10->20 years.
There's only so much productivity we can utilize. What happens when we've saturated? Unemployment.
I don't think any nation is really well equipped at this point to handle large portions of their workforce being automated away.
Sure, the standard of living will go up for everyone with jobs. However, that will be less and less of the population as time goes on.
This is why programs like UBI and universal healthcare are important. Without them, things are going to be pretty bleak for a lot of people (even with them, and a constant population growth, things won't look good).
> There's only so much productivity we can utilize. What happens when we've saturated? Unemployment.
There's only so much productivity we can utilize _at a given price point_. It's possible wages could fall instead, although there's definitely a floor to that.
That's one of the interesting implications of UBI; it would theoretically make it easier to find free or close to free labor. I still don't think it would be plentiful, but I would guess there will be an uptick in the number of people like amateur astronomers who will sit and watch the sky at night for free.
Why not simply reducing working hours for everyone? The risk of UBI is that rent-seekers might just engulf this guaranteed income by raising their prices, and then we will rapidly be back to square one.
Working 40 hours a week is not a natural law, peasants in the Middle Age worked less hours annually than us today. Reducing work hours would also have a positive environmental effect.
Otherwise, I wholly agree with your diagnosis of the situation.
> Why not simply reducing working hours for everyone?
Because either that reduces total wages for everyone, or it makes more people permanently unemployable by raising the cost floor per unit of labor value.
Also, you can't reduce working hours for everyone, only the currently employed, and in practice reliably only the near-full-time-employed-on-hourly-wages.
> The risk of UBI is that rent-seekers might just engulf this guaranteed income by raising their prices
Not really, since UBI funded by progressive tax increases compresses post-policy incomes rather than raising them uniformly. You'd need ironclad market segmentation that survives income distribution compression to “capture” any groups increase in post-policy income, and if you have that, you can just take all of that groups income anyway, which is a problem that needs addressed independently of whether UBI is adopted.
Some services are necessary but may not bring enough revenue to justify paying the worker a minimum wage. Robots can do these jobs and people can then focus on jobs that actually value their time.
Fast food has always been about efficiency, consistency, and streamlining. If Flippy has existed in 1961 when Roy Kroc bought out McDonald's it would have been a fixture in every location.
Making fast food isn't a job "meant for humans", it's a job humans perform for the legal minimum of pay. The moment fast food chains can replace humans with Flippy without a PR backlash they will do so without hesitation.
Even with a PR backlash, providing the sums work out correctly. I have no doubt it'll happen, just a matter of when.
I like the idea of humans not having to do trivial work.
But I am concerned as to whether as a society we'll transition to "more leisure without reduction of living standards" or "higher competition to make ends meet, with the 'failures' being cast aside".
How would an automation tax work? Every time a job is eliminated, add a tax? How much? What if there is further improvement in automation but no further job loses? Does the tax go up? What if it's a new industry and companies jump right to automation and skip jobs? Do they pay the tax? How much?
You could only use it to help fund UBI, unless UBI is significantly less than minimum wage. If the price of buying the robot and running it plus automation tax exceeds what you would spend on employing people at minimum wage, businesses would just keep employing people.
That sounds like a win-win scenario. In cases where robots can do things so efficiently that no human could compete when the minimum wage is a living wage, robots will can do the jobs and anyone who could only have done that job will be OK. In cases where it's cheaper to pay people a living wage than to have robots do it, people can work for a living wage.
Most arguments against minimum wages are not concerned with the impact on businesses, they are concerned with the impact on low-skill workers, inexperienced workers, and unusual workers (i.e. individuals with restricted schedules, or issues communicating).
If you cannot pay your workers a decent amount, perhaps you should not have your small business. Working for a small business shouldn't mean sacrificing your ability to buy food. Offer something better than the large places.
Just because it is better than nothing doesn't mean that it is right. My point still stands: If you can't pay a living wage, don't have a business where you need to hire other people.
Jobs don't work like that, though. To be able to pass up work is a luxury - the employer really has the upper hand. This is doubly so at low wages: No Food & no shelter unless you work isn't a free choice. Doubly so when the bits of safety net available require work in many cases - if they truly exist at all. (been years, but Indiana had zero cash help for single folks without kids. I guess adults could just go die on the street). Wage slavery sucks.
Now, if there were a real safety net - UBI, or something else that gives enough to live a normal life and afford a computer, internet, food, shelter, and reasonable hobbies - well, then, we can reconsider. Until we have choice with viable options - including not working for exploitative employers - then we might be able to do such things.
> That's why minimum wage laws and workers rights are important.
How do you translate that into numbers? If $15/hr is better than $14/hr, wouldn’t $150/hr be 10x better, and if so, what’s wrong with a comfortable $1,500/hr?
Slippery slope / Straw-man fallacy. One is to do with tying the minimum wage to a livable wage. The other is just large numbers for the sake of trying to win an argument. No one is arguing for $150/hr. The argument is simply that you aught not to be able to run a business and extract a profit if the cost to do so is employing people at such a low wage that they require governmental handouts just to pay rent and eat food. Given that, imaginary large numbers like $150/hr or $1500/hr do not come into play and thus do not need to be considered.
Sure, different countries have different living standards. That's the point. "Living wage" is an undefined, ever changing concept. Populist to the core.
That is still better for society than not having the economic activity.
What exactly is the benefit of wholly depriving the putative worker of a job vs. making up the difference with something like food stamps and Medicaid?
Rate that allows the employee to live without government assistance like food stamps and Medicaid. Otherwise the government is just subsidizing the company.
To "live" at what standard of living? A smartphone? A recent one? What standard of medical care? What about entertainment? What if someone wants only to eat organic, fair trade food?
When you pay for yourself, you're price sensitive and try to choose what makes sense for you. When you're not price sensitive, you run into a major incentive problem. If your life is funded by taxpayers, you have no reason not to argue that basic subsistence requires a lifestyle as expensive as you can get away with.
There’s obviously income thresholds for Medicaid, food stamps and other services. ACA clearly defines standard of medical care. Not sure what your asking because the government has already figured this out base on data.
"""
In my Inaugural I laid down the simple proposition that nobody is going to starve in this country. It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.
By business I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls; and by living wages I mean more than a bare subsistence level-I mean the wages of decent living.
"""
> A smartphone?
Yes
> A recent one?
Define "recent". One that has internet connectivity, allows you to install apps that are increasingly required today (banks, school, mail, auth etc.)
> What standard of medical care?
All of it except cosmetic. A.k.a. universal healthcare.
> What about entertainment?
What about it? Define entertainment. Let's do this way more broadly: how about vacations, sick leaves and parental leave?
> What if someone wants only to eat organic, fair trade food?
Yes. The poor cannot escape bad eating habits because (especially in the US) more often than not they have no access to healthy food, and healthy food is much more expensive than current government assistance can cover.
Demanding other people live in perpetual poverty with no safety nets, how is that not slavery.
BTW: Are you American, and do you by any chance identify as Christian? Because I've only seen two groups of people so hellbent on never helping their fellow man. American Christians and American libertarians.
You must have lived a horribly isolated life if those are the only groups you've ever seen this behavior from. Take a look at the EU and austerity measures if you want to see this kind of behavior on a large scale.
> All of it except cosmetic. A.k.a. universal healthcare.
I really wish people were more educated about this. In 2013, the US Government spent $4,981 PER PERSON (only $4,500 was privately funded per person) [1].
That is more government money per person than Sweden, Germany, Canada, Great Britain, Australia, etc (more than almost every first-world country).
The US has a pricing problem and a healthy-living problem. Almost 2/3 of all healthcare spending goes toward the obese 1/3 of the population [2].
Under 45, costs are less than 3k per person per year on average. The next 2 decades see prices soar to over double at almost 6.5k and over 65 they almost double again to 11.3k [3].
Why should I have to pay twice as much because someone else is overeating?
Put more interestingly, if obese people were denied government funds, the current amount of government spending at current prices would not only pay for EVERYONE, but would even have money left over (most likely gradually reaching equilibrium as those people lost weight to gain coverage).
> Why should I have to pay twice as much because someone else is overeating
Why do you pay for car insurance just because someone is driving recklessly? ;)
Also: as you correctly pointed out, the US spends more on healthcare than any other country. But people in those countries pay for obese people, too. And still...
Healthcare is a complex problem which should also include solutions for crazy amounts of sugar in American foods and drinks, better food in schools, better access to healthy foods for low-income families etc. etc.
> Why do you pay for car insurance just because someone is driving recklessly? ;)
I've paid much higher premiums than my sister simply because of my sex. If I get a speeding ticket, reckless driving, at-fault accident, or any number of things, my insurance will skyrocket enough to cover my added costs to the system (interesting, in my earlier years with my perfect record and despite my sister's many speeding tickets, I still wound up paying more for insurance for an equivalent vehicle).
EVERY insurance increases premiums for high-risk situations EXCEPT health insurance because reasons.
> But people in those countries pay for obese people, too. And still...
Obesity in the US happens at a much higher rate than other countries. My main point was that we are already super-socialized and the real issue lies elsewhere.
> EVERY insurance increases premiums for high-risk situations EXCEPT health insurance because reasons.
Of course, because reasons. Because health is a bit more complex than "you get a speeding ticket, you're a bad driver"
> My main point was that we are already super-socialized
You mean to say that the US already has super-socialized medical care? Erm, no. It's nowhere even close to being "super-socialized".
> and the real issue lies elsewhere.
Indeed. And I mentioned this in my comment:
Healthcare is a complex problem which should also include solutions for crazy amounts of sugar in American foods and drinks, better food in schools, better access to healthy foods for low-income families etc. etc.
Before punishing obese people the US should take quite a few steps towards helping people not become obese. Because even fast food is healthier in Europe: https://www.youtube.com/watch?v=ZMaW6TamNAc
> Rate that allows the employee to live without government assistance like food stamps and Medicaid. Otherwise the government is just subsidizing the company.
No, the government is subsidizing the worker, and in a system of means-tested aid doing so less than it would be without the job.
If you can't employ people at wages that don't get them fully off public aid, then people can't get the jobs that let them build the skills to be employable at decent wages. Your plan is a recipe for (1) killing businesses and tax revenue that support public assistance, and (2) killing people's ability to move up and off of public assistance, so that for any given minimum standard of living we’ll need more public funds to reach it but have less available.
It's much better to tax capital returns and use the proceeds to support the un- and under-employed (whether permanent or transitional) then it is to block the onramps to people becoming employable at wages that are livable.
And that's even ignoring that Medicaid and other public assistance usually aren't based solely on individual income but household circumstance, so that the required minimum wage by that standard would be dependent on household circumstances, which is problematic.
It's expecting companies to subsidize misguided government policies. For example, if the government restricts housing (and implements rent control) which drives up prices, why should companies pay more to make sure people can afford housing costs? How about runaway inflation?
There's always talk about market failures when many times government failures are the true causal mechanism.
Thanks, that seems to be the most rational approach and can be tied to a specific formula.
I wonder why states/municipalities don't just leave it at that - a specific consumption basket whose cost is recalculated annually, vs having recurrent loud debates about it with some arbitrary round numbers.
> I wonder why states/municipalities don't just leave it at that - a specific consumption basket whose cost is recalculated annually, vs having recurrent loud debates about it with some arbitrary round numbers.
Because the level at which it is safe to set local minimum wage without net adverse effects from job loss depends on a variety of conditions besides price levels, including prevailing low-end wages in localities that compete to attract employment. Building a formula that fully addresses this is nontrivial, and even with one that worked locally there would be a reason for broader regional/national campaigns to kick the floor up.
I agree in spirit, but not in execution. What you suggest implies the necessity of discrimination between different workers in the same job, which I don't agree with.
I think the better solution is to set a reasonable rate, fix it to inflation, and use corporate taxes to fund social safety nets.
We dont have a minimum wage here in Denmark, yet fastfood workers get: 18usd an hour, 5 weeks paid vacation, maternity leave, pto for childs 1st sick day, 8% on top of sallary towards personal pension plan.
We have something similar in Sweden. Instead we have well established unions and negotiations that set salaries that even companies that aren’t formally part of the negotiation process follow. These are called collective agreements.
“In Sweden about 90 per cent of all employees are covered by collective agreements, in the private sector 83 per cent (2017). Collective agreements usually contain provisions concerning minimum wages. Sweden does not have statutory regulation of minimum wages or legislation on extension of collective agreements to unorganized employers.”
Thomas Sowell makes quite a convincing argument that minimum wages stop people getting onto the bottom rung if the employment ladder. He convinced me to an extent, in that it can be useful for young people starting out and small companies that couldn't otherwise afford staff. But I do think it need to be balanced with some checks to stop it being exploited by companies who can afford it.
The issue is that nobody is entitled to anything. You aren't de facto entitled to receiving money for any services you may or may not provide, regardless of whether you're skilled or not, just because you exist. A company exists because one or more people risked wealth in order to create a net positive system - their existence is not as riskless as one would believe.
Companies aren't inherently "entitled to" anything either, including "personhood," avoidance of personal liability of shareholders for company actions, patents and trademark protection for inventions, rights to use public infrastructure, etc. You can't pretend like society hasn't granted corporations their own reasonable entitlements while arguing that workers shouldn't have their own.
That's true. Companies are just collections of people. They are not entitled to anything either. I don't think they should have any entitlements. No entitlement is "reasonable" if none are owed to anyone or anything to begin with.
Everyone has the right to life, liberty and the security of person.
Article 22
Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.
Article 23
1. Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
2. Everyone, without any discrimination, has the right to equal pay for equal work.
3. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
4. Everyone has the right to form and to join trade unions for the protection of his interests.
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You can either give people unemployment (wage without work)[as per 22 or 23(3)] by taxing the companies you mention, or you can make the companies to give money directly to the people in return for work. There is no third way. You can't deprive people of a dignified life by ignoring them.
Positive and Negative Rights or Coercion and Non-Coercion Rights
"Negative and positive rights are rights that oblige either inaction (negative rights) or action (positive rights). These obligations may be of either a legal or moral character. The notion of positive and negative rights may also be applied to liberty rights."
https://en.wikipedia.org/wiki/Negative_and_positive_rights
Rights are either (1) liberties that are stipulated to not be infringed by the government (Saying "Dear Leader is a bad leader" is protected speech and taxes/government cannot be used to prosecute someone for saying it) or (2) The ability to demand services to be rendered by the government so one's desires are fulfilled (I demand the ability to take from you via taxes to pay police so that I can have protective forces / police to defend me saying "Dear Leader is a bad leader")
Organizing political unions around negative rights (1) is socially scalable and recursible: "who among us agrees we will never kill our fellow man? of those in the subset, who will agree to never assault someone unless if and only if the person who is to be assaulted, has already assaulted someone" (2) is not socially scalable "Who agrees we should coerce person/group x if some of you feel person/group y wants what person/group x has"
If you think it's possible to write laws the subsidize the well-being of the destitute, Please let me know who I should sue for landing on a desert island and starving to death. Reality isn't fortunate nor charitable -- consensual, opt-in unions can be.
Anyone can make any arbitrary decision and call it a human right, it does not make it so. Watch:
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Article 6753
Everyone has the right to play video games 24 hours a day.
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Nobody is entitled to life, nor dignity. Simply because someone else exists on the planet doesn't mean their livelihood is now my burden. Me existing doesn't mean you ought to be enslaved to provide for me.
If no one is entitled to anything why did humankind abolish slavery? Child workers? Indentured servitude?
Think about it. Indentured servitude is nothing but a contract between two people. By your ideology it should be of no one else's concern. Yet, it is considered slavery and is illegal. Why?
Because it turns out life isn't as simple as "you're not entitled to anything". This same sentence has been uttered by people throughout the ages who profited by the status quo until the commoners got their heads, literally or figuratively.
Every law we have, including the ones that allow you to have private property, private land and virtual property such as copyrights and patents are man-made and arbitrary.
Yes, the one thing we can all agree on is the right to self. Nobody other than themselves can control their body - by that I mean that no matter what you do, nobody can tell you what to think. You can be brainwashed by force, or conditioned to react a certain way to escape force, but you can never really know what another person thinks.
Regardless, one has a right to their body. It is their property. More explicitly, any individual intelligent agent that exists takes up some physical space and that space they occupy at any point in time to continue their existence is theirs only. Property can be given up voluntarily or if nobody else has a claim to it - in this case it extends that clearly rape is wrong, but prostitution is okay, as it's voluntary on both sides. Seizing someone's house is wrong, but exploring space and building new structures in the middle of nowhere is not.
Whether laws exist regarding private property (or the lack thereof), we can define a set of natural rights that any person has regardless of any local, regional, or global laws, constructs, or ideologies. We can all agree murder is wrong, rape is wrong, stealing is wrong, slavery is wrong, and the clearest and most concise way of setting this forward is by understanding that nobody is entitled to anything other than their body and any property they have gained which was either unclaimed or voluntarily from another agent.
Certain schools of thought disagree on unclaimed property, e.g. if one settles a piece of land and the landowner doesn't notice, but after a decade or so has passed and the resident has worked the land and only then the landowner notices, who really owns it? I am not in a position to answer this but I don't think it's "arbitrary" or "man-made" to expect natural rights over your body and property. Everything else, indeed, is abstract.
>Regardless, one has a right to their body. It is their property.
To what extent? Does this principle apply to indentured servitude? How about work related accidents, should a company be legally required to prevent them? Should a mining company pay compensation for the lung damage sustained by their miners, even though that was not in their contract? How about the environment, does this principle imply I have a right to breathe fresh air? How about drinking water?
>Whether laws exist regarding private property (or the lack thereof), we can define a set of natural rights that any person has regardless of any local, regional, or global laws, constructs, or ideologies.
You can, but it doesn't mean I or anyone else will agree to them.
>We can all agree murder is wrong, rape is wrong, stealing is wrong, slavery is wrong
No, we can't. People used to think slavery was ethical. What changed? Raping and plundering used to be ethical for a victorious army. What changed? Today the majority of the world eats meat, and it is very possible that in a century we will be seen as primitive carnivores.
You are also not defining what constitutes these crimes. Is capital punishment murder? Is it murder to kill an enemy soldier? How about an enemy civilian? How about collateral damage? Is it slavery if a company destroys all your other options, forcing you to work for them on their terms?
