My comments on the minimum wage yesterday drew the most (only) direct response. Probably not coincidentally, it was the largest and most detailed part of the post to respond to. I expected to encounter resistance on this part in particular.
I would like to respond specifically to Robert’s comments to my previous post.
So the ethical question is which is worse: raising minimum wage to improve the condition of people at the bottom of society at the expense of middle and upper class society? Or keeping minimum wage the same and keeping the same struggles of today? I think I have to side with the increased minimum wage, as I see it now as people struggling to keep roofs over their heads and their children fed versus someone being able to afford a new SUV.
This is a false dichotomy. It assumes that we have only these two options, and that assumption is false.
Whenever I have written about the minimum wage, I have presented a third option – an option of education subsidies for those who are earning less than a particular income level, so that they can acquire the skills necessary to get a higher-paying job. I would further argue (if given a chance) that these subsidies include health care, housing, child care, and even food if necessary, for those who need it, as long as they are in an educational program.
This option has a number of advantages over either the “increased minimum wage” option and the “do nothing” option – though I am particularly interested in its advantages over the “increased minimum wage” option.
(1) Education produces a number of positive externalities (benefits for people other than those who get the education). We are simply better off in a community of neighbors who are more highly educated than we are among neighbors who are more ignorant. This makes the expenditure more of an investment than an act of charity.
(2) The minimum wage option only allows a person’s wages to move up to the new minimum – say, $7.00 per hour. The educational subsidy option will give some graduates a chance at work significantly above this level. Why stick a person at $7.00 per hour when we can give them something better?
It is also worth mentioning that a higher minimum wage has an adverse affect on education, because it increases the opportunity costs of going to school. By increasing the opportunity costs, we will bring it about that some people will choose not to go to school, who would have otherwise gone to school. Given the positive externalities of education, this makes the nation as a whole worse off.
Back to the claim that it is either "increase the minimum wage" or "let these people starve", I not only think it is inaccurate – but I think it is maliciously wrong to assume that somebody who does not agree with one’s plan cannot have another, perhaps better, plan of his own to offer.
In fact, this type of argument has a lot in common with the slanderous political attack ads that I wrote about in an earlier post. There is little difference between saying, “If you are opposed to my wiretapping program, you must think that we should never listen in on any al-Queida calls into the United States” and saying, “If you are opposed to my higher minimum wage plan, you must believe that we should simply let poor people suffer in poverty.”
The purpose of a minimum wage is to force a more even distribution of profit throughout the business. And in most businesses the positions at the bottom are the ones that are actually indisposible (sic) to the business.
Actually, this is false. Lower-paying jobs are those that tend to require the less thought and, as such, tend to be the easiest to automate. They also tend to produce the least marginal return for the company, so they are the jobs that can be most easily cut. On the other hand – complex jobs (requiring an educated workforce) are the types that tend to demand higher wages and are the hardest for a company to eliminate.
By increasing the minimum wage, look for Wal-Mart as well as most grocery stores (to name one set of examples) to reduce the number of full-service checkout stands in their stores and replace them with self-service stands – the way that gas stations cut back on the number of full-service pumps and went more to self-service pumps.
Look for fast-food chains to move more towards automated equipment and to shift more of the work from employees to customers. Note that they moved the soda machines out from behind the counter to a self-service station on the floor – along with stations allowing customers to add their own condiments. Movie theaters also moved their popcorn buttering station from behind the counter to stations in front of the counter to cut down on the labor costs. These are the signs of companies who decided against paying a worker a wage and, instead, decided to harvest your free labor.
Look for fast-food places and other service-related industries to automate their order-taking procedure. The customer himself will punch his order into a menu screen at the table, which will show the order on a screen in the kitchen, rather than have an employee spend the time taking the order.
Some fast-food places already automate their drive-through orders. The person you talk to when you press on the speaker button may be a thousand miles away. This way, the employee can instant shift her attention from a store that is not busy to one that has gotten a burst of customers, allowing the company to have fewer employees taking drive-through orders.
At any rate it will take more evidence to convince me that any increase in minimum wage will immediately result in people having fewer jobs.
I never said that the losses would be immediate. Furthermore, I did not say that ‘fewer jobs’ was the only harmful effect of increasing the minimum wage.
Nor would I.
Yet, the hazards that I spoke of do not have to be immediate to be bad, and losing a job is not the only way to make a poor person’s life worse than it would have otherwise been.
It will take time for Wal-Mart or a similar store to install automated checkout stands. It will likely keep its staff levels at their original level until those stands are installed. However, after the stands are installed, it will need fewer workers. In the mean time, its most immediate response would likely be an increase in price. That will not likely have an adverse affect on those in the top 10 percent of household incomes. Those people do not shop at Wal-Mart. That will affect people who are shopping at Wal-Mart as a way of stretching an average paycheck.
As another example, a fast-food chain might also respond to the higher minimum wage by raising its prices. However, higher prices will mean fewer customers. Fewer customers will mean that the owner will not need to replace the next employee that quits.
Another company will likely wait until the next open enrollment period for its health benefits to announce that employees will have to pay a higher percentage of the premium.
One of the options will simply be a refusal to build or expand when they would otherwise have had an option to do so – keeping the workers they have, but refusing to hire more.
Or, when the company does expand, it’s new store will come with all of the labor-saving options that the higher minimum wage has now made possible.
None of these changes are immediate.
This does not imply that, when they happen, they will not be bad.
The problem I find with your analogy is that it presumes that companies are already trying to pay their workers as much as they can, and any forced increase will result in them having to let workers go. This is certainly not typical of any place of employment I have ever worked.
This is false.
First, I am not assuming that “letting employees go” is the only option they will pursue. They have the option of cutting back on benefits, withholding pay increases for other (non-minimum-wage) employees, raising prices, reducing pay rates for other (non-minimum-wage) employees.
Second, I do not need to presume that companies are paying workers as much as they can. I only need to assume that companies have a stack of options for how they will respond to increased labor cost. Yes, I agree that one of those options involves the Board of Directors gathering around the conference table and answering the problem of increased wage rates by saying, “I know what we can do! We can cut our own salaries!.”
This is certainly an option.
However, it is not the only option – and, I suggest, it will almost never be found at the top of the list. Companies will try a number of other options first. Those other options will make sure that those at the lower end of the income ladder will pay.
By the way, this brings up the question of how I would suggest paying for the education subsidies.
Answer: Tax the rich.
It is another rash assumption to believe that an individual opposed to increasing the minimum wage is somebody who secretly (or not so secretly) seeks to protect the rich by sticking it to the poor as much as possible. Please entertain the possibility that somebody can be against a higher minimum wage without wanting to protect the rich at all. In fact, his real concern is to make sure that the poor actually benefit, and he has no problem with making sure that the rich cover the costs of that benefit.