Is it unethical for companies to collude and fix prices or wages? Is it unethical when workers do the same? Is it unethical when a company pays the local police to break a strike?
The thought that "you only own your body, and you have to earn everything else" falls down pretty quickly once you look outside that idealistic bubble and see historical or ongoing issues.
There's an even more powerful counterargument to the facetious notion that "we all agree that murder/rape/slavery is wrong" than "people used to think it was right".
People today still think those crimes are right, as evidenced by the fact that there are many people who still do them. That's why we have laws against those crimes: to punish the many thousands of people who still attempt to carry them out, and in many cases succeed.
If we could "all agree that they were wrong", then we wouldn't need laws against those crimes, because no one would ever commit them.
> The issue is that nobody is entitled to anything.
That's an ideological statement. You may subscribe to it, but not everyone has to. Society is fundamentally based on the notion of shared rights and duties, what these rights and duties entail can be up for debate, but if you don't want to owe anyone, you will have to live a pretty lonely, primitive existance in Siberia or Alaska.
Nowadays with the internet one does not need to be lonely even if they are away from society.
In addition others might decide to follow them.
> primitive existance in Siberia or Alaska.
This does not make much sense. Why would living somewhere else automatically give them any duties?
Anyway, I do not see the point of this argument. It is like saying to a gay person "if you don't want to be discriminated by anyone, you will have to live a pretty lonely, primitive existance in Siberia or Alaska."
> Nowadays with the internet one does not need to be lonely even if they are away from society.
How are you going to pay for the internet? If you want to operate with state currency, you need to abide by the rules of the state. Render unto Caesar ...
Edit: I suppose you could try doing it with bitcoin. Best of luck if you try!
And the end result is the lack of a right to life. For life requires sustenance. And if there's too few with all the resources, you are denied the right to life.
As a result, I can consider a libertarian to be genocidal. For they would be mostly fine with a Holodomor.
...and because workers show up to make it run, and because everybody pays taxes for the roads and electricity, and on and on.
We could have a dog-eat-dog society like Mad Max or something. Or we could set simple rules and live a decent life. Its kind of what Democracy is about.
You don't need taxes for roads or electricity. In the same way we don't need taxes for grocery shopping, or education.
Workers indeed show up and make things run, but only because they voluntarily chose to agree to a contract where that is their duty. If they don't like the terms of their contract, they can not take it, renegotiate their current one, find a new one, or take on risk and start your own income. You can't "accidentally" fall into a job.
About the "don't need taxes" thing: That's a laughable fallacy. In this modern world of interrelated dependencies, the days of "somebody will probably build a road just when its needed, Libertarianism could work. Really! Just let random people run the whole society at random, that'd work great"
We have to grow up, and recognize that as our country grew from 10M to 450M people, certain processes and activities have to be streamlined and organized. You don't run the company by letting folks show up for shifts at random and hope for the best. You don't run a country's infrastructure that way either.
Risk is a strong word, often there's little risk involved, it's often more about who you know, which entitlements your birth gave you and what parachute mummy and daddy can give you (especially if you're white, male and privately educated).
There's no inherent entitlement or human right to give your children your money, or to not be simply turfed off what ever land you are using when society decided there's a better use for it, for a competitor simply stealing your inventory, expecting protection from thugs taking your business etc., etc.
Because wealth begats wealth, there needs to be certain checks and balances, minimum wages are one of them, inheritance taxes and capital gains taxes are others.
For that, you get the protection of strong laws, an infrastructure you paid almost nothing towards, legal protections for your property, protection from foreign governments, access to skilled trained workers you didn't pay to educate, etc.
Your argument is circular, Fred is wealthy and can afford to speculate, therefore Fred deserves more wealth.
But Fred is only wealthy when everyone else buys into the system, otherwise Fred would soon be Dead Fred.
There is risk in any action taken due to the fundamental lack of information regarding events occurring in the future. I agree with you that much of it is luck, this at the same time does not mean because one is born lucky that they now need to suffer to bring someone else to their level. I disagree that it is meaningless, I believe that since no one person is entitled to anything from anyone else (to think otherwise would be to support slavery), the only morally correct form of interaction is through consensual voluntary action.
I do not think we need checks and balances. Minimum wage actually harms those who are most disadvantaged - if I am hiring two people and I must pay them the same amount, there's no reason I would take the socially less valuable person. At the very least, eliminating the floor would allow the disadvantaged to compete and make racists pay for their prejudice, i.e. "Do I really want to pay $10.00 for a white straight privileged [whatever insert here] or $5.00 for a black trans [etc]".
Inheritance tax is violence against those who pass on their wealth. If you have indeed earned so much that you would like to ensure your lineage, what right does anyone else have to stop you? Why is it wrong for you pass on wealth to your children? Whose business is it? What if instead, you simply lived a thousand years and kept your wealth?
If you want to donate money because you are very rich and have a lot of money to spare and truly believe this, then by all means, you can even pay more in taxes nowadays and never file a return. Nobody will stop you.
The problem with no inheritance tax is that it destroys individual merit. In an ideal free and liberal society everyone would start from the same point and achieve the things they achieve in life based on their individual merit. Such a scenario driven to its extremes would be a dystopian Brave New World-like horror, but we can certain level the playing field somewhat by ensuring that some don't start with millions in their pocket whereas others start with 0.
There is an absolute mountain of evidence that the economic status of your parents is a strong influencer of your own economic status. This is the cause of a great many problems, including things like the problems with the black community in the US for example.
Your entire argument on this is a contradiction; no one is entitled to anything yet you are entitled to the money from your parents? What right do your children have on the money someone else earned with their merit? Let them prove their own worth.
The argument goes both sides. No company is entitled to receive profits on the products it creates or the money it invests, just because it exists. There is no reason to believe or accept that companies and investors should have more protections from losses than workers.
The parent said "no one is entitled to anything". I take that to mean "neither capital nor labor is entitled to a return". It's probably also useful to scope this conversation to a certain context: "in a free market, no one is entitled to anything". This is a sort of hypothetical scenario since there are no perfectly free markets, and a completely unregulated market is very likely not a desirable thing (evolutionary forces aren't stable and stability is a prerequisite for sustained prosperity, security, etc); however, it's still a useful concept to guide discussion.
They didn't explicitly say that capital is entitled to a return, but the comment pretty clearly indicated an asymmetry between capital and labor. You could invert the wording to the following
> You aren't de facto entitled to receiving a return on any capital you may provide, regardless of whether that capital is put to productive use or not. A company exists because one or more people provided their labor in order to create a net positive system.
and the tone clearly changes from the original. I agree that neither capital nor labor is entitled to a return, but I don't think that's what the parent comment was suggesting.
Via "no one is entitled to anything", the parent explicitly said that capital is not entitled to a return. No need to read between the lines here. We can all agree that no one is entitled to anything in a free market and move on to the next question, which is probably something like "to what extent does a perfectly free market deliver on our collective objectives"? I.e., "Can we balance market freedom with some amount of regulation to deliver a system that is both prosperous and stable/sustainable/equitable/etc?".
> A company exists because one or more people risked wealth in order to create a net positive system
What about companies that exist solely as rent seekers? TurboTax is a net negative on society - congress has tried repeatedly to simply mail people a bill or refund, instead of the silly song and dance we go through now, but Intuit has lobbied aggressively to prevent this.
Under the current government system, they clearly provide value - otherwise they wouldn't exist. Whether the government is complicit in their existence is another matter entirely - but they're not just making money appear out of thin air. They clearly provide value in streamlining the spaghetti nest of the tax code for average consumers.
The issue is with government enabling the monopoly.
> The issue is that nobody is entitled to anything. You aren't de facto entitled to receiving money for any services you may or may not provide, regardless of whether you're skilled or not, just because you exist.
This is a value judgment you have made, and one that seems popular in USA. It's not a priori true and it's not necessarily so popular in other parts of the world.
This is incredibly simplistic and reductionist thinking with regards to the development of society. It comes from a brutal, cold and careless place. The goal of societies should be to evolve beyond the brutality of nature, not regress backwards to a place where we're eating our young.
How many of those governments are just, however? Can you reasonably claim that all citizens consent to the policies of their government? If everyone agreed to murder you, would that make it ok? What about if everyone agreed to rob you of all of your property, your livelihood? What about only half of that? Quarter? A tenth? What's the right number? Non-consent to any degree is not morally right. In the same way, it would morally wrong for me to coerce you to pay me some arbitrary amount I come up with.
In the interest of expediency, most groups of people have decided that democracies can make decisions as a proxy for consent, and people continually work to improve that process. Larger groups of people have all found it necessary to delegate daily governance tasks to a subset of people, because the time and effort needed to govern scales with the size of the group.
> Can you reasonably claim that all citizens consent to the policies of their government?
People will disagree with each other whether they have a government or not. Those who live ungoverned tend to experience more coercion, violence, and violations of their rights than those who are governed.
Yes. In one of my grad Econ classes an entire lecture was devoted to deriving individual pay based on marginal input and aggregate utility functions. The prof ended the derivation with a laugh then discussed all the obvious places wage does not equal marginal societal benefit. Ie school teachers vs entertainers.
The takeaway is that Econ theory only explains what it’s capable of explaining. The real market clearly has a lot more going on than purely rational actors exchanging goods and services.
You’ve got to think of all the people a teacher teaches to over their career and the strength of the interaction. Yes entertainers can make a song that winds up with astronomical airtime. But teachers inform how people think throughout their entire lives.
Maybe some textbooks? But like - when a software engineer is billed out by a contracting company at 250/hr and only is paid 50/hr it's pretty obvious that the wealth created is not what the worker is paid. It's been a long time since I took microeconomics in college but even the most charitable analysis of that is basically that the worker gives up the other 200/hr for stability and benefits.
And support. That $200 goes to paying accountants, sales staff, executive, marketing, custodians, etc. All of which help keep that $250/hr paycheck rolling in and getting distributed.
When I was working solo, I could not bill out remotely close to what I can as part of a firm. Not to mention that I had to find a cheap accountant, pay for office space myself, etc.
It’s also obviously untrue given the fact that wages in the US have stagnated while productivity has continued to grow. That’s despite a floor on wages.
Over the last 50 years, the combined middle and upper-middle class of the USA has been the part that has grown the most. The lower middle and poverty classes have shrunk. The upper class has grown a small amount. 62% of the country today is middle or upper-middle class today as opposed to 50 years ago when 51% were. [1]
However, the middle class has shrunk quite a bit as the upper middle class has seen tremendous growth while lower middle and poverty classes have seen a good deal of shrinkage.
37% today are lower-middle or poverty class compared with 50 years ago where 48% were. In particular, the poor have shrunk from 24% to 20% today.
So the middle and upper-middle have grown over the last 50 years with the upper-middle in particular growing and lower-middle and poverty has shrunk. However, middle class people may feel left behind as they see more people becoming upper-middle.
I believe that colinmhayes' point is that you dug the extra nine holes because there was a shovel, not because you got better at digging holes with your hands. The productivity gain was because a shovel was being used. It didn't matter who owned the shovel, it mattered that you were digging with one.
But that's not completely true, because a person who only knows how to dig with their hands still only digs one hole a day, even if there's a shovel just lying there. Knowing how to use the tools does in fact make you a more productive worker.
It seems to me, then, that part of the gain from the productivity from better tools should go to the worker who knows how to use the tools. And part should go to the person who bought the tools.
Well yeah. But the thing is, someone had to make the shovel to begin with. The gains in productivity of the shovel are just unrealized value of the original labour (and materials).
Not really sure what you're saying as this is an example of my point. The growth was caused mostly by the shovel, and partly by the worker learning to use the shovel. Wages have grown to show that.
The construction of the shovel itself is ultimately due to past labour and land, as well as by the invention of the shovel (labour). Capital is always ultimately a product of labour and land. In accordance, rises in productivity in the absence of discovery of new land is because of unrealized past labour. Therefore, this newfound productivity is to be attributed almost entirely to labour.
This is why Adam Smith, for example, cites labour as the primary factor of production, followed by land with capital as the last. In modern parlance you might hear that said as "human capital is the most important", but human capital really is a politically correct way of saying "labour potential".
> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.
You may disagree with my reasoning, but you yourself are making the case that workers are not paid for the value of what they produce.
But if you follow that logic further, which you should, it's also true that part of that capital is "human capital", or what some economists called variable capital. I can't think of any increase in productivity which has not been the result of human labour (whether technical, scientific, in discovery of new natural materials, or otherwise). Non-labour ("constant") capital is inert (literally, as physical goods, it just sits in a warehouse) without labourers to work on or with it.
I'm sure the theory falls short of describing reality in all sorts of ways but it does not imply there is no profit, that is a misunderstanding that astonishingly few people are pointing out given the amount of discussion it has generated. The revenue generated per worker is their average output, which is higher than the marginal output due to the law of diminishing returns (so yes, you could say that The Economist is being misleading here since "the value of what he produces" is ambiguous and arguably should refer to the average output rather than marginal output).
> The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies.
Even assuming everything else you've said is true, that's quite the leap to make. And also quite the oversimplification. There are lots of regulations and subsidies that have been tried where the unintended consequences end up negating most of the benefits, and just turn out to make the entrenched powers even more entrenched and wealthy. Plus there are ideas like UBI that don't fit neatly into the traditional buckets of "regulations and subsidies" and could be another (better?) way to give workers more leverage.
Of course actual policy is difficult, and complex. UBI or guaranteed income would seem to be the better way to give workers more leverage, but for that one needs to accept that we indeed need to give workers more leverage. You'll see in this thread a lot of people arguing that less regulation will somehow lead to better wages, when in reality that will only increase the power imbalance between workers and businesses and push wages lower.
We should also remember that the dual mandate of the federal reserve in the US targets an unemployment rate of 4%. This means that low skill workers will never have negotiating power. Not due to laws of economics but by US government policy.
I’m not here to argue about whether that is the right choice. Or debate about what the target inflation rate should be etc. But if the US government is going to intentionally maintain a minimum scarcity level of employment options for low skilled workers, it is only reasonable that the US government enact policies that protect these low skilled workers on the other side.
"That's why minimum wage laws and workers rights are important. "
But ultimately pointless when there are insufficient jobs - which there always are since "inflation targeting" ensures there always will be.
The actual problem is that there are 20 dogs and 19 bones. What we need is a Federal Job Guarantee. An alternative job that everybody has a right to access paying the living wage. Then simple competition sorts the rest out.
The task of the private sector is to eliminate all jobs and replace them with automated capital. Once there is a job alternative in place, we can let the private sector get on with that task.
I think we might be able to do without a minimum wage if we had a livable basic income. If people can afford to say no to a job, I think the negotiation balance will be much improved, and the labour market might become a lot more free.
How high a basic income would have to be for this to happen, I don't know. But I think with sufficient BI, crappy jobs will have to pay a lot more to attract people, whereas fun, interesting jobs might have more employees competing for them. That would be the sign of a healthy free market at work, I think.
The wage employee will be paid is some baseline plus or minus how much the bargaining power employee has.
The baseline wage is determined by how much a person with such characteristics is being paid in the industry for similar work in a given country, state, city. Usually, such characteristics should be limited to things like education and prior experience. In practice, they can include immigration status, nationality, current physical location, and other things that can be perceived as unfair.
By how much employees' income will diverge from this baseline is determined by the bargaining power and bargaining skills. This includes anything that can convince the employer to pay more. For example, if you currently have a job you may be less desperate to get a new job, meaning you can refuse a bad job offer more easily. If your status in the country is uncertain and you can't work legally in the country, regardless of how educated or skilled you are, you don't have as much bargaining power and you can be paid four to five times less than a citizen.
What I'm getting at is that in reality, employee's income is not determined by the product of labor he produces. It is determined by what similar others are being paid for similar work and bargaining. Usually, the lower bound is minimum wage and the upper bound is the company's income.
Minimum wage is not just important for the employer-employee relation, but also in society as a baseline of survivability. If you work a 100% of your time (so no sleep, no rest) and still cannot afford basic requirements for life then I'd argue that a minimum wage is the only way to guarantee that someone working about 8 hours a day can live.
If a normal workday cannot pay for a baseline life, the system is simply wrong.
You're redefining what a 'free market' means. If one side has a greater need or desire, that is still within the bounds of what a free market is. The market creates incentives and disincentives to fulfill different market demands, by creating an incentive to supply what's in demand (by paying more) and a disincentive to supply what we don't need more of (by paying less).
Not a greater need or desire, but a fundamental need. It's an important distinction. In a perfect market, if the only offers to buy a product are too low, you will stop production and close the company because you can't make a profit. In the labor market, if the salaries are too low, people will still take the jobs because low income is better than zero income.
>Workers can't usually live too much without finding a job.
Conversely, most workers can go to a different job, and hiring is expensive, so companies cannot simply keep spending on hiring and get no workers, so companies must offer enough value to attract workers.
Workers also have information companies do not - they know where else they might or are looking, they sometimes have competing offers in hand, and they can always not take a job based on these things.
>Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker.
Conversely, workers will always push for more wages wherever they can, without a care for the actual value they produce for their employer.
And it's much easier for a worker to go elsewhere than it is for a company to replace all workers. Both sides have interest in getting a good balance on wages.
> ...companies have more power in negotiation... Workers can't usually live too much without finding a job... That's why minimum wage laws and workers rights are important.
Is this true? Do you agree that reducing the minimum wage would open up more jobs that couldn't previously exist, and increasing it would close existing jobs?
For example, if I want to start a lemonade stand that serves my entire neighborhood, I'm gonna need help. If I have to pay the help $50/hr at minimum, then I will probably not open the lemonade stand. I think in this case it is obvious that too high of a minimum wage can result in a suboptimal outcome. The next best solution is to enter an informal agreement with my worker, which is an even worse outcome because now no one is protected.
That entire excerpt is bollocks. I seem to recall a pretty influential treatise explaining how wages tend towards the exchange-value of the labor to produce a good, not the use value or even marginal exchange value of the good itself.
It is not the role of government to set prices of labor or products. If a company wants to pay less than market rate for labor they will find themselves without employees. By letting the market dictate the price of labor, wages certainly fall from the artifically high price now. But, that is the result of people willingly entering a contract for the lower pay. People choosing to work for some money instead of no money. People choosing to work to improve their lives instead of being supported by welfare.
Minimum wage removes the choice. Minimum wage infringes on your freedom of contract.
The role of government is to set the rules of the game to provide for the livelihood of all citizens. Free markets bring certain efficiencies but they are not a priori good and virtuous. If they bring the best outcome for society as a whole then we should lean into them, if not then we should consider regulation of some form.
Increasing income inequality should be very alarming to everyone. The bottom 90% because they're getting screwed, and the top 10% because the perfection of conservative talking points and scapegoating of minorities and immigrants will not address the truth on the ground: nostalgia for post-war prosperity will not bring the jobs back. Policy in today's interconnected world is complex and almost entirely driven by expert lobbyists representing special interests who donate to both political parties to guarantee their influence. It's going to get worse and worse until either the 1% see their own danger or the pitchforks come out.
If labor costs less products as a result cost less. How do you reconcile your view with the success of Singapore? A country with no minimum wage and a comparatively free market. There is income disparity in every time and every place. The question to ask is do the rules of the game allow anybody to succeed. Minimum wage is a rule that says some people just don't get to play.
> How do you reconcile your view with the success of Singapore?
A country general success does not equal the success of its poor people. There are not many income inequality stats of Singapore, but the ones I've seen [1] actually put Singapore with a similar income inequality to the US.
Furthermore, it is a small country (5M people) with a pretty high GDP per capita (8th in the world). I don't think you can extract too many conclusions that would be applicable to other, bigger countries.
> The question to ask is do the rules of the game allow anybody to succeed. Minimum wage is a rule that says some people just don't get to play.
And without a livable minimum wage, you'll get people that are working full time for peanuts. They won't be able to save, get healthcare, provide their kids with good education, etc. Are those people succeeding?
In this discussion a country's population is irrelevant. For a small country with a GDP per capita higher than the United States only 55 years after independence I would say they are doing pretty damn good.
There is no requirement that everybody succeed at the same level. The measure of a country's success is improvement of society over time. Has the general quality of life improved for the people of Singapore over the last 55 years? I think that is a resounding yes.
> In this discussion a country's population is irrelevant.
It's not. You'll see that a lot of the top companies in Singapore are operating at global level while headquartered in Singapore. It's a little bit like looking only at the economy of the main US cities.
> There is no requirement that everybody succeed at the same level. The measure of a country's success is improvement of society over time.
Inequality is a pretty important measure. What society is better, one where everybody earns two times a livable wage or another where 25% earn eight times a livable wage and the 75% remaining are in poverty?
There is always inequality in all aspects of life. We all do not perform on the same level. Looking at a specific point in time and comparing inequality is a poor measure of society. The only measure that matters is improvement over time.
Upon independence, "Singapore faced a small domestic market, and high levels of unemployment and poverty. 70 percent of Singapore's households lived in badly overcrowded conditions, and a third of its people squatted in slums on the city fringes. Unemployment averaged 14 percent, GDP per capita was US$516, and half of the population was illiterate." [https://en.wikipedia.org/wiki/Economy_of_Singapore#Independe...]
Compared to today, Singapore has about 1000 homeless, 3.16 persons per household, a literacy rate of 97.3%, GDP per capita of $602 billion, an unemployment rate of 4.11% and a median household income of $9,293. The income distribution isn't bad either. From what I could find the cost of living (minus rent) for an individual is $575 a month.
> Compared to today, Singapore has about 1000 homeless, 3.16 persons per household, a literacy rate of 97.3%, GDP per capita of $602 billion, an unemployment rate of 4.11% and a median household income of $9,293. The income distribution isn't bad either. From what I could find the cost of living (minus rent) for an individual is $575 a month.
By that same link, the bottom 10% of the population have less average income than your cost of living.
But I read a little bit more, and it looks like that they are indeed tackling the income inequality problem [1]. Which is where country size and GDP per capita comes into play: a richer country has more money to implement inequality-reducing measures, and implementing them for a 5M people country is far easier than for bigger countries.
> The better society is the one where everyone has an opportunity to improve their lot in life by satisfying a need of others.
Well, that's why inequality is important as a metric. If you're born in a poor household, statistically you'll have far less opportunities than if you're born in a better situation. Want everybody to have an opportunity to improve and succeed? Fight poverty.
This could just go in circles. What benefit does a job that doesn't provide enough of a wage to survive actually provide to the employee, except a way to waste their time while they accrue debt and wait for an emergency expenditure to bankrupt them?
If only there were less regulations, allowing the creation of more businesses which would compete for this man's labor, increasing the wages as a result.
> If a company wants to pay less than market rate for labor they will find themselves without employees.
What if multiple companies in an area do that? What incentive does a entering company have to increase wages if employees will take jobs at lower wages nevertheless because they need to eat?
> But, that is the result of people willingly entering a contract for the lower pay.
This viewpoint ignores that people need to work in order to eat. It's not exactly willing if your alternatives are "accept this contract or starve".
It's not price fixing nor collusion. It's just the incentives companies have to lower wages.
Look at this example: a number of companies in an area are paying a livable wage at time T for low-skilled workers. Now, time goes on and inflation kicks in. Those wages, which did not grow, are not livable now. Workers, however, can't complain too much because they will be fired, and bad income is better than no income (not to mention healthcare tied to the jobs). There are also more workers than job positions, and new young workers are constantly entering the market, so companies will always find someone that needs to work even at that low wage.
What incentives do those companies have to increase wages? Absolutely none. In fact, this is what is happening right now.
> Without price fixing and collusion the employers have to compete for labor.
If employees actually had to compete for labor in all cases, we wouldn't be having this debate and people wouldn't be complaining that their wages are not enough to live.
That sounds like blaming a broken money supply for lower wages. They are making the same wages. The inflation of money supply makes their dollar worth less. Two separate issues. I would prefer to examine one issue on its own.
The company has no say in the money supply. Their money is worth less as well. Do you expect a company to pay more when they are earning the same amount and employee production stays the same?
The Fed is the only entity that controls money supply and the purchasing power of a dollar. Upset that what you are earning doesn't buy the same amount of stuff? Blame for that is entirely on us for asking the government for more while demanding lower taxes. Their only alternative to raising taxes is printing more money.
The example is not about inflation, it's just a method to show how without any specific action, companies don't have incentives to raise wages. But in fact, it's a real example because it's what has been happening in the US for a while, inflation increasing, company profits increasing but profits stagnating.
Anyways, the point is that companies will tend to push for lower wages, always. It's just how capitalism works, it pushes for maximizing profits. If there are more workers than jobs (which is the case almost everywhere) you can't say that competition will push companies to increase wages, because there will be no competition, and workers can't just stay home if there are no satisfying jobs.
"Free market" doesn't mean the parties have equal bargaining power (no two parties in the world do). It means that the parties are free to bargain directly with one another, without a third party (i.e. government) injecting the interests of those not party to the bargain.
A free market allows a farmer to trade barley with a buyer from another nation - an unfree market sees the government(s) disallow this due to protectionist policies lobbied for by unrelated farmers who benefit from decreased competition.
Minimum wage laws aren't important. Forcing companies to classify freelancers as employees or gig workers as employees is harmful and leads to less work available.
If you want to meaningfully create leverage for laborers, you need to ensure their livelihood is not dependent on being employed. A negative income tax or some other form of UBI would serve better to accomplish this goal.
On the flipside, providing all the basic needs of living to someone can potentially lead to a large drop in labor supply and create its own problems.
> The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies.
The only way? You don't think unions can give more power to the worker?
But that is theory. It might be true, it might not, but it’s irrelevant. Many “protections” and well-intentioned policies fail to accomplish the expected outcome, and we routinely forget to judge them based on their results rather than their intentions.
Your chain of causality is actually completely wrong. At 15 dollars an hour only a few companies can hire unskilled workers. At 1 dollar an hour many people can pay workers that amount, so there is more competition out there for wages. The idea that there is a monopolistic employer in the US labor market is laughable. Even for monopolistic industries like telecom there are multiple options.
Minimum wage jobs should not be expected to be a long term viable career choice. Minimum wage jobs are a way for people to get their first experience, and then move one once they have gained valuable skills.
People like to twist reality by imposing arbitrary constraints e.g. workers need to be able to get paid 15 dollars an hour without needing to relocate or learn new skills. The world isn't a charity, and anyone disputing that price floors don't result in shortages is frankly uneducated.
A livable minimum wage is the only way someone can move on. If you're working in an unskilled job, living paycheck to paycheck, how are you going to improve that situation?
> If you're working in an unskilled job, living paycheck to paycheck, how are you going to improve that situation?
One of the most common ways people move on to higher-paying jobs in the workforce is by skills (not necessarily in “skilled labor” sense, but even just basic work habits) earned and/or demonstrated through work in lower-paying (even unpaid, though less that since the crackdown on unpaid internships) jobs. Minimum wage jobs, even when minimum wage does not meet any criteria for “living wage”, are absolutely part of that.
> Your chain of causality is actually completely wrong. At 15 dollars an hour only a few companies can hire unskilled workers. At 1 dollar an hour many people can pay workers that amount, so there is more competition out there for wages.
That theory is good if there's a surplus of job offers, something that doesn't happen outside of very specific sectors.
Moreover, your argument assumes that changing jobs is easy and risk-free, when in reality it's not, specially for unskilled workers.
> Minimum wage jobs should not be expected to be a long term viable career choice.
Why not? Of course it's not the optimal career choice, but why wouldn't one be able to live off a full-time job?
> Minimum wage jobs are a way for people to get their first experience, and then move one once they have gained valuable skills.
Yeah, the "serving fast food" skill that is so demanded in the current job market.
> workers need to be able to get paid 15 dollars an hour without needing to relocate or learn new skills
If you don't get paid a livable wage, you can't save for moving and/or changing jobs, and it will be far harder to pay and/or have time for further education.
Non-livable wages just lock people into poverty. When the alternative is losing your house, or your healthcare, or starving, people will be forced to make non-optimal long-term decisions because it's their only option.
> Non-livable wages just lock people into poverty.
No, non-livable income does that. Relying on wages to solve that relegates people to a permanent underclass if they ever experience more than brief unemployment.
IT doesn't matter if minimum wage shouldn't be expected to be long-term. The reality is that many folks basically work minimum wage or slightly above for large chunks of their life. And some folks are happy in these jobs.
Some of these minimum wage jobs even require degrees. Preschool teachers, for example, often pay minimum wage or just above it - but this somehow shouldn't be a career choice. Many other jobs pay just a little above this - which, realistically, is what you'd get working late at a burger place. They get paid more than preschool teachers many times.
There is a limit to the ability to relocate with these jobs as it costs money: Same for learning new skills.
Denying folks a living wage when you know that low-paying jobs is reality for a large band of people (regardless of what you think it should be) is just cruel. The world "isn't a charity" because folks look down on folks.
the firms in the market are competing against each other and that's what drives up the wages. it's not so much about the relative power between the employee and the employer
> Workers can't usually live too much without finding a job.
> Companies will always push for lower wages wherever they can
but it's not just megacorp tho.
minimum wage will lower employment from small business significantly; i.e. small shop owner will get by with one less garcon to pay the other one more.
and if you think that can be resolved just by ample unemployment benefits, look no further than the Dublin heroin epidemic.
maybe two tier of minimum hourly wage + progressive hour cap could work: x$/month minimum wage for part time capped at 20 hour/week, x+50%/month for full time workers.
but it's a thorny issue where in the fight between drones and megacorp it's easy to incur in collateral damage around the middle.
> minimum wage will lower employment from small business significantly
Can you show some data that demonstrates this? Because, despite all of the wailing and gnashing of teeth (and flawed economic theory), in my country this has never been shown to be an actual effect after minimum wages go up.
They're out there. Mom-and-pops are not known for their efficiency. I've known some that hire people as a favor to friends/family/community. ("hey, my kid needs a summer job, do you have a job for them?") Heck, there are entire mom-and-pop shops that exist not as a serious income stream, but as a hobby.
If you're running a business with <5 people, hiring an 'unnecessary' person could just be a luxury so that the business owner can take a vacation or get an extra hour of sleep... and when times are tough, they forego that luxury.
These are probably not a significant part of the overarching discussion here, though.
I've seen "my kid needs a summer job" way more at medium size $100m/yr revenue companies where that can be hidden in the budget easier, and you can get a kickback for internships if you play your cards right as one of those companies.
And it is relevant, because there's a lot of data that there is no negative effect on employment elasticity, but there is significant publication bias in the field. And what always gets brought out is the argument that "businesses will start letting extra people go". They already do that even without minimum wage increases.
> minimum wage will lower employment from small business significantly; i.e. small shop owner will get by with one less garcon to pay the other one more.
As a counterpoint, where do we put the threshold then? I could argue that if I could pay employees in breadcrumbs, I could create a new company that would be profitable and I would increase employment!
In this issue, either you're driven by empirical data of the exact effect of minimum wage on social welfare (which is impossible to achieve without actually doing those changes) or you're driven by ideology. Mine is that someone with a full time job should at least be able to live a decent life, specially in our current society where we clearly have the capacity to do so.
high regulation and subsidies effectively make ‘doing business‘ a nightmare. the real question is: who are the value creators? how can you reward everyone appropriately based on how much value they create and how much risk they incur whilst keeping an healthy base level (minimum wage) for those who don’t? i think the answer is in the middle. too much regulation is harmful for businesses which are ultimately the risk takers and the value creators in our economies
I think it makes sense to get rid of a minimum wage requirement after universal healthcare and a basic income is implemented. Capitalists whine that the free market should be allowed to play itself out, but conveniently forget that labor is not a free market as is mentioned above.
most of these problems can be solved by just giving everyone the right to say no to labor with a guaranteed poverty income. It's not enough money to live on comfortably, but it gives the labor negotiator a chance to walk away from a monopsonist.
Have you considered the converse of very larger companies that have a stranglehold on their market (like Walmart, perhaps) pushing for a higher minimum wage to stifle smaller businesses in the same domain?
It seems like a viable tactic, though I will admit I have not looked into it much myself.
If you're interested in UBI, you may also be interested in UBS, universal basic services. UBI is potentially weak to things like increases in the cost of living and inflation, whereas UBS at least ensures that we must always face a semantic justification of what counts as meeting a service requirement, such as housing, food, etc. They are not mutually exclusive, either.
The Marxist perspective is that the employer is incentivized to pay as little as possible to extract the maximum amount of value from the person's labor, realizing the difference as profit (even though crucially that value was created by the worker). An example of this would be software engineers at companies like Apple and Google, whose labor has been shown to produce several times the value of their compensation. Unions and worker cooperatives are meant to counterbalance these forces by giving workers more negotiating power in the case of the former, or aligning the profit motive with employee compensation for the latter.
I think it's more correct to say that the Marxist (well, labour theory of value) perspective is not that the employer is incentivized as such, but they _have_ to. That the capitalist market _requires_ it or it doesn't work, business won't survive. It's intrinsic to the profit / wage-labour model, even if you switch to something like cooperatives or state ownership.
The theory is that surplus value (which can become profit, or be reinvested, etc) exists only through paying the worker less (on aggregate) than the aggregate amount that the worker provides through their labour.
The mainstream economics answer to this is to say that the labour theory of value is bunk and that prices are defined purely by market forces. But this kind of misses the bigger picture of what Marx was getting at rather by getting lost in the weeds about price definitions and really is a critique of Ricardo more than Marx.
Despite using the term "exploitation" which has moral overtones in English, Marx really isn't casting a moral judgement here. It's a technical description. But he does believe that this phenomenon leads to structural inequality and injustice and that the only resolution is some other kind of property ownership or method of production. Though he was famously vague on what that alternative would be, and people far less intelligent than him were left to fill in the blanks with some rather awful alternatives.
>But this kind of misses the bigger picture of what Marx was getting at rather by getting lost in the weeds about price definitions and really is a critique of Ricardo more than Marx.
This is very true, and cannot be overstated. Often, the criticisms of one theory are actually much better direceted at a predecessor theory. Students in a history of economics course, or a regular economics course, may learn of the "labour theory of value", but they may learn either Smith's, Ricardo's, or Marx's, and assume that the theories are the same, or that the same criticisms apply to all of them.
There are good and serious criticisms of the "labour theory of value" from those unsympathetic (and even those sympathetic) to its apparent normative conclusions. It's a shame that many people seem to confuse one thinker for another, especially when each boasted of their improvements (Marx, for example, writes "I was the first to point out and examine this [...]" when writing on the "LTV" and discussed the law of the tendency for the rate of profit to fall again in his original understanding, despite being extremely well read on - and critical of - his predecessors).
Hah, here we go, a few minutes of meaningful conversation and then when I check back in the conversation... downvoted to -1 by a bunch of guys who read Ayn Rand when they were 16 and now know better than everyone. :-) I think that discussion you want will probably have to take place somewhere else.
> even though crucially that value was created by the worker
Crucially the value wasn't created by the worker, but rather the worker played a part in the creation of that value. In a capitalist society, that worker's wage is determined based on the value of their contribution and the supply of workers with the requisite skill. In a Marxist society, it is set by the state, and it seems to be very hard for states to determine a price that is sustainable.
In my humble opinion, Marxism seems like a denial of basic economic realities--namely that the state can set the price of anything to whichever value they prefer and it won't have disastrous economic ramifications ("price is just an arbitrary number"). Maybe I'm creating a straw man, but I do notice a lot of Marxists who make arguments about what is fair and not what is economically sustainable as though economic sustainability is an invented problem that we can disregard. Perhaps this view isn't uniformly shared among Marxists, in which case my criticism is "too many Marxists are making these kinds of unconvincing arguments, and more convincing arguments would be centered around economic feasibility--we all agree that we want poor people to have more money, the question is 'how?'".
> In a capitalist society, that worker's wage is determined based on the value of their contribution and the supply of workers with the requisite skill.
I think we need to define "value of their contribution".
If a friend of mine has an idea for an app, but he has zero programming knowledge and so he pays me $1,000 to develop it, and he ends up making $1,000,000 from selling it, what is the value of my contribution?
Is it only $1,000 because that was the agreed price for my labor? Or is it $1,000,000 because that's how much money he made from it? Or something in between?
Obviously, in this hypothetical, I should be negotiating a share of the revenue instead of just a flat fee, but generally most workers don't get to do this.
Every worker gets to do this, and it happens a lot in startups and big companies alike. Stocks and stock options are (varyingly) anchored to whole-company valuation, and early / senior employees that produce more value will often get more stock because they comprise a greater share of the company's health.
If your friend insists on paying you a low flat fee for doing highly lucrative work, your rational choice is to turn down the offer and find another employer, or even go at it on your own. Your friend's rational choice is to negotiate because the lost profits from you (and others) declining the offer is worth more than the profits he loses by paying you more.
Regardless of that, a single transaction like this is often not sufficient to accurately determine the market value of your contribution. Market valuation happens in aggregate for this reason. A single irrational transaction like the one you described just represents a market inefficiency.
Marx never said anything about the state setting prices. Wasn't part of his analysis. He was only concerned with analyzing how prices came to be what they are under capitalism, and what the consequences of that are
He did feel that some other model of ownership & management could lead to some other form of remuneration, but he definitely left it unclear.
Read the other discussions on this thread, there's far more nuance here than I think you're understanding.
You're making a motte/bailey argument, but either way it doesn't look good for the 'Marxist'.
If a Marxist is one who says "Capitalism is imperfect; I've got a gut feeling that there is a better system out there, but no idea what it looks like concretely", then that may be correct but it's close to worthless.
If a Marxist is someone who says "Capitalism is imperfect; the state needs to fix the price of $X (labor, etc)" with no mention of the economic feasibility of said price-fixing, then that's better but still far from persuasive.
My criticism was directed at the latter. There are perhaps many good Marxists who make convincing economic arguments; I'm asking for more of this.
> a worker is paid his “marginal product of labour”, which means the value of what he produces
The marginal value of what he produces. Which means that if there is a minimum wage in effect, the employer might be forced to pay the worker more than the marginal value of what he produces. Which in practice means that employer starts looking for ways to eliminate that job, since it costs more than it is worth. If employers do not do that in the presence of minimum wage laws, it simply means the laws are having zero effect because the minimum wage is below the free market equilibrium wage for that job anyway.
> The labor market is not a free market
It is if there are no laws fixing prices, i.e., no minimum wage laws.
None of the things you list prevent a market from being a free market. A free market is not a market where everyone has equal negotiating power, equal information, or equal ability to deal with some good or service not being available. A free market is a market in which all transactions are voluntary--i.e., a transaction happens only if both parties believe that that transaction, at that price, will make them better off. Any third party dictating the terms of transactions--of which minimum wage laws are just one of many examples--makes the market a non-free market. The fact that the third party believes that it is "improving" something doesn't change the economic fact that it is forcing the market to not be free, and therefore making the market less efficient.
> Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker
In a free market, they can't, because their competitors will be willing to pay more for workers that are worth more in terms of productivity. Tech companies are good examples: they are willing to pay a high premium for workers that can create a lot of value by writing good code and more generally doing good, reliable software engineering. Companies that try to pay less for such workers simply don't get them.
> The only way to counter that push is by giving more power to the worker
No, that doesn't counter anything, because "the worker" is not one person and does not have one interest. The best way to help workers is to raise their productivity, so that the work they do is worth more and can command higher wages. But really, even that misstates it, because it treats the workers as though they weren't capable of raising their own productivity if given the opportunity, and need "help" in doing so. Which is the big problem with all the grand schemes to "help the worker": it's people with no skin in the game themselves trying to dictate to everyone else how they should play.
If workers were paid the value of what they produce, there would be no profit, no payoff for investors / owners. Classic Economist, laundering in free market sociopathy through bad economics.
If you're ever interested in taking a more removed perspective view of that particular magazine, take a look at their old articles. 1850s-60s (e.g., slavery). Late 1800s and early 1900s (labor rights). Nazi-related stuff.
"the value of what they produce, there would be no profit, no payoff for investors / owners"
It depends if "the value of what they produce" means marginal output or average output. Due to the law of diminishing returns, typically average output is greater than marginal output. The theory predicts that wages = marginal output: if wages are less, you can increase profits by hiring more workers, if they are more, you can increase profits by laying people off. So it comes to an equilibrium where the marginal output matches market wages. Since this is less than average output, it is still possible to make a profit.
I agree though that the article is being misleading here since "the value of what they produce" is an ambiguous term that should probably refer to average output rather than marginal output.
The free market sociopathy is still there, of course. Nazi Germany no longer exists so they can no longer rationalize doing business with it.
They're doing the same things they've always done, just with modern issues. They'll be just as disgusting in hindsight for most people. A critical reading of them now will make it so that one doesn't have to wait.
PS, you heard it there first: buy slave-made sugar.
Ironic that you complain about the parent maintaining a particular set of ideology while maintaining a similar set of irrational beliefs...
Just looking at your first point. Companies wield an extreme asymmetric information advantage about 'your' specific hiring cohort. They know who has applied to the job, the size, relative experience, and in many cases they know the expected salary range of those individuals. They know the explicit and implicit cost of their benefits on an actuarial scale - costs potential-employee will never know. They have a firm understanding of their actual needs and a higher degree of flexibility. Like other comments have concluded - it's easier for an organization to fold tasks into other jobs. Employees, especially when you consider health insurance (and that of a family) is tied into these decisions.
In today’s model potential employees are required to negotiate with themselves (as a result of being unaware of the qualifications, expected incoming, etc. of the pool). We wonder why salaries remain stagnant...
If you look at CEO pay as a counterexample it becomes obvious. It's not about adding or demonstrating value, it's about extracting value and an understanding of your ability to extract value. CEO compensation is a published number in public companies. "High CEO pay reflects economic rents—concessions CEOs can draw from the economy not by virtue of their contribution to economic output but by virtue of their position." https://www.epi.org/publication/ceo-compensation-2018/
>In today’s model potential employees are required to negotiate with themselves (as a result of being unaware of the qualifications, expected incoming, etc. of the pool). We wonder why salaries remain stagnant...
To be clear, you have no actual basis to believe that asymmetric bargaining power (as you defined it) is the reason for stagnant wages. This is just something you reasoned through and it feels right to you.. correct?
And you just say things ... what do you mean employees are unaware of the market - from other job seekers, to competitive? That is completely untrue. When you're looking for a job, you are very aware of the range of salaries you are expected to be offered for positions you seek. I literally just had someone decline a position because our offer was lower than what they were offered by other local company. Where was this asymmetric advantage you speak of?
I have no idea what CEO pay has to do with anything except that this is a kitchen sink approach to argumentation where you just throw anything against the wall and hope something sticks.
It looks like in this thread people have different definitions of free market. For me, the fundamental property is that supply and demand respond elastically to price changes, and a quick test (necessary, not sufficient) is the following: if the price asked by buyers is too low, does supply stop? For example (and simplifying), if people wanted to pay just $1 for consoles, the supply of consoles would drop because it's not profitable, so it could be a free market. Now, for jobs, if companies wanted to pay just $1 an hour, would people stop working? Given that their alternative is starving, they probably wouldn't. So the job market can't be a free market.
> And I don't know how you can say companies have more power in negotiation. They post their rates, and people apply or they don't. There are millions of alternative jobs. If I sell my car, I post the price and if I don't like the offer, I don't take it. Are you claiming that this is not an aspect of the free market?
A car and a job are very, very different things. You can live without a car, you can't live without a job. If the available offer of cars is too bad, you won't get a car (well, maybe you need to because you need a means of transport). If the available offer of jobs is too bad, you will still get a job because you need income to live.
> A friend of mine is a shift supervisor at a food supplier...
I don't know how this is related to the debate at hand. Do you know the situations and motivations of those people?
> There are wages that people will just not work for. Even if minimum wage laws were lifted, people aren't going to go work at MacDonald's for $1/hr.
IIRC, current minimum wage puts people below the poverty line. Why do people go to work on that? Maybe because they have no alternative?
> And you also see this will undocumented labour (i.e. where minimum wage regulations are ignored)
Which is a separate problem. Any regulation of any kind will push incentives towards undocumented labor. That's not an argument against regulation, it's an argument for better oversight.
> Sure they can. What are you talking about? Tens of millions of people, for all kinds of reasons, either choose not to work, or choose to work part-time.
Working part-time is working. And if you've found the formula to live without income, please share it.
>It looks like in this thread people have different definitions of free market.
No. Words have meaning. You made up a definition for 'free market'.
>For me ...
Well how about we use the general understanding free market? It just makes it easier when you don't redefine common terms. But OK ...
>Now, for jobs, if companies wanted to pay just $1 an hour, would people stop working?
Yes. They would indeed not bother working.
But try it. I can guarantee you that even poor migrant workers would laugh at you if you offered them that kind of wage.
>Given that their alternative is starving, they probably wouldn't
That is not an alternative. I'm not even sure if there was a single case of starvation in the last few decades that was a result of lack of income or lack of a job. On the other hand, plenty of starvation in Soviet Russia ... with full employment!
>You can live without a car, you can't live without a job.
This is just pure gaslighiting. Unemployed people do not die. What are you talking about?
>Which is a separate problem.
No. It's not. It is an unregulated market where minimum wage laws are ignored, and yet, you don't see a race to the bottom. The wage settles at some equilibrium. And yes, skilled labour even in that type of environment will be much much higher than minimum wage. It kills your argument because clearly minimum wage laws are not the thing that prevent a race to the bottom, but rather, you know ... market forces.
Do you also realize there are countries with modern economies that either do not have minimum wage laws, or have one that is much lower.
>And if you've found the formula to live without income, please share it.
That's not what you said. You wrote: "Workers can't usually live too much without finding a job."
But even with this, let me throw it back at you. There are tens of millions of people without income or a job - how do they survive?
> But try it. I can guarantee you that even poor migrant workers would laugh at you if you offered them that kind of wage.
You're imagining a company offering low wages in world where the rest offer higher wages. In that example, I'm saying all companies offer low wages. It's an artificial example, of course, but shows how labor market is not elastic, and therefore cannot be a free market. I don't know which definition of free market you use, but I haven't seen anyone that accommodates that situation.
> That is not an alternative. I'm not even sure if there was a single case of starvation in the last few decades that was a result of lack of income or lack of a job.
Well, if you want to take things literally, replace "starve" by "stop having a decent life". Losing your house, for example.
> On the other hand, plenty of starvation in Soviet Russia ... with full employment!
Hey, if your argument against worker rights is going to boil down to "but Soviet Russia and communism bad!" we can stop right now.
> Unemployed people do not die.
Yeah, people without work just chill. Nobody needs to work to eat, or pay their house, or their car, or their bills.
> No. It's not. It is an unregulated market where minimum wage laws are ignored, and yet, you don't see a race to the bottom.
The wage settles at some equilibrium.
One of the biggest collectives of undocumented workers in the US are farmworkers. Read on the conditions of those people (e.g., [1]) and tell me it's not a race to the bottom. I couldn't find stats regarding their wages, but I don't assume they're good. The only studies I've found say that undocumented workers will earn less than their documented counterparts even after adjusting for skills and education [2].
It's of course a complex issue and analyzing the causes of a certain wage level in a certain sector are pretty complex. But the incentives are clearly there for companies to push for wages way below a livable level.
> That's not what you said. You wrote: "Workers can't usually live too much without finding a job."
Do you mean people living on subsidies? Well, that's precisely what I'm advocating for with that example. If you want, I can complete the sentence with "Workers can't usually live too much without finding a job and no income".
> There are tens of millions of people without income or a job - how do they survive?
Where and in what conditions? Because if you're arguing that minimum wage laws are not necessary because if you're jobless and homeless you won't die right away, well...
The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept. When you find a better offer, you go to the better offer.
As for minimum wage, it is hurting the unskilled workers, like high school students, college students who are looking for experience. If you are stuck in a minimum wage job, then this is what the market is paying for your skill set. If you think you worth more, then proof it, don't blame the system.
When I was in high school, I was working in an unpaid internship to get some experiences. I don't know if there is any unpaid internship now or if it is even legal now.
Unlike, say, buying a game, most folks can't just decide not to work. If you need to eat, pay rent, child support, need health insurance, or a slew of other things - you can't say no. You must work. Period. The safety net isn't good enough not to take that minimum wage job, especially if you are a childless adult. The only real thing keeping you from being paid less is minimum wage, and that's there because companies aren't fair about hiring practices.
The only reason you were able to work an unpaid internship is because your family not only didn't need you to work, but they also didn't need you to watch younger siblings in your free time. To top it all off, that was offered to you - this isn't a thing most folks can do. Not to mention that unpaid internships are often slavery under a different name. If someone wants to give someone experience or train someone, they should pay.
I wish people would quit acting like the market is fair by any means or like people have a real choice in working. Neither of these things are true with the labor market.
No one is saying you shouldn't work at a job where you think it is unfair compensate to your skill sets.
What I am saying is this, if I think I worth $50/hr and the only offer I got after 2 months of searching is $10/hour. If I desperately need some income, I will take the job and continue my job search. $10/hr is still better than $0. Next job offer may be $30/hr. Then the next one may be $50 or $60.
No one is forcing you to stop looking or improving yourself while you are at a job don't value your skill sets.
It never matters if you think you are worth $50/hour if the skills you have never pay that much in your area. A preschool teacher makes minimum wage or slightly above, despite needing an associates degree. You can be really good, too, but there is only so high that pays. A normal teacher starts out pretty low and if you are in the wrong area, you'll never get paid $50/hr and you'll get lucky to get half that with experience. Lots of jobs never pay a fair wage compared to skill sets. It just doesn't freaking matter most of the time.
The game is rigged. You can be stuck somewhere simply because they have good insurance and your kid is sick. It doesn't matter how good you are. Not everyone can improve themselves in ways that will get them paid more. Even if everyone did this, there are only so many jobs out there and you should hope not to have the disadvantage of wanting free time, time with children, or a health issue that puts any limits on your work.
I challenge you to poke your finger through the massive hole in your argument. I'll give you a hint, it has to do with the resource utilization that you can never buy more of.
> The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept. When you find a better offer, you go to the better offer.
Not everyone has competitive skill sets. People who work at McDonald’s don’t have much of a choice of where they work. Burger King isn’t going to pay them much better.
> If you are stuck in a minimum wage job, then this is what the market is paying for your skill set. If you think you worth more, then proof it, don't blame the system.
I think what OP was saying is that employers of low-skill workers have a asymmetric power. Because low-skill workers have no where to turn, they are forced to accept low wages and poverty over living in the street, even when their employers can very well afford to pay them more. And because the live in poverty, they cannot afford the time or materials to build skills which lift them out of poverty.
We are going to need service workers for the foreseeable future, not everyone can be a fancy software engineer with marketable skills. Covid has certainly demonstrated this. Are we just going to say “tough shit you should have worked for free when you were a teenager” and let a large portion of the population live in poverty when they don’t have to?
> I don't know if there is any unpaid internship now or if it is even legal now.
> you don't have to accept. When you find a better offer, you go to the better offer.
What if there aren't better offers?
> As for minimum wage, it is hurting the unskilled workers, like high school students, college students who are looking for experience.
The article shows that there isn't conclusive evidence pointing to employment destruction with minimum wage increases.
> If you think you worth more, then proof it, don't blame the system.
If the market can get away with paying less than your worth, it will. That's precisely the point of my argument: companies have more power than workers to negotiate wages.
> When I was in high school, I was working in an unpaid internship to get some experiences. I don't know if there is any unpaid internship now or if it is even legal now.
Don't you see how unpaid internships can be harmful? If you need experience to have a nice job and unpaid internships are a requirement, it means a "forced" period where you are working without income. People without savings won't be able to take those internships and have those better jobs, further locking them in poverty.
> What if there aren't better offers?
Death. By exposure, hunger, or thirst.
We must always understand the implication of Libertarian statements. They expect the poor to die when they can't afford shelter, food, or water. Or unless someone else besides them has mercy or compassion.
>> The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job.
> The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept.
You disagreed with him while not actually addressing his point at all. Care to elaborate how you think he's wrong here?
They are arguing about semantics. The labour market is a free market but not a totally efficient market as some participants use their power over demand or supply (huge corporations, unions) to drive different outcomes to a perfectly competitive market where all participants are price-takers.
Unpaid internships are definitely still a thing, and they are yet another way that privileged people have an advantage in society. Not many people can afford to work for free unless they have family wealth to support them, or are willing to go into large amounts of debt. Unpaid internships should probably be illegal to make things more fair.
You can't really respond to an article that says "Here's the conventional wisdom, and here's all the evidence and advanced work that shows why the conventional wisdom is wrong" with "Here's the conventional wisdom."
The labor market ain't free. There's minimum wage, all these regulations around payroll and healthcare. Consider that 40 hours a week is standard... why is that standard? Is it because a majority independently arrived at that same conclusion? Or is it because of overtime laws? Consider the W2 vs 1099 employee, or the fact that you can't purchase healthcare at a competitive rate outside of employment, and employment isn't required to provide that below 30 hours/week.
Doesn't seem very free to me, sounds downright byzantine.
> companies have more power in negotiation, they have more information
You're just asserting this without any argument or evidence.
> and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job.
Workers don't specifically need a job at that company. Even if they need a job, they can go work somewhere else. And if that isn't the case, you have bigger problems than minimum wage.
> The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies.
Even if you want to do this, it still makes minimum wage a ridiculous policy, because it harms the same workers it's purporting to help. The ones who work for companies that can absorb the cost get more, but the others lose their jobs. When there are policies that do only one and not the other (e.g. UBI), there can be no justification for the one that does the bad thing in exchange for no relative advantage.
> You're just asserting this without any argument or evidence.
This is ridiculous. If I assert that the sky is blue, I don't think I need to provide a list of sources. Under what possible circumstances does the average individual have more negotiating power or more information than a multinational organization with teams of lawyers, an HR department, and access to labour market research?
Edit: To add, when we talk about minimum wage jobs we're usually talking about low-skilled labor. Please explain how a ditch-digger can have negotiating leverage over the average road construction company?
> Under what possible circumstances does the average individual have more negotiating power or more information than a multinational organization with teams of lawyers, an HR department, and access to labour market research?
You're assuming a level of competence for corporate HR departments that isn't in evidence. What do you think they have that you can't get from Glassdoor or similar? Not much, if anything.
> Please explain how a ditch-digger can have negotiating leverage over the average road construction company?
By taking a job at some other ditch-digging company, or Walmart, or Uber, or anywhere else, until one company offers a better wage than the other.
For commodity positions it's not even really a negotiation for either party -- everybody on both sides knows what ditch diggers get paid, the employers offer that much and the employees accept that much because anybody who offered less or demanded more wouldn't find any takers.
Which is also why there can't be any meaningful information asymmetry -- when everybody knows the prevailing wage for that category of work, there is nothing else you really need to know in terms of wage negotiations.
> You're just asserting this without any argument or evidence.
I don't think it's a controversial statement at all. Even then, my argument was just in the next sentence.
> Workers don't specifically need a job at that company.
Nor companies specifically need a job filled by a given worker. It's a statement about general needs. If a company finds no satisfying candidates, they can deal with leaving that post open. If a worker doesn't find a satisfying job, they will still take something because they need to eat.
> Even if they need a job, they can go work somewhere else.
Doesn't make a difference if "somewhere else" offers the same low wages. Which is what happens, because most companies have the same incentives and the same lack of limits to push wages below livable levels.
> Even if you want to do this, it still makes minimum wage a ridiculous policy, because it harms the same workers it's purporting to help
The OP linked article shows that there's no clear evidence on whether minimum wages destroy employment or not.
> When there are policies that do only one and not the other (e.g. UBI)
Of course UBI or UGI policies would be far better, and would remove the need for a minimum wage. However, they work in the same direction: give more power to workers to offset the power of negotiation that business have. And, being pragmatic, a minimum wage increase is far more likely to be accepted, at least in the short term, than UBI.
>> Workers don't specifically need a job at that company. Even if they need a job, they can go work somewhere else. And if that isn't the case, you have bigger problems than minimum wage.
This works in a theoretical perfect competition in an economics textbook. In real life people have financial handcuffs (vesting periods, mandatory option execution/abandonment on job exit), school districts for children, underwater mortgages, 10% gross transaction fees on home sales/purchases.
Yes, there are some circumstances in which labor ends up more concentrated after a minimum wage hike, but other circumstances in which that is not the case.
The article at hand does a decent job summarizing the different observations people have made.
> Yes, there are some circumstances in which labor ends up more concentrated after a minimum wage hike, but other circumstances in which that is not the case.
But that's what I'm saying. Minimum wage is ridiculous because there are alternative policies that don't do the bad thing at all, not even sometimes.
Look i get that USA has a lot of billionaires and the GDP per capita looks great for the USA but I want US citizens to please take a look at median wealth per adult and see how far you have to scroll down to find the USA: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe...
This is a great way to rule out outliers. My home country Australia has 3X the median wealth per adult of the USA. This is similar to the median wealth difference between the USA and China for reference. It shows to be honest having lived in both countries. Specifically it shows in the conditions that minimum wage earners in the USA face, eg. having to live off food stamps as is common for wallmart workers for example is just horrendous. eg. https://www.kiro7.com/news/local/report-amazon-walmart-worke...
Australians usually call out companies that make things in sweatshops where pay is below the poverty line. Specifically clothing in Asia. But i believe we should start doing this for US companies as well. Sure the US minimum wage is higher than say Bangladesh but since the cost of living in the US is higher too so it doesn't change the fact that things manufactured at minimum wage in the US are coming from companies that pay wages below the poverty line.
Wealth is very hard to accurately measure and is impacted a
lot by demographics (e.g. age distribution). Consumption is a better measure of how people actually live.
We would need to see median consumption, rather than per capita, to compare to the wealth figures above. The US rates very highly in wealth per capita as well.
The consumption distribution is a lot more flat than income or wealth (~5x difference in consumption for bottom quintile vs top quintile compared to ~20x in income). You can see consumption broken down by income here[1]. One thing I’d point out is that the bottom quintile in the US has a higher consumption than the Australian average, although the Wikipedia numbers don’t quite measure the same thing so it’s not perfectly comparable. Also note this uses 2018 dollars rather than 2011 dollars.
It's not an American perspective; it's an economic perspective. The parent comment isn't talking about people's psychological wellbeing, but "how people actually live" (in terms of do they live in poverty or like rich people).
Wealth doesn't capture that. For example, you might have someone living in extreme poverty in Guatemala who has no electricity or running water, a small home with a mud floor, and eats mostly rice and beans and similar. If this person has no debt, they might have a very small but positive net worth. Meanwhile, you can have someone from America with negative net wealth living a middle class life. The Guatemalan might be spending the equivalent of $600 per year, while the American might be spending 50x that. Looking at spending better captures who is living in poverty.
Wealth can also fail to capture how the wealthy live. Warren Buffett is notoriously frugal. Looking at wealth, you'd find he's about 180,000x wealthier than the mean American adult. Yet he has one house which he bought for $31,500 in 1958, and apparently eats breakfast at McDonald's each morning for no more than $3.17. The vast majority of his wealth will be going to charity. Looking at his spending gives you a more accurate picture of how he lives than looking at his wealth.
Consumption is the income and wealth that you end up using. Measuring wellbeing by consumption is the standard economic perspective, since it describes how much of society's goods and services one ends up using.
More simply, if you save then spend, wealth-based measures will rate you as better off than a person with higher income who just spends. That doesn't make sense.
This is confusing. If you save, you have more wealth. If you have more wealth, you are more resilient to hardships (economic, health, etc.) - a population of people with large savings accounts and low debt seems obviously better than a population that makes a ton of money but lives close to the wire or carries large debts
I think you're double counting the advantage for wealth if you consider resilience an advantage, but don't consider not spending money to be a disadvantage.
Keeping money reserved for hardships is a lot like having spent the money, since you can no longer use that money to increase your standard of living. If you put away $50,000 in case of job loss or health problems, you've bought resilience at the opportunity cost of $50,000 worth of something else. If you change your mind later and spend it, you just traded in your resilience for other goods and services. You have the benefit of resilience or the benefit of whatever else you might buy with that money, but not both at the same time.
When you look at consumption numbers for a country, they already include what people have spent to deal with hardships. Wealth, however, doesn't tell you how much in poverty someone had to live in order to save that wealth.
Insurance is a formal way of spending money on resilience. Insurance, though, has the advantage of pooling risk among a large number of people. You don't actually have to save up millions to be insured for millions in healthcare bills. Someone with excellent insurance but little savings can have both more resilience and a higher standard of living than someone who lives in poverty to save every penny, but doesn't spend on insurance.
The problem though is that personal savings grows over time -- a nation full of young people with high incomes will eventually become a nation full of weathly old people, but if you were to compare the two nations, the yard stick matters.
edit: if you want to cook up some evidence, look at a scatter plot of some indicator of age (national average age?) vs national average wealth. I suspect, given the countries at the top of the list, you'll end up with a pretty good r.
Resilience is unnecessary in countries with a safety net. Are individuals in those countries who make the rational decision to save less somehow worse off than those who have to carry a large savings buffer to guard against misfortune?
>Resilience is unnecessary in countries with a safety net
Not entirely. Having a safety net might be the difference between having a home/food and being on the street but having savings and a safety net allows you to live your previous comfortable life while not working. If you have a healthy savings then you can afford to willingly leave your current job and have some time to yourself while you look for a better job.
Safety net usually come with caveats. Foodstamps are as their name suggests not general purpose dollars. Sometimes you have to perform tasks you don't want to do to benefit from the safety net.
Your own money can be used for whatever you want and no need to beg and justify before a government employee.
A wealth measure will give a higher rating to someone who spends on assets than someone who spends on Fortnite skins. What it doesn't do is arbitrarily favor someone who lives in a HCOL area or in a country (sorry, the country) that forces individuals to spend their own money on things like health care.
Someone living in a HCOL area who happens to have bought their house before the price inflation era, would have a high wealth figure but unable to do anything with said wealth. Australia has high house prices.
I disagree simply because expenditures are completely different for more socialist countries. Eg. Total healthcare expenditure per capita is well below the USA in Australia. Less than half in fact.
https://onthewards.org/the-inside-scoop-part-one-a-compariso...
So that's $4500 a year more the average US citizen has in total expenditure that isn't some type of luxury good or indicator of a better life. It's just survival.
If you add American's median household healthcare expenditure (~$8,200) to Australia's consumption, America's consumption is still 20% higher.
> I mean Australia beats the USA by any quality of life index out there.
I don't think it's worth it to get into an argument about which country is "better", except to say a lot of indexes are designed to advocate for the creator's goals rather than as a useful comparison. E.g. your linked ranking uses "the share of women holding seats in national Houses of Assembly". Is that really a useful comparison point for quality of life?
>If you add American's median household healthcare expenditure (~$8,200) to Australia's consumption, America's consumption is still 20% higher.
Yes but the point is that's one example. I'm not going to got through the full list but i can't think of one USA government provided service that's better quality or requires less private intervention compared to social democracies like Australia and it shows up in so many intangible ways. eg. little things like the Australian government provided online tax filing. In the USA people need to pay to file taxes online (sure paper is free but ugh what a hassle). More private toll roads in the USA. Public housing is more common per capita in Australia. Australias national broadband network (i still can't get fibre here in the USA but i had it in regional Australia), etc. Again i'm not going to keep going except to say that i've lived in both nations and it's really obvious.
In more socialist countries per capita spending can be seen as lower but the services are better despite no spending from consumers going to them. The spending comes from the government. You can't compare spending between the USA and Australia for this reason.
Very odd to hear from someone who lived in both. I’ve lived in both as well.
> More private toll roads in the USA.
And more public. More roads period. The interstate highway system is one of the modern wonders of the world.
> Public housing is more common per capita in Australia.
I’m not sure if this is true, but I’d argue it’s not a good thing.
> Australias national broadband network (i still can't get fibre here in the USA but i had it in regional Australia), etc. Again i'm not going to keep going except to say that i've lived in both nations and it's really obvious.
This is an extremely strange one. Internet in Australia is so bad it’s painful. The national network is a joke.
Online tax filing is free for everyone under the median income. Private toll roads may or may not be "more" common but they are certainly rare. Average internet speeds are twice Australia's. https://www.fastmetrics.com/internet-connection-speed-by-cou...
In America you can buy a gallon of milk for $1.50 at Walmart. In Australia (after some brief googling[0]) it's more like $4.50. Same with gas, video games, you name it, a lot of things seem to cost 2-4x more in Australia.
Not quite that extreme. ~AUD$4 for the fnacy brand which is under USD$3. Less for the loss leader store brands.
Looks like 10% difference in cost of living by official figures but regardless the median wealth being so much higher isn't due to a few percent difference in cost of living or a small difference in average age as some suggested. Australia is objectively doing better on the wealth gap leading to a higher median (but not a higher mean). You can look at USA wealth historically too and see the USAs decline in median wealth over the years (but again mean wealth is doing fine). It all comes down to the thing we all know and have heard a lot. The wealth gap in the USA is increasing a lot. The lowest paid workers are now well into the poverty zone. The arguments against minimum wage are similar to the arguments for Asian clothing sweatshops.
Median wealth says absolutely nothing except how many homeowners you have and to what extent the housing market is out of control.
The metric that actually reflects people's lives is consumption adjusted for purchasing power. Disposable income (again, adjusted for purchasing power) is useful as well.
I live in Aus also, and there are people here who work full-time and still need to avail themselves of local charities, for food boxes and such, but the relative size of that demographic seems to be smaller here compared to the US.
> But i believe we should start doing this for US companies as well.
We can "call out" whatever you want. People vote with their dollar. Target, Walmart, cheap resellers on AliExpress/Amazon are "winning" every day because the most important thing most consumers care about is rock bottom price. I don't think "calling out" will do much other than virtue signal.
Here's the trick. If choice has been eliminated, i.e. walmart has replaced your local shop, you can no longer vote with your dollar - pressuring the companies (via "calling-out") to give you options becomes the only choice available.
That said, there are a ton of areas where we still have choice. In those cases, people do need to become more aware of the impact of their purchasing decisions - but in those cases I agree with you: making different decisions is the actual required action.
> Here's the trick. If choice has been eliminated, i.e. walmart has replaced your local shop, you can no longer vote with your dollar - pressuring the companies (via "calling-out") to give you options becomes the only choice available.
Aside from actual monopolies (utilities, etc) what is one example of having no choice? Whenever I hear this argument, it’s not that there’s no choice, it’s that there’s no cheap, convenient alternative...hence Walmart’s domination. It’s like people never stop to ask why Walmart is so successful: people would rather have abundant selection at low prices rather than support their local mom and pop shop.
> We can "call out" whatever you want. People vote with their dollar. Target, Walmart, cheap resellers on AliExpress/Amazon are "winning" every day because the most important thing most consumers care about is rock bottom price. I don't think "calling out" will do much other than virtue signal.
People also vote with their votes. If voting with dollars was the only thing that counted, we'd still have rivers so polluted they'd regularly catch on fire (see http://ohiohistorycentral.org/w/Cuyahoga_River_Fire).
All all "voting with dollars" does is sum up an unfathomable number of myopic, usually short-term decisions. Sometimes the overall result is counter-intuitively brilliant, but other times the terrible result of myopia magnified.
You can't vote with a dollar you don't have. You can't vote for something that's simply not on the ballot.
Many can only afford to shop at those places, or they're the only stores that provides certain classes of necessities within the travel time constraints imposed by their work (multiple minimum wage jobs) and home schedule (they often are obligated to bear the burdens of assisting disabled, elderly, or young members of family or social groups).
The direct effect of the minimum wage is to make certain low-productivity jobs illegal. Consider that for a moment: a person with limited skills and/or needs is simply prohibited from doing low-productivity work regardless of desire.
The counter-argument is that many workers do not have a choice; they will always accept wages vs nothing, but have no power or ability to negotiate.
With a minimum wage we've made the decision as a society that, in order to prevent worker exploitation, we will also eliminate certain classes of work. Some of this work does vanish entirely, while some of it reappears in the shadow economy through untracked cash payments or self-employment.
As with all policy decisions there's a messy balance here and we're arguing mostly over where the line falls. I do wish there was a cleaner way to protect against monopsony (higher minimum wages) while also providing good opportunities for low-skill workers (those who are very young, very old, have physical or mental impairments, etc).
I don't think that's a reasonable point of view. Most minimum wage jobs are not productivity jobs, but jobs that need to get done by someone but require no special skills. That is, you can't easily define the value of the sanitation worker who keeps a restaurant clean enough to pass health standards. You just observe that there's enough people willing to do it that you can offer a low wage.
Sanitation workers may be low-skill but they are high-value. I don't think this is a good example.
In contrast, a friend of mine recently hired the teenager next door with cash (for less than the local minimums) to do some manual yard labor. This job simply wasn't worth paying for at a higher cost; my friend would have left the work un-done. But in this case the value proposition at a lower price was acceptable and the neighbor was glad for the extra cash.
Well sanitation workers make up a fairly large fraction of the minimum wage workers so that's a representative group of people for the matter at hand.
You're not wrong that unnecessary private exchanges like that might be lost, but those are unnecessary, not that noteworthy in terms of economic scale, and generally aren't relevant to minimum wage laws anyway. My point is precisely that most of the labor that is priced at minimum wage is not like the example you describe.
Many of the people employed at very low wages have attributes which mean that they are not worth hiring at higher costs. Factors such as lack of job history, attendance issues/unreliability, language issues, etc. mean that the employer will opt for a more 'attractive' candidate if there is a price floor.
As an example, if you are looking for a bottle of wine to accompany your Tuesday night dinner, you might opt for a low-cost, low-quality option, as it is adequate for your needs; but if there is a price floor, you will opt for a different, higher quality option.
Price floors mean that deals below the set price are illegal.
> Many of the people employed at very low wages have attributes which mean that they are not worth hiring at higher costs.
The whole article was about how that doesn't seem to be the case, empirically. When the minimum wage rises, the effect on employment is minimal, and people on minimum wage get paid more (they're not fired).
> any of the people employed at very low wages have attributes which mean that they are not worth hiring at higher costs.
Unless the job needs to be done, which is generally the case among minimum wage workers. That was my point. You need cleaning staff, and retail workers, and what not. You still hire them even if they cost more. People don't have intrinsic prices. It's not like an old person costs exactly $4.32 an hour and therefore is unable to find work if the minimum wage is $7.25.
The fact that the job needs to be done does not mean that the job needs to be done by the type of person currently doing it. One common response to price floors is to change the qualifications/requirements (as in my wine example). The employer will hire 'over-qualified' candidates to perform a job which does not require their skills or abilities.
Wine is still being 'hired' with a price floor, but it is a different wine, and the price floor doesn't do the low-quality wine producer any good. This example is actually derived from a time when England imposed a flat tax on French wines.
People aren't wine. They do not have intrinsic prices. What you're saying just isn't correct. We've got plenty of people with mental handicaps working at grocery stores and what not, many of them making more than minimum wage. What you're describing is not real.
If you've ever worked at or hired for jobs between 1x and 2x the current minimum wage (in a given area), you know that the kind of people you can hire at 2x are totally different from the people you hire at 1x.
All jobs are productivity jobs. It is the definition of a job. You are paid to accomplish some process. To be productive. Some non-zero skill is always needed. Cleaning surfaces in a restaurant happens to be fairly low-skill. There is a high supply of humans who can produce the result - a clean restaurant. Thus, the wage commonly paid for this job is (compared to higher-skilled jobs) quite low.
As an example, textile and manufacturing jobs being used exported to Asian countries.
It's not like companies want to pay for shipping of products from halfway across the world, but because of minimum wage it makes it more profitable to do so. Which results in jobs leaving to other countries.
Without minimum, those workers wages would have simply gone down over time, allowing them some time to find other opportunities. Instead of just one day the plants up and decides to move to Asia and you're out of a job.
You make low-productivity jobs illegal while also raising the wages for low-skill high-productivity jobs. Worker productivity in the US has gone through the roof while real wages have stagnated. Combined with the (at least pre-pandemic) low unemployment rates, it seems likely that most minimum wage workers are in jobs that would not be eliminated by raising the minimum wage.
No they're not. Employers are prohibited from paying them below a certain amount. No employee can be or ever has been prosecuted/sued for accepting sub-minimum wage.
I realize you're trying to say minimum wages limit economic opportunity for ad-hoc and casual labor that the poorest rely on. But you've fatally damaged your argument by presenting it in an untruthful way.
Can you locate for the audience where the poster you are responding to said anything to the effect of "employees can be prosecuted/sued for accepting sub-minimum wage"? I read his/her post a few times and do not see where that was stated. On the contrary, I see where he or she said that certain _jobs_ were illegal. Your point about who gets prosecuted or sued comes across as a total non-sequitur, at least to this reader! A very anti-charitable one at that with an aftertaste of moral grandstanding.
> The direct effect of the minimum wage is to make certain low-productivity jobs illegal. Consider that for a moment: a person with limited skills and/or needs is simply prohibited from doing low-productivity work regardless of desire.
Has this ever been shown to be the case? Use real data or case studies.
minimum wage in the usa has been largely static or declining since 1968, if you control for inflation (1). Given that, it seems like the thing driving the mcdonalds cashier job losses are not minimum wage laws, but rather technology and probably the economic pressure to maximize shareholder value caused by the stock market.
This is incorrect; There were multiple steps of acceptance of the touchscreens including order accuracy, expediency, and customer interaction.
If McDonalds could pay less, not train employees, have them touch buttons accurately, and customers enjoyed interacting with those people; then, and only then is what you have said close to truthful.
What you have proposed is that the internet wouldn't send electronic bits if we just paid mail carriers more.
And yet this year I see people standing outside the front door with a box of masks, ensuring everyone is masked before entering, and greeting people at the same time.
The fact that they were hired back during a pandemic isn't a good counter-argument, greeters obviously add very small value to the company under normal circumstances.
In some cases, yes. California farms are having problems finding people to work in fields since border control got tighter, and American's don't want to do the work, even for $15+ an hour. The farm owners said they're switching crops over to ones that are easier to harvest with machines. Similar things have happened in the South-East USA, where crops have been left to rot on the field because the government started cracking down on illegal immigrant labor, and no citizens want to fill the positions.
This seems like a short term phenomenon as the market adjusts. Over time, consumer prices of labor-intensive produce will rise relative to non-labor-intensive produce.
If you had to find a humanitarian angle here, you should ask what the people who were previously working in the fields should do for work instead. Is unemployment the only alternative? Or can the large numbers of people who are currently migrant workers be incorporated into the economy in a different but productive way? I don't have good answers to those questions.
I've only read a little about the idea but I heard that time banking has been used in some communities without work to keep an informal economy going. It turns out there are a lot of odd jobs which aren't high-value enough to be part of the formal economy, but are worth doing with basic time-tracking.
And then there's maybe the more traditional form where a local currency comes into existence which maybe not regulated like the national one: https://en.wikipedia.org/wiki/Local_currency
As an interesting aside, I recently discovered New Zealand has minimum wage exemptions where productivity is low due to disabilities or other circumstances.
(can't read the article, but I've read and thought a lot about it)
I'm on the fence about the net cost/benefit of localized minimum wages. I think that a federal minimum wage (or at least, a high one), and to some extent, state minimum wages, are a bad idea. The Fight for $15 movement came from expensive cities, and it might be the right policy for those places. But it would severely distort and crush lower-cost cities and states. The right policy for San Francisco isn't necessarily right for Birmingham. It's one thing to have uniform national laws for human rights. But the nominal value of $15 means something very different in different parts of the country.
It seems to me that the right policy to increased pay for low wage jobs would be to set the minimum wage so a full time job at that rate puts you at some multiple of the metropolitan/micropolitan area poverty line. Wages would automatically increase with costs in a predictable way, and local economic conditions determine the rate. State or federal minimum wages could set a floor but acknowledge that regional differences matter in economics.
i'm generally in favor of state-level control of such things, but i'd be remiss not to point out that that's a great way to further entrench inequality across america.
i mean, if $15/hour is a little more than subsistence level in rural north dakota or the hills of west virginia, so be it. maybe it means they can buy a laptop for the kids, but it won't be mansions and teslas everywhere.
current labor markets are profoundly unfair, and a little imperfect leveling of the field is fine, while we work on fixing the decades of extractive policies that got us here in the first place.
It's one thing to be unfair when the government is footing the bill, like basic income or tax brackets. It's a good incentive to balance out rising cost of living.
It's another when it's small businesses footing the bill. There's a very painful lag time between being required to pay employees more and when employees have more spending power. Typically all that happens is local business don't have the finances to cover that lag, but national businesses do, and the latter survives and dominates.
I don't have an opinion on this in either direction, but i'm curious: how do you define a small business, and do inefficient/wasteful small businesses get selectively 'bailed out' compared to national ones? Why should small businesses not have to foot the bill while large ones do? Just because they are small, they don't have to be competitive or efficient - do not-profitable hobby businesses get propped up for no reason other than they are small?
Many chains and non-small businesses have also been known to split off (for example, an incorporation per chain location, franchise location, or per physical building) - then that one national fast food chain or REIT building is now a "small business" with only a few employees?
locally owned businesses are arguably better for a community because the owner is more likely to recirculate their profits back through the local economy. the profits from a walmart location are ultimately captured by the shareholders, who may be disproportionately concentrated in some far-away place. of course, this can be outweighed if the large corporation serves the community much more efficiently than the smaller competition.
subjectively, I find it a lot more pleasant to deal with local businesses. on the rare occasion I go to starbucks, I grab my coffee and leave immediately, but I would be happy to spend a few hours reading in any of the nearby independent coffee shops.
> I would be happy to spend a few hours reading in any of the nearby independent coffee shops.
Would this not be worse for independent coffee shops since you're taking up a seat to read, while the people that work employed by Starbucks couldn't possibly care less what you were doing?
To me it seems like it would be a bit 50/50 based on industry vertical. I'm happy to support a reasonable independent restaurant over a fast food chain any time, but things like computer/parts shops, any independent one I see has markups well into the hundreds of percents at times, all seem incredibly shady, etc. Same with 'authorized retailer' phone shops that try to charge you $50-60 for a SIM.
> Would this not be worse for independent coffee shops since you're taking up a seat to read, while the people that work employed by Starbucks couldn't possibly care less what you were doing?
this was just the first example I could think of for a type of business where the independently owned ones are more pleasant, but good question. my guess is that independent coffee places understand that being a pleasant place to hang out is a large part of their value-add and price it in appropriately, but who knows?
I certainly agree there are some types of businesses where I don't really care. if I want to buy a stick of RAM in person, I want it today and I want to pay a competitive price. unless the employees are outright rude, there's not much they can do to improve or harm my experience.
Then we should advocate for government footing the bill, either UBI or subsidized minimum wage.
Someone is paying the cost in the end, and probably shouldn't end up on the small business owner, and definitely shouldn't end up on the laborer being unable to make ends meet.
small businesses don't foot the bill, at least not to any painful level if they're anything approaching a reasonably run business. their customers might, and having it be a blanket policy means that small businesses are not disadvantaged or penalized for not having the leverage of big businesses to distribute costs onto the rest of society (e.g., walmart and welfare).
at most, on the margin, a small business might give employees 1-2 fewer hours per week. that actually puts selective pressure on small businesses to be more efficient, and therefore more competitive with big business.
this also counters the other oft-cited rebuttal that people will lose jobs due to the minimum wage - no, they may lose an hour or two on the margin, but whole swaths of jobs aren't at stake, and their take-home will likely stay roughly the same even with fewer hours per week.
economic lag isn't particularly relevant either, because folks making minimum wage turn around immediately and spend that money. there's virtually no lag there.
Only a small portion of the increase in wages would find its way back to local businesses. Rents will increase for example, as people will have more money to bid up the prices.
although rents do tend to absorb surpluses in our plutocratic form of capitalism, landlords are still largely local and rental markets fragmented (although those are changing with the financializing of real estate), so that money still tends to circulate locally. a small portion does get captured as wealth by landlords, which doesn’t tend to circulate locally.
It is a very tough problem. Trying to do it all locally also pits town against each other. I think the thing is that this kind of minimum wage isn't a living wage so having it as a floor is not awful. I also think we have better tools to help the poor than minimum wage.
I've also tried to think a little about this from the spend > consume > work > spend cycle. Minimum wage isn't a factor in SV tech jobs. The places that employ people at the minimum also tend to service those same people. Rich people don't shop at Wal-Mart (largely) so we are only adding costs to goods that poor people want. So wages go up but if prices go up the same or more, the poor have lost buying power. I think EITC is a much more targeted and effectively way to help the poor but it needs expanded.
> It seems to me that the right policy to increased pay for low wage jobs would be to set the minimum wage so a full time job at that rate puts you at some multiple of the metropolitan/micropolitan area poverty line.
I would be in support of that in the abstract, with the caveat that various business lobbying would immediately push for abstruse redefinitions of 'poverty' as used in the law.
>The Fight for $15 movement came from expensive cities, and it might be the right policy for those places. But it would severely distort and crush lower-cost cities and states. The right policy for San Francisco isn't necessarily right for Birmingham.
Your point is a valid one. At the same time, if you look at how these numbers actually play out in reality, $15/hour (assuming 40 hours/week -- certainly not a given and 50 weeks per year) works out to $30,000/annum. Figure in the 12%[0] Federal income tax plus the 6.25% FICA (Social Security/Medicare) withholding and that $30,000/annum nets (not including state and local income taxes, which vary) to ~$25,000/annum.
Assuming (a big assumption) no income tax at the state/local levels, that leaves ~25,000/annum at $15/hour, 40 hours/week.
This works out to ~$2100/month for a single earner. Given that rent, food cost, transportation requirements, etc. vary widely across various localities, it's difficult to determine how well folks can get by on that amount of money.
The median rent in the US[1] is ~$1000/month. That represents ~50% of net income (again, assuming zero state/local income tax. Which doesn't bode well for those making $15/hour, given that many don't get 40 hours/week.
Even in the places with the least expensive rent[2], that's still ~25% of income. That's often considered an appropriate level of housing cost relative to income.
What's more, given that the median income in the US is more than twice as high[3] as 40 hours/week at $15/hour, a $15 minimum wage wouldn't put any upward pressure on median income (how relevant such an eventuality might be is arguable, but is interesting to note).
So yes, a national $15/hour minimum wage isn't a panacea. Those living in the poorest/cheapest places could likely live pretty well on $15/hour (again, assuming 40 hours/week, 50 weeks/year -- which doesn't apply to many).
Contrariwise, those who live in places with costs around the median for the US would likely struggle with $15/hour, and those living in the most expensive places would likely not be able to live on just one full-time job.
So yes, $15/hour nationally is a bad idea. In fact, it should be significantly higher in places that are more expensive.
But it's okay to have a national minimum wage and also a state, county or city minimum wage that's higher than the national. That doesn't mean we shouldn't at least start with the national one. Individual areas can fight for their own raised minimum wage in their area. Everyone can fight for the national one, which would still be a big increase over what minimum wages are everywhere.
>But it's okay to have a national minimum wage and also a state, county or city minimum wage that's higher than the national. That doesn't mean we shouldn't at least start with the national one.
You won't get any argument about that from me.
My point was that, except in the poorest places in the US, $15/hour is not a living wage. Especially since many, if not most folks earning the minimum wage don't get health care benefits (a big additional cost) and often are not afforded 40 hours/week either.
You're forgetting the standard deduction: $12k for an individual. This brings taxable income to $18k. Per https://www.irs.gov/pub/irs-pdf/i1040tt.pdf that puts tax at $1,929, so $30k becomes $28k after Federal income tax and not $26k.
>You're forgetting the standard deduction: $12k for an individual. This brings taxable income to $18k. Per https://www.irs.gov/pub/irs-pdf/i1040tt.pdf that puts tax at $1,929, so $30k becomes $28k after Federal income tax and not $26k.
A fair point. I'd point out (again) that many folks earning minimum wage don't get 40 hours/week. What's more, once you add in health care costs, not to mention any children or other dependents, that extra ~$175/month won't go too far.
I think you're overselling your point a bit. $15/hr would be very rough in NYC or SF, but it's actually a pretty decent wage for a single person most places in the US.
for comparison, I make quite a bit more than $15/hr, but $2100/month is pretty close to what it costs me to live a nice life in one of the most desirable neighborhoods in my city. I spend closer to $2500 in a typical month, but $200 of that is because I chose a nice apartment with a good view, and I could probably shave off another $200-300 by not shopping at whole foods and downgrading the alcohol I buy. a year ago, I was living in a detached home (with a driveway!) in the county with three other people and my monthly spending was well under $2000.
so imo, $15/hr is more than enough as an absolute floor for wages in most locales. probably not enough to support an entire household with n children on a single income, but I don't think that's a reasonable expectation for a minimum wage.
>for comparison, I make quite a bit more than $15/hr, but $2100/month is pretty close to what it costs me to live a nice life in one of the most desirable neighborhoods in my city.
What's your monthly healthcare premium? What's that, your employer provides that for you?
Mine is almost $750/month. That's just for me.
What's more, as I pointed out, many folks earning minimum wage don't get 40 hours/week. As such, their income is less than the numbers I stated.
To go even farther, it's not so much about $15/hour or any other arbitrary figure. It's about whether or not someone can support themselves (and their dependents -- I didn't address children or parents or other non-working folks in a household, let alone the costs of child care if all adults need to work to pay the bills).
If the current minimum wage doesn't allow for that, then the government (that means you and me) has to subsidize those folks.
in the end, it comes down to how we choose to deal with this situation. Do we require employers to provide a (theoretical, remember many don't get 40 hours a week) living wage, or do we as a society pay to subsidize those employers who don't pay enough to allow people to support themselves?
But the issue goes beyond just the dollars and cents. The hoops that many government programs force those who need help to jump through is often demeaning and tends to dehumanize people. What's more, those programs have overhead too. The costs of administering these programs need to be considered part of the subsidy to employers.
> What's your monthly healthcare premium? What's that, your employer provides that for you? Mine is almost $750/month. That's just for me.
yes, my employer pays the premiums for my HDHP. the coverage is comparable to something at the boundary of a typical silver/gold ACA plan. these cost $450-480/month for an individual, but someone making $30k would likely qualify for a federal credit of $100+/month (not to mention that their tax burden would be significantly lower than your quick estimate).
> What's more, as I pointed out, many folks earning minimum wage don't get 40 hours/week. As such, their income is less than the numbers I stated.
"many" being about 6% of workers making the minimum wage, according to BLS in 2017.[0]
> in the end, it comes down to how we choose to deal with this situation. Do we require employers to provide a (theoretical, remember many don't get 40 hours a week) living wage, or do we as a society pay to subsidize those employers who don't pay enough to allow people to support themselves?
> But the issue goes beyond just the dollars and cents. The hoops that many government programs force those who need help to jump through is often demeaning and tends to dehumanize people. What's more, those programs have overhead too. The costs of administering these programs need to be considered part of the subsidy to employers.
as a taxpayer, I'm not happy about paying for it, but I tend to think this is society's problem more than any particular business's. inevitably, there will be people who do not produce enough value to sustain themselves. in my ideal world, we would do away with minimum wage entirely, give people UBI sufficient to at least subsist (perhaps coupled with a public option for affordable heathcare), and let businesses employ anyone who wants to work for a market wage.
You're comparing average/median rents with the income of people earning minimum wage. Wouldn't it make more sense that people earning the median income would pay median rent and people with the smallest wages would opt for somewhere cheaper?
I live with roommates because it's cheaper and I probably pay less than half of the average rent in my city. If the average rent in one of the least expensive cities is $600/month, there's still going to be a range of rent prices in that city. I'd expect the median citizen of that city to go for the places with about the average rent and the lowest earning citizens to go for cheaper places, or to live with family or roommates.
If you assume that the cheapest unit you can find is roughly half the rent of the median unit, then living in the median city on $15/hour seems reasonable again.
I left that part out, but yes, $15 is too little to live on in expensive cities and too much for the economy to function in low cost ones. So I thought "Fight for $15" was a bad call, because it would be a generational fight that would start out insufficient and lose ground over time to inflation.
My only fear is that wouldn't businesses constantly relocate to new areas with lower minimum wages? If the area you're located in goes from $5 to $8 (possibly due to your factory), why not relocate three counties over to an area that's still at $5? A national standard mitigates this issue.
Reloction isn't free either and there are "implcit secondary standards" for the work beyond just the nominal task such as infastructure, literacy, and scale. Even if anyone can put widgets in boxes they may only need very unskilled labor for the task other aspects like "able to read the numbers to know how many to box up" are included. The labor may be technically cheaper across five towns of 200 but a larger factory in a big city could be more efficent because you can muster larger workforces quicker.
A national standard would have merits but more in the sense of scale - it means less friction from adapting to 1 different standard instead of N different standards. It is simpler but has the downside of being low for expensive locales and high for cheap locales and the trade offs that apply to both.
Moving 3 counties means basically every employee has to be relocate or be replaced. If a business is willing and able to make that choice, they are a) not attached to their current location, and b) probably willing to consider farther moves for further cost reductions.
That is already what happens with factories. They find cheap land and cheap labor.
They generally don't move factories unless the wages are enough different to justify all the other pain and expenses that moving would entail, including hiring almost all of their low-pay workers from scratch in the new area.
I am fine with localized min wage laws if the federal government based distribution of spending on a per tax revenue by each state. High min wage, means more federal tax revenue. State should get most of that money back in federal spending.
I know research is hard, and these issues are fraught with complexities and challenges in acquiring data, but it still boggles my mind just how many macro economic theories don't have strong empirical data to support them.
It is basically impossible to produce real empirical evidence in economics. You can look at data/correlations, and try to reason about cause and effect. But real empirical evidence requires you use the scientific method to test hypotheses (ideally done in a double-blind way), which is impossible for economists to do even if we had a national desire to do it, because the test itself would impact reality for its participants too much. It's similar to the "observer effect" in physics, but on a massive scale.
At best, I think you can create mathematical simulations built on certain assumptions about reality. Those simulations depend on how well the assumptions model reality, and very easy to miss an important detail.
AI researchers are important for this reason. Super intelligence, even if limited to simulations, can find results outside of the mainstream that are more optimal than the economic convention.[1]
How much empirical data do you need to convince yourself that jumping out of a window with an umbrella is unsafe?
Everybody can understand that employing people at a loss is unsustainable and that the goal of employers is to make a profit. I think there's plenty of empirical data for that, the rest just follows logically.
Of course there's bound to be a narrow range where you can move some profits into wages and you have neither rising prices nor unemployment, but that number is going to be different for every location, every sector and every business. I wouldn't trust politicians to come up with a magic number here.
The more research i do in economics the less impressed i am with the discipline.
Economics is defined as a social science. That point never really struck home with me until recently. I think the fancy models, the cutting edge statistics and clever use of logic blinded me to the fact that the entire discipline is built on top of stories.
There’s no gravity, there’s no absolute zero, there’s no kilogram. There’s no fundamental tangible truths underlying the concepts of free markets.
It’s stories we tell each other as a way to explain a system we don’t and possibly can’t understand.
I’ve never been so disappointed to realise all the arguments of economic theory are built on a foundation of sand. Shifting sand at that.
All disciplines studying complex systems like societies down to something like the human body, simply do not have the luxury of absolute truths like in mathematics or even the ability to run experiments like in physics (often for ethical reasons, e.g., in medicine or economics).
But does that mean that it is not worth doing?
For these fundamental reasons economics is “hard”, but I argue that it is still worth doing because economic policies have a big impact on people’s lives, and partial understanding is better than nothing.
I feel the biggest problem with economics is that it's very infused with ideology, which makes it even harder to say what's true or not. There's a lot of what I would call "arm-chair economics" – entire government policies are based on nothing more than conjectures, guesses, and ideological preferences of so-called "economists". Okay, maybe guesses and conjecture is the best we have to go on, but at least be honest about what it is.
This is the case for some other social sciences as well, but I have the impression it's (much) worse for economics. The effects are certainly a lot more impactful.
>I feel the biggest problem with economics is that it's very infused with ideology, which makes it even harder to say what's true or not. There's a lot of what I would call "arm-chair economics" – entire government policies are based on nothing more than conjectures, guesses, and ideological preferences of so-called "economists".
Is it any better in fields other than math and the natural sciences? For medicine and nutrition we're constantly backtracking on our previous discoveries. First it was fat that's bad, then it was sugar.
Nutrition is really complex and hard, and we learn more every day. But for the most part, it's not like complete bullshit is invented whole-cloth on a piece of napkin. It slowly builds and expands on prior knowledge; as far as I know it's not really "constantly backtracking".
Yeah, I’m persuaded that nutrition is evolved as we learn.
I’m not persuaded that economics has that quality. It seems to be infected by political interests too easily.
As evidence of that statement i submit the example of Austerity as a concept. It’s something that’s been applied hundreds of times, there was a resurgence in the 2010s but it was very popular after the First World War too.
One problem, despite all these applications of the concept, its only ever worked twice in documented history. Both instances occurred in a context that doesn’t apply today and, well it’s not impossible but almost impossible for that context to appear again.
The concept has no economic foundation, it’s a device born of a political belief. It even contradicts economic assessment.
And yet, It’s continually proposed. It’d be like suggesting sugar is a weightloss product if you consume enough. If you gained weight, you didn’t do it right, you just need to consume more sugar, then you’ll lose weight.
For example, I’m persuaded by Taleb’s criticism of Value At Risk models, VAR.
Plenty of people still value the use of VAR although it’s common to concede Taleb’s point that VAR claims to do the impossible - characterise rare events. The justification is simply, well what else would we do? There is sufficiently advanced use of VAR that people are willing to ignore the broken foundation.
I just can’t accept that we should continue blindly because in many day to day cases the model seems sound, even though we’re aware it’s fundamentally broken and we can’t detect when it broke until after the event.
From my understanding, Taleb criticizes the native use of synthetic quantitative models with strong assumptions like VaR because they give a wrong picture of the real risks. But I don’t think that his point is that risk management is worthless.
The concept of money isn't a hard measurable fact of the universe, but when enough people believe in it, it starts to acquire some pretty consistent attributes across different cultures and times.
It's definitely not a physical science, but it's probably one of the more important social phenomena. (I almost wrote social science, but imo I can't really consider a discipline which isn't based on experimentation to be a science).
So I guess I agree. I would like to see more rigorous methodology.
You should read into Austrian economics and in particular the studies of Ludwig von Mises because it builds on fundamental "tangible" truths. Search for the term praxeology
The richest person in Australia seriously floated an idea to import foreign workers and pay them $2 a day to work in her mines
I've always looked at minimum wage as an employer saying "I'd pay you less if I legally could". In workplace negotiations all of the power is held by the employer, unless you have some form of collective bargaining, and having a Government mandated minimum prevents companies from totally exploiting low paid workers.
These policies are always double edged swords. The other way to frame minimum wage is that it makes it illegal to work unless you can produce $X value per hour.
Ehhh? What are you talking about? It's not illegal to do things that don't make money. That's called a cost center. I don't make money for my company, I reduce the risk of losing money, and provide tools for people who do make money.
I didn’t say making money, I said providing value. You’re creating some value for your company that exceeds what they pay you, otherwise you wouldn’t have a job.
Let’s say I’m a widget maker. I can make 10 widgets per hour for my company, and they in then earn $1 profit per widget. This company is not going to pay me $15/hr if I’m only able to generate $10/hr in value for the business. But if minimum wage is $15 then it makes it illegal for me to work for them.
That still doesn't make it illegal. It only makes it non-viable from a unit-economics point of view.
Now if you want to talk about how larger companies have better unit-economics, and small companies can suffer with high minimum wage, then we can certainly have that conversation.
This entire discussion is about laws regarding minimum wage, the act of literally making it illegal to hire for less than a certain wage. I’m not sure I see the confusion
> "The other way to frame minimum wage is that it makes it illegal to work unless you can produce $X value per hour."
Wages are a cost to a company. There are other costs to a company. Companies also return a profit to the owners. If a company's costs are too high, they my not return a profit; they may not be able to pay their creditors.
My dad ran his own very small business. I am familiar with a business not making a profit for a period of time. I am familiar with workers who are not profitable to employ.
It is a reduction to absurdity to state that minimum wage "makes it illegal to work unless you can produce $X value per hour."
There are interesting, non-absurd discussions about the effects of minimum wage, but this is not one of them.
So you're saying your Dad would be better off if he kept the $X then paying someone. That's what it means to produce value.
The number of employers seeking such an arrangement is so small it's irrelevant. In practice, not being able to pay people less that $15/hour means you won't hire people who bring less that $15/hour of value.
This is why I always found it odd that Trump would get attacked for setting tariffs.
Minimum wage essentially requires tariffs, as long as the world doesn't have equal income. If people are only willing to pay a $1 for a shirt, but to make it in the US will require to charge $2, but the same shirt in China will only cost $0.50, what will happen? Now instead of having a factory with low wage employees, you have no factory, no employees, no supply chain.
tl;dr — when labor markets are artificially depressed by employers with monopsony power (e.g. workers only have one employer to work for), a minimum wage can improve efficiency of the marketplace.
Enjoyed the dispassionate take on the age old minimum wage question. It is difficult to figure out which people are in monopsony labor markets because it depends on so many things including geography and even within a zip code could vary based on a variety of factors such as internet access, public transportation access, etc. Makes sense that in some cases, when there is only one employer, they are artificially driving the price of labor down because people have no choice.
Have policymakers considered other solutions to this monopsony problem? For example guaranteed government jobs that pay a certain $ amount adjusted for the geography to incentivize private sector to match or beat that price?
I’m going to flip this one around and ask: why are businesses entitled to low-cost labor? In other markets, markets of objects, if you don’t have the funds to purchase something you don’t get to have the thing, and if you attempt to coerce the thing into your ownership, we call that robbery, and prosecute it accordingly. So why doesn’t that apply to human labor? Labor is a product, it exists in a market, and there is a baseline amount of money a person needs to survive - the ‘price’ of a human doing work (compare this to covering the cost of materials, production, etc for some nonhuman item). If companies cannot meet that price, why are either laborers or governments expected to shoulder it so that businesses can get their hands on the human product regardless? Why is human labor constantly sold at a loss?
They aren’t, the problem is that the “baseline amount of money a person needs to survive“ is extremely low compared to modern standards, and generally way lower than what minimum wage dictates.
The result depends on how many people can do the job and how productive the job is.
If the job is reasonably productive but anyone can do it, the result is a bidding war between sellers fighting for a job (race to the bottom).
There is no distinction - all markets are ruled by consent. Both parties have to agree to a voluntary transaction, and that applies to employees and products.
The anti-min-wage / free market argument ignores a key fact: as a society we have decided we won't let people starve to death. So, if someone can't make ends meet, we will (via taxes) support them, at least to some extent.
This support factors into the wage negotiation, allowing the employer to force a lower wage (absent a state imposed min). Absent state sate welfare style support many low wage (min and sub-min) jobs would simply not work, people could not feed themselves, and they would not accept the jobs.
So they would starve, jobless, because the work wouldn't pay a subsistence wage? This seems unlikely, as many people work at jobs where they don't earn enough to support their lifestyle.
I think the below-subsistence wage earner would be more likely to (though not certainly) move somewhere that their skills were more needed.
This argument ignores that the anti-min-wage argument isn't monolithic.
The other argument is that a minimum wage can usually (though not always) result in higher prices because employers just pass on the cost of higher wages to the buyer (especially in competitive markets), and that this is a regressive way to guarantee a minimum standard of living.
The strongest anti-min-wage argument is that a UBI/EITC is the better way to guarantee a minimum money floor because it's paid for by progressive taxation, while allowing the market to find the lowest possible cost for goods/services/labor. It also gives workers negotiating leverage by enabling them to choose not to work somewhere without fear of starving to death.
> The strongest anti-min-wage argument is that a UBI/EITC is the better way to guarantee a minimum money floor
EITC doesn't guarantee a minimum anything since, as the name suggests, you need earned income to get it and you get more of it with more earned income, to a certain point.
It's true that NIT, which is equivalent to UBI, was the inspiration for EITC, but EITC is a NIT through a carnival funhouse mirror.
Sure, I meant a "reformed" EITC, but my point was to compare it to a UBI/NIT. It would absolutely be more desirable to remove the employment requirement and perhaps even increase it by at least 3x.
This gets to the heart of the problem of minimum wage. Walmart is often cast as a villain because many of their workers receive government benefits. Nobody stops to ask the very real question of: what if the average Walmart worker doesn’t add $X in value per hour. What if the value of the “Walmart Greeter” is less than that of minimum wage? Is it better for Walmart to fire this person because they’re not worth minimum wage (presumably it’s the highest paying job they could find, suggesting they’re not worth “minimum wage”) or is it better to have lower minimum wage with state benefit offsets? At least in the latter scenario Walmart helps shoulder the burden.
Tl;dr - Often corporations are accused of abusing state benefits by not paying workers more as opposed to shouldering some of the burden that states would otherwise be left with due to unemployed masses of unskilled labor.
They also get a bit of a bad wrap for pricing out local businesses. Would you rather work minimum wage for a giant, faceless megacorp in a soul sucking minimum wage job with few growth prospects? Or would you rather potentially work for a local business with people you might care about and that might care about you? At least now we can have all the cheap plastic shit we ever wanted.
Dude, that is crazy. Wal-Mart will NOT pay someone more than Wal-Mart thinks their pay is worth. If they were doing that, as soon as an enterprising middle-manager caught wind of it they could put together a presentation and earn themselves a juicy bonus by getting those people cut.
(Well, in theory.. in practice, corporate politics can get messy)
> Absent state welfare style support many low wage (min and sub-min) jobs would simply not work, people could not feed themselves, and they would not accept the jobs.
Given the choice between nothing and less than adequate pay, they would accept the jobs to buy a little more time to find something better before starving.
They wouldn't be sustainable, but without public welfare people are going to grasp at what straws they have, not turn away something when they have nothing.
A most frustrating thing about many kinds of protectionist economic policies is that frequently the people who would benefit from the opposite policy aren't allowed to vote to count the value of it.
The people who would get hired if you didn't put this policy in place are the ones who don't get to vote against it.
The people who would be able to afford to live in a city that has rent control, don't get to vote against it.
It's not until you have some external shock that shows you how much this little island of protectionist policy has cost you that you realize what it did. And in the meantime you've favored and built up a system that is that much less resilient to whatever new problems you face.
If society decides that people should have a minimum income/minimum quality of life, then the burden of providing that minimum should fall on society as a whole. I don’t think it’s right (or efficient) to place that burden on a certain set of firms or industries that are providing jobs for low skilled workers. We would be much better off with a negative income tax plus universal health care.
'I used to work at McDonald's making minimum wage. You know what that means when someone pays you minimum wage? You know what your boss was trying to say? It's like, "Hey if I could pay you less, I would, but it's against the law."'
I’ve always been all for the minimum wage. Seems like it should be a helpful and/or necessary leveler.
Lately though, sometimes ... I’ll get a disorienting flip around in perspective and I will think just what gives you the right to step between me and another consenting adult when we attempt to make a transaction!
And it feels almost gross that the government would paternalistically step in and tell us what agreement we are allowed to make.
I’m not sure what I think in the end. Somehow both things feel true simultaneously.
The notion of the government being some abstract external entity is really strange to me.
Some consenting adults don't have the power to negotiate fair transactions so we, as a society, can use our collective bargaining power to define what a fair transactions is.
Another side to this question is: What is the value of a dollar? that is, what does a minimum wage job actually empower a worker to obtain?
The argument for harm should be re-framed in terms of minimum wages devaluing the buying power of a dollar, of raises to those wages as a tax upon the middle-class (who's wages presumably do not increase accordingly), but crucially not the rent taking (wealthy) class.
Rather than focusing just on dollars and an hourly wage, efforts must be made to correct the market for life essentials so that everyone is able to invest in themselves and the future. Taxes should be structured to prevent the wealthy from abusing the poor. There are other market distortions as well, such as artificially limited housing and many other forms of ladders being kicked out from behind of those who already have their place in life, and don't care for those whom are still seeking a place of their own to belong.
Something the article hints at but should be looked at are concrete examples of minimum wage removing entire job sectors.
For instance, almost all low skilled manufacturing and textile jobs have left the US for mainly Asian countries as a direct result of minimum wage. It's not like those companies want to pay shipping costs of getting products across the globe, but the minimum wage makes it more profitable to do so.
Another example is automated grocery store scanners. Grocery stores lose a ton of money from people gaming the system of automated checkout machines. But even with those losess, it's still profitable for a grocery store to install a machine than hire a worker.
Without a minimum wage, those jobs would still exist in the US and provide an opportunity for low skilled workers to enter the job market.
What a useless article. No real conclusion and no new information.
Raising the minimum wage CAN have negative effects. This is obvious. If you raise the minimum wage to $10,000 per hour, what happens? Hamburgers cost $1,000 each and nobody buys them. Restaurants become insolvent and they close. Bad outcome.
I believe no minimum wage CAN also have negative effects but those effects are less clear to me. Maybe workers get taken advantage of by companies? But is a minimum wage the best way to fix this? Would love to hear other thoughts on what specifically a minimum wage fixes compared to having no minimum wage.
Minimum wage gives more efficiency to spending power. These people are subsided anyway but if they are given foodstamps it's inefficient (I don't know how it work in US but here people won't eat most of it, even if poor, unless starving).
So if your goal as economy is to select for producing nice products at affordable rate then adding purchase decision to low income workers is best way to let them get out of powerty. Maybe they don't need shitty food produced by rich folk with connections to gov but computer for their childeren or some tool to start business?
What I find important to remember about minimum wage is that it constitutes a restriction on the freedom of workers to negotiate for their labor. The existence of a meaningful minimum wage implies that there are people in the society who desire to negotiate for lower compensation (because they are more motivated to get the job for whatever reason), but they are disallowed from doing so. It might be our opinion that it is undignified or exploitative to work for a certain wage, but we should not have the right to bar others from doing so if they wish.
As individuals, we should demand the freedom to negotiate the terms of our employment without government influence, including wages, benefits, and even working conditions. Using the government to coerce employers into giving greater compensation is appealing in the short term, but ultimately it disenfranchises others by blocking them out of jobs and results in long term economic stagnation.
Mandatory minimum wage significantly above the "natural" level dictated by prevailing economic conditions unquestionably causes harm, mostly to workers who, if they choose to continue to work for less money, are now doing so illegally. Mostly they just don't get work. This is why politicians tend to let minimum wages lapse behind the market rate - economies work better without this restriction. And when a significant minimum wage hike is imposed, like $15/hour in some places today, the economic harm to workers quickly becomes apparent.
Indeed we should - demand the repeal of Taft–Hartley Act and other laws which have nerfed collective bargaining power far from any "natural" point.
Jurisdictional strikes, wildcat strikes, solidarity or political strikes, secondary boycotts, secondary and mass picketing, closed shops, and monetary donations by unions to federal political campaigns are all part of the freedom to negotiate the terms of our employment, which we are currently disallowed from doing.
On the other hand, employers are also barred from colluding to keep wages artificially low, which arguably would be considered a “negotiation strategy” if one follows your interpretation.
I agree though that employers have naturally more negotiation power in the vast majority of cases.
You'll notice that when Adobe, Apple Inc., Google, Intel, Intuit, Pixar, Lucasfilm and eBay colluded for years to keep wages artificially low, their final penalty was far less than they saved in costs, and none of the corporate people involved faced jail time for their illegal actions.
In other words, that collusion was profitable for those companies and for upper management like Eric Schmidt who participated but face no real ostracism for their illegal actions.
That law has no real teeth.
Compare that to, say, UC filing charges against UAW Local 2865 following wildcat strikes at UCSC claiming that UAW Local 2865 didn't do enough to prevent the strike UAW Local 2865 didn't authorize in the first place.
Without a minimum wage, the "market rates" for what is currently minimum wage labor will create a race to the bottom, not just in wages, but in standards of living.
There will always be someone more desperate for any amount of money, and eliminating the minimum wage won't create significantly more jobs, as businesses only hire enough people to satisfy demand for their products. Wal-mart won't suddenly hire more cashiers just because they can now pay $2/hour to someone living in a cardboard box.
When it comes to negotiating wages, people in current minimum wage jobs have zero leverage. Minimum wage is a necessity to keep people out of cardboard boxes or packed into tiny apartments like sardines. It is necessary to keep a decent baseline standard of living.
I tend to find the libertarian argument appealing, as well, but you're making a whole lot of assumptions.
I think your worst unchecked/unstated assumption is that "unemployed people are all looking for a job below the minimum wage but are unable to find one". That's simply untrue. "Unemployment" in the US is defined as people who are actively searching for a job (not merely those who do not HAVE a job), but there is no requirement that they accept any job at any (legal) wage.
Presumably, the vast majority of unemployed people, even in good times, would not accept work $1 below the minimum wage, even though they are actively searching.
IOW: You are assuming that the entire reason these folks are unemployed is because they are not allowed to contract their labor for a lower wage.
> By contrast, jobs in restaurants are hard to automate
They are not so hard to eliminate. Some people claim the raise of self busing restaurants is in response to hiring people to do those jobs is too expensive.
The article above claims it's housing costs but the same trend is happening everywhere even places where housing costs are not SF. Of course it could just be a new trend of businesses and nothing to do with any other inputs whatsoever.
These studies claimed a negative impact on new jobs meaning they claim the minimum wage hike made it harder for young people to find a job after the minimum wage went up. That could be because less people quit their now higher paying jobs. Whether that's a net plus or a net minus is probably debatable.
> The effects of a wage floor can also be felt outside low-pay sectors. A preliminary study in 2019 of the impact of Germany’s minimum wage found it led to more reallocation of workers from smaller, lower-paying firms to larger, higher-paying ones.
Is it possible that although the change in overall employment was muted smaller shops were closed up and their work simply transferred to larger ones better able to expend the capital?
I've thought about a similar question: what happens if there is no minimum wage? If people are already struggling when being paid the minimum wage, what happens if business are able to lower it even more? Yeah I get the dynamics of supply demand are supposed to work here, but it just feels like at some point it's not worth people's time to work for such a low wage and they just give up and go on the dole.
I also wonder if in some perverse way, a minimum wage does some harm to workers. Basically the thinking goes like this: companies that are looking to hire labor at these pay levels don't really need to compete for the labor because they know all of their competitors are going to be also paying the minimum wage. The resulting effect is stagnant wages that never go above the minimum wage because everyone knows they only ever need to pay that.
Anyway, I support concepts like the minimum wage which are well intentioned, it's probably just time we reevaluate how to help low income workers achieve more financial security.
PS: didn't read the article, just wanted to get my thoughts out there real quick while on lunch break.
They make it illegal for you to hire someone at a rate below the minimum wage, even if they agree to it.
They force unemployment of those with skills below the average minimum-wage employee's.
They pick an arbitrary minimum wage mandated by government fiat, instead of determined in the marketplace. Such an arbitrary wage suffers from the economic calculation problem, where rational allocation of goods is impossible without free markets and prices to communicate supply and demand.
Changes in the minimum wage affect other things, like the price of food in restaurants, in way which is nonlinear from the actual supply and demand of those goods and services. It's as though there is pressure for prices to move upwards or downwards in response to market conditions, but the minimum wage, or other prices directly affected by the minimum wage, are not allowed to respond to those market conditions, and so a shortage or oversupply occurs.
Minimum wage, despite all manner of contortion by those that seek to justify its existence, is a political concept. The minimum wage is, always, zero.
Minimum wage is also what drives the market for illegal immigrant labor. As Milton Friedman pointed out decades ago, immigration is most beneficial to employers precisely when it's illegal. Those workers don't enjoy the protections, wagers, and respect their legal counterparts enjoy. If illegal immigrants are made legal, then the benefit of employing an illegal plummets.
These wages also avoid other form of government oversight, such as taxation. Lack of immigration enforcement and lack of penalties for those that hire illegals provides an unfair advantage to those employers who, brazenly, break the law. They get cheaper labor, avoid taxes, and gain an unfair market advantage over those employers who follow the law. There's nothing "free" about a market whose government selectively enforces its laws.
Consenting adults should be able to work for whatever wage they like.
> lack of penalties for those that hire illegals provides an unfair advantage to those employers who, brazenly, break the law
I've thought for a long time that the easiest way to curb illegal immigration would be to re-allocate resources targeting illegal immigrants to much more aggresively fine/jail/punish employers who employ illegal immigrants instead. As long as there is a supply of (illegal) jobs willing to pay more than in the country they are emigrating from, the immigrants will come. If there is nobody willing to hire them, they will not come.
This will not happen though because it is in nobody's best interests. Not for business in the US, because they will make less money (or possibly even be unprofitable and have to shut down), and not for consumers, because their prices will increase.
Illegal immigration is a side effect of minimum wage. And minimum wage puts unskilled Americans (or Americans whose skills aren't valuable because of a changing market) at an unfair disadvantage in their attempts to obtain employment and acquire new skills.
Illegal immigration and immigration in general is its own rabbit hole. You shouldn't assume from my post whether I'm for or against illegal immigration (or any type of immigration) because it doesn't really matter one way or the other to the points I'm trying to make.
Economically speaking, granting legal status to unskilled illegals results in a combination of undesirable side effects:
- it increases the price of the goods they produced reducing the buying power of the minimum wage,
- it prices many of those illegals out of the market because they are unable to produce value for the wage they are paid (but now they are eligible for government benefits),
- and it encourages new types of "black market" employment.
Try all you like, but you won't outsmart the market.
This is where you lose me. The jobs still need to be done. Some companies might just fold up and die, but most would be just as happy passing on the higher costs to customers, and said good or service still needs to be produced so the companies that survive will take over for the ones that folded.
Economists have this weird idea that all fast food would close because the people working there clearly aren't worth $15/hour because they're doing jobs that currently pay only $10/hour.
The crazy part is that higher minimum wages tend to increase the market, not decrease it. Turns out that poor people are bottlenecked on money. If you reduce the bottleneck they can spend more, which increases demand for labor (to fill the supply) which increases the labor rate. You can see this effect all throughout history, the more wealth gap an economy has the slower its economic growth rate is. The super rich can't spend the money fast enough or broadly enough to increase the economic base, the economies grow stagnant.
The customers of McDonalds are other poor people. The margins are already slim. If you raise prices to cover the minimum wage those poor customers won't eat at McDonalds.
If you raise the minimum wage those poor people won't be as poor. And since the labor is only a fraction of the cost of the burger the poor people come out ahead. The danger is inflation, but honestly we're in bigger danger of deflation these days.
Labor is most of the cost of the burger, whether it’s the labor to sell it, the labor to cook it, the labor to transport it, the labor to butcher/harvest it, the labor to tend to it prior to butcher/harvest, etc. And the expense of ALL of that labor will inevitably increase causing the price of goods to increase causing the price of labor to increase and so on...
Someone immigrating to the US for a job paying $10 per hour cannot become a legal immigrant. The minimum wage creates an opportunity that only illegal immigrants can take advantage of.
At my last startup 15 years ago we paid our support staff $12 and had no problem hiring people. But the people we could hire for $12 sucked at the job. They just didn't have the skills or talent.
So we started paying $16+ and hired much higher quality people.
Companies always want to pay as little as possible, but they also have to be able to attract the right level of talent.
You probably know this but the opponents of raising the minimum wage fear that it will lead to inflation. The old adage "labor is 2/3rds the cost of everything."
States can and sometimes do set higher rates than the national minimum. And frankly, a national minimum wage doesn't make sense -- why should wages in low CoL areas like rural Alabama be the same as high CoL areas like NYC/SF?
Even state lines may be too coarse grained for minimum wage policies, Since there are many metro areas that cross state lines. On the other hand, economists have been able to treat these places as natural experiments with mixed success: when one state raises the minimum wage but the other does not, you can measure a variety of things, including regional inflation. But it's still difficult to disentangle causation and substitution effects, since the minimum wage directly affects only a small portion of society. The evidence on that front has been... shedding more heat than light. I'm not sure anyone's proved conclusively that inflation does or does not happen, or that unemployment does or does not happen.
Probably the most interesting study I've heard of is one looking at restaurants as a sort of model species for minimum wage jobs, the same way that biologists study fruit flys because they have short lifecycles. The supposed evidence there is that the type of restaurants change in response to wage increases: more self-bussing, less staff hired per dollar turnover. The people left get paid more, but fewer people employed overall. That said this was from a podcast discussion and I haven't reviewed the peer reviewed article personally.
This fallacy is addressed in the article, I suggest you read it.
The key point is that wages are being kept artificially low by monopsonies. And the evidence supports this. (Current hyperlocal minimum wage laws make for good A/B-ish tests.)
>> This school of thought argues that some labour markets are characterised by a market structure known as monopsony. Under a monopolistic regime one dominant supplier sells to many buyers, whereas under a monopsonic regime, one dominant buyer purchases from many sellers. Just as a monopolist can set prices higher than would be the case in a competitive market, a monopsonist can set prices artificially lower.
I had a really hard time understanding this paragraph. Did anyone else?
It cannot be that raising the price floor of a good does not cause consumers to buy less of it, or substitute where possible.
Employers rent the labour of employees, and if their price floor is raised, it cannot have no effect on how much their labour is demanded - the equation has been tipped toward higher input costs.
It may not have enough negative effect to cause any adjustments, but it must at the margins.
Great read. The real labor market is more complex than a simple model of supply and demand. It's like the old physics joke, "I have a solution, but it only works for a spherical chicken in a vacuum."
I know that in economics it is difficult to do proper studies hence the "dismal science", but my understanding is that most economists agree that minimum wages don't work right? So why is it still pushed? Shouldn't we "listen to the experts"? Besides there are other tools like the EITC.
Thanks, those are a bit better, though still single opinions. I guess I am looking more for a survey of economists opinions. What was interesting about Krugman's piece was that he said minimum wage used to not work, but now it might due to changes in the economy, which is surprising if true. To me, neither one was a resounding affirmation of minimum wage, both said that $15 did not seem to hurt, and might help slightly.
Or study what happen in countries without a minimum wage, like Denmark. The argument isn’t that you shouldn’t pay a living wage.
In Denmark there’s no minimum wage, yet people are paid well. The wages are agreed upon by the employeers organisations and the unions. It does set a minimum wage per industry, but the important part is that it’s not set by politicians who have no idea what the real world looks like in each industry.
A universal minimum wage risks being to low for one industry, while being to high for another. It makes more sense to do collective agreements per industry, and by having the unions act on behalf of the employees you ensure sufficielt leverage against the employers.
> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces.
This assumes the laborer is selling work as an individual and not negotiating e.g. as part of a union.
Without a minimum wage, some jobs would pay effectively zero.
You see that with waiters, who get paid below minimum wage, and are expected to make tips, the issue is if there's no customers because of a pandemic, they are now making no income.
Economics is ideology not science. The "textbooks" are whatever ideology is currently fashionable. Please also note that the "textbooks" will always support the current power elite unquestionably.
I'm against it, because it promotes consumerism, which is the root of environmental problems, the most likely number 1 issue of the current and next decades
People should have minimal essential/vital needs rather: home, water, electricity, (organic) food, healthcare.
I spend less than 50€/month on food, because I forage it (even if I live in a city) (figs, oranges, medlars, persimmons, grapes, ..), and I buy some vegetables at a local producer and some rice at supermarket, and I'm pretty much full with this
We need high-scale changes, less cars, less consumerism, less pollution, less useless activities, more (public) fruit trees and vegetables
They don't do any harm anywhere other than in an ECON 101 class. The invisible hand and equilibrium ECON 101 doesn't account for unlivable wages. That's why there's a minimum wage.
"The first thing that happens, for example, when a law is passed that no one shall be paid less than $106 for a forty-hour week is that no one who is not worth $106 a week to an employer will be employed at all. You cannot make a man worth a given amount by making it illegal for anyone to offer him anything less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.
The only exception to this occurs when a group of workers is receiving a wage actually below its market worth. This is likely to happen only in rare and special circumstances or localities where competitive forces do not operate freely or adequately; but nearly all these special cases could be remedied just as effectively, more flexibly and with far less potential harm, by unionization.
It may be thought that if the law forces the payment of a higher wage in a given industry, that industry can then charge higher prices for its product, so that the burden of paying the higher wage is merely shifted to consumers. Such shifts, however, are not easily made, nor are the consequences of artificial wage-raising so easily escaped. A higher price for the product may not be possible: it may merely drive consumers to the equivalent imported products or to some substitute. Or, if consumers continue to buy the product of the industry in which wages have been raised, the higher price will cause them to buy less of it. While some workers in the industry may be benefited from the higher wage, therefore, others will be thrown out of employment altogether. On the other hand, if the price of the product is not raised, marginal producers in the industry will be driven out of business; so that reduced production and consequent unemployment will merely be brought about in another way.
When such consequences are pointed out, there are those who reply: “Very well; if it is true that the X industry cannot exist except by paying starvation wages, then it will be just as well if the minimum wage puts it out of existence altogether.” But this brave pronouncement overlooks the realities. It overlooks, first of all, that consumers will suffer the loss of that product. It forgets, in the second place, that it is merely condemning the people who worked in that industry to unemployment. And it ignores, finally, that bad as were the wages paid in the X industry, they were the best among all the alternatives that seemed open to the workers in that industry; otherwise the workers would have gone into another. If, therefore, the X industry is driven out of existence by a minimum wage law, then the workers previously employed in that industry will be forced to turn to alternative courses that seemed less attractive to them in the first place. Their competition for jobs will drive down the pay offered even in these alternative occupations. There is no escape from the conclusion that the minimum wage will increase unemployment."
[...]
"As to the prices, wages and profits that should determine the distribution of that product, the best prices are not the highest prices, but the prices that encourage the largest volume of production and the largest volume of sales. The best wage rates for labor are not the highest wage rates, but the wage rates that permit full production, full employment and the largest sustained payrolls. The best profits, from the standpoint not only of industry but of labor, are not the lowest profits, but the profits that encourage most people to become employers or to provide more employment than before."
Henry Hazlitt “Economics in One Lesson.”
To those who are downvoting: There are no illegal people, there is no illegal two-party consensual trade.
There was a debate between the pro & con side of minimum wages a few years back. The debaters are all pretty intelligent, intellectually honest and deep people... all things considered.
The debate was a spectacular failure, hinging on marginal interpretations of marginal datasets measuring marginal impacts. Most of the theoretical downsides end up below the noise threshold, in data.
The pro side took this as a win, disproving the orthodox economic position. The con side demanded a counter theory. Obviously, a $1,000ph minimum wage would increase unemployment. That's hard to argue against. Why is a $14 minimum wage different? Where's your theory. It's not fair if you can debunk my theory, but don't have a theory for me to debunk.
"Interesting. It works in practice, but does it work in theory?" to paraphrase a cliche from the late 40s.
It's all a good reminder that economics is not a science. The gap between theory and practice can be vast, often is. Keynes (and most of his generation) was famously wrong about the future of working hours. Even so, the theories (income effect & substitution effect) used to make this failed prediction were not discarded. Even today, college economists teach the theories and Keyne's prediction. They find a way where the theories are still right, but "below the noise threshold." IE, other factors just happened to be more important in this case.
I would also point out the the intellectual founders of modern, liberal free market theories (Hayek, Coase, Popper kinda) emphasized this. Economics is not a science.
There is no universally true answer to the question "increases unemployment among young and low-skilled workers?" There are theoretically true answer, but this may or may not be operative in practice. It's also true that food availability increases reproduction rates. This doesn't mean that adding more burger joints will increase the human population of Manhattan.
In Portugal, youth unemployment rates often tend to be high. If I were deciding for portugal, I'd be careful with my minimum wage policy. They are low in the UK. I wouldn't be concerned about gradual increases if I were deciding for the UK.
There is another possible conclusion to the "economics is not a science" point which many economists concede. One most economists are uncomfortable with. Economists shouldn't be the only word.
For example: ask low wage earners. They're the ones theoretically affected by minimum wages, for better or worse. If we want to know about the effects of some corporation policy on silicon valley, we would value the opinions of those companies. Same here. What do low wage earners think about minimum wages?
The only politically feasible alternative is increased welfare spending, which means a low minimum wage is just a way to have taxpayers cover employers’ labor costs.
Not defending Wal-Mart's labor practices, but there are probably very, very many companies where they have the single largest collection of workers who $INSERT_CONDITION_HERE.
This is a puzzling comment. Yes, you can probably find a unique characteristic among various groups... but this specific value of $INSERT_CONDITION_HERE is relevant to the discussion, and probably a negative force in our society. Seems like you're trying to dismiss it for some reason?
I would actually say that it is the opposite... As there is few very large employers. Wal-mart being largest one of them. Companies employing lot of people also has largest collection of workers with $INSERT_CONDITION_HERE.
Not that the whole sector couldn't do better. Wal-Mart just having that statistic because they employ the most.
Sorry, that's what I meant to say. Wal-Mart is the largest private employer by a factor of 3. They're probably first in many categories (of absolute numbers, not percentages) based on the size of their workforce.
I think a more politically feasible alternative is a corporate welfare program where companies apply to have the government step in and just pay a portion of worker's wages.
I don't like it but I think it would be something that would actually manage to pass with some amount of bipartisan support. The market still sorta-kinda allocates the labor, incentives for employer and employee are aligned, and as part of the program they would could implement some form of corporate austerity to audit spending so companies couldn't just walk away with the cash.
If you are getting a significant chunk of someone's time and labor, but not paying them enough to live well, that seems like the definition of exploitation. If you can't pay a living wage, your company should go out of business - it's not helping society, and it's sucking up air that could be used by other companies that CAN pay their workers a livable wage.
Specifically in the case of walmart, they CAN pay their employees a living wage. They drain about 6-7 billion from taxpayers (1) by way of workers on assistance. From 2006-2020 walmart has made over 10 billion/year every year except two (9ish billion and 6ish billion) (2)
The people who argue hardest against minimum wages are those who would never expect to be paid a minimum wage for their services. Our "essential workers" are usually some of our lowest paid workers. If a UBI is ever implemented, I would suggest that these people get those funds first
> Just as a monopolist can set prices higher than would be the case in a competitive market, a monopsonist can set prices artificially lower.
A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job.
That's why minimum wage laws and workers rights are important. Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker. The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies.