"Minimum wage was created specifically to stop abuse of large numbers of people."
Yes, but A: goals and effects are two very different things and B: it was created in an increasingly foreign world and every year it is less obvious that the original logic holds. (I mean that in a very general sense, not in an immediate "discard minimum wage and return to a libertarian paradise" sense; as robots become more and more capable and really start eating into the low wage jobs we may have to consider things like guaranteed minimum incomes or other radical proposals.)
"Employers as a rule extract a multiple of value from their employees time, not just a little bit over."
In my opinion, not if you do a full accounting. Profit margins for established, successful companies in the vast majority of industries tend to run in the single digits percentages, bursting up to 10% or the low teens for some rare cases. And then there's the tech industry, which is another story altogether. It may be true in some abstract sense that companies extract multiples of value over what they pay but it isn't true in a useful sense.
Generally speaking, I deny that there's a huge amount of room for people to cut minimum wages, because employers do not make radical profits on their employees. The job market isn't perfectly efficient, but it's more efficient than that. A person/task that can't justify minimum wage in the modern economy is a person not hired and a position not created, not a person generating 2$/hr of value but forcibly paid minimum wage.
Now, if the economy was grotesquely inefficient and the average company made 200% profit and the only way to pry money out of their hands was with a minimum wage, I'd agree, but that's not the world we live in. It's certainly a world we hear about a lot in propaganda but it doesn't correspond to reality.
I have to agree with jacquesm here. You're right that many homeless individuals can't produce a minimum wage's worth of value for an employer, and you're right that the requirement of a minimum wage then makes it nearly impossible for them to get work that has any chance of improving their situation.
However, jacquesm is right that the minimum wage exists as a lower threshold that prevents the exploitation of workers, and that's as true today as it was in the 1920s. Reducing or abolishing the minimum wage would certainly lead to powerful economic deflation, and while that looks great on paper, in reality it leads to lots more homeless and poor people.
In practice, game theory does not apply to economics as often as theorists think it does. For example, you'd think that if some employer wasn't offering a decent wage, then they'd be unable to get workers, so they're forced to maintain the same wages as everyone else. However, eventually there will be an economic depression like the one we have now, and that will result in huge numbers of able employees, and a ripe opportunity for would-be employers to exploit that situation in a way that wouldn't fix itself for decades.
I am an employer. And, yes, although my margins are ridiculously thin after you count up all the money that goes in to everything, the truth still is that I do make sure I get multiples of value from my employees (or contractors); otherwise, I simply wouldn't bother having them.
Homelessness and the problems of the poor are something that I think about a lot, and as I said, I have no idea what the solutions are. I do know that merely reducing or eliminating minimum wage requirements -- even only for their specific case -- is not a viable solution.
...actually, that's not quite true. I think I know of one solution, I just don't talk about it much because it's unrealistic. But here goes: the real colonization of space.
I think that extreme poverty and conflict are symptoms of a deeper problem in human societies. Unfortunately, at this stage of our technological development, human economies must be continually and steadily growing in order to be "healthy" (low rates of unemployment, reasonable consumer price indexes, low homelessness, etc.).
Further, while it's theoretically possible that the planet could support vastly greater human populations, you must take into account human territorialism, cultural divides, and other social-psychological factors. So, in practice, it's hard to imagine the planet supporting, say, twice as many humans, in peaceful conditions, at our current moral and psychological development.
So, there's a kind of "rebound" effect in population growth: rather than trying to grow in the most efficient, compact manner possible, human populations tend instead to grow and explore as quickly as possible, until some barrier stops the growth. When that happens, two interesting effects seem to occur: the barrier area tends to develop denser populations, and the original population centers tend to decay.
Also, you have individuals (and groups of individuals) that tend to vastly out-produce the rest of their society. This is one of the parts of the engine that causes human population growth. However, it also has a tendency to create greater efficiency, which both takes advantage of the poor as well as creates more poor people. (There is a counter-argument that this also leads to better living conditions for the poor, and it's true, but that doesn't resolve the much greater economic divide between the various socio-economic classes.)
If these industrialists don't have some kind of frontier to grow into, then they inadvertently magnify the problems of barrier growth: they create lots of wealth for a small group, at the expense of a much larger group.
This is a very poor, hasty description, but the basic essence of it all is that at this point humans simply need some frontier to expand into in order to maintain reasonably healthy societies, and we don't have one.
I don't think we'll be getting one anytime soon, so I expect the human condition to get a little grim for the next century or so.
Why not colonize the ocean floor instead or as well?
I'd be as excited as anyone if we were colonizing space. If humanity survives long enough and manages to avoid too many dark ages, it is an inevitability, but at the present time, doing so would be terribly expensive.
I'm not sure if you could honestly classify spending trillions of dollars on space colonization is the best way to allocate resources for a poverty reduction program.
In some distant future where such things _are_ financial feasible or necessary, I would imagine that economic opportunities would be traded to the earlier pioneers who would suffer under what would surely be difficult and dangerous circumstances.
> I'm not sure if you could honestly classify spending trillions of dollars on space colonization is the best way to allocate resources for a poverty reduction program.
Historically, this has always been the case though, and the initial up-front expense has always benefited the society willing to fund the exploration. (Or, almost always; I think I recall a case where one civilization went exploring, bumped into a another much more warlike civilization, and was all but wiped out. I don't recall which specific example I'm thinking of though, and there are probably a few anyway.)
With all respect due him, I regard pg's essays as I do Malcolm Gladwell's books: they are often entertaining, occasionally insightful, and never something that I would cite in an argument. (And for all the same reasons.)
So, I predicted this response. In fact, I even said,
> There is a counter-argument that this also leads to better living conditions for the poor, and it's true, but that doesn't resolve the much greater economic divide between the various socio-economic classes.
I've been waiting almost all day for someone to come along and say, "but the poor are so much better off!" So, I apologize in advance ...
What do you think of slavery? I have a somewhat unconventional view of it. I think it was a necessary component of human progress for a long time, until technology could gradually supplant it. I don't think it was inherently evil (except of course in abusive conditions, which it usually was).
What was truly awful about slavery was that there was usually no way for a slave to have any chance at all of improving their class. There were exceptions, sure, but as a rule, once a slave, always a slave. That is where slavery is really bad, IMO.
Similarly, as the class divide becomes progressively wider in modern society, there are more and more people who will find it impossible to markedly improve their socio-economic status. As a rule of thumb, if you're homeless in the U.S. today, you're not likely to be sending your kids to college 20 years from now.
Part of the reason that I'm so passionate about the problem of poverty is because I've lived a small bit of it. I've made the transition from being quite poor to being -- at the moment -- less poor, and with a chance of being in pretty good shape in a few years. It takes a long time, and it takes vast amounts of energy. And, I had good luck on my side: I got to play with computers when I was very young, so I have useful skills.
While I gratefully concede that a poor person today has much better chances of being able to eat cooked food and enjoy the basic comforts of cheap entertainment and toys, I do not agree that having really really poor people and really really rich people is an indicator of a healthy society. Rockefeller, Carnegie, Gates, and others have chosen to do good things with their amassed fortunes, but I'd still rather see larger numbers of people attending secondary schools and learning trades -- things which are much harder to do when they're extremely poor.
I regard pg's essays as I do Malcolm Gladwell's books: they are often entertaining, occasionally insightful, and never something that I would cite in an argument. (And for all the same reasons.)
I'm curious what your reasons are.
... but that doesn't resolve the much greater economic divide between the various socio-economic classes
Your statement implies that you believe an economic divide is bad in some way. Can you elaborate on what you believe is bad about it?
pg's essay postulates reasons why people think an economic divide is bad. Then he gives a logical argument why each reason is incorrect.
It's bad because wealth is finite.
No, wealth is not finite, you can create it. You can
build your own house for example and you've created wealth.
It's bad because you have to do something immoral to get rich
No, while true historically, it is now possible to get rich by creating wealth.
And he also suggests that while the gap in bank accounts is growing the gap in life-style is shrinking.
If minimum wage was not needed today we'd see nobody earning minimum wage, but only people making comfortably above it.
As long as there are plenty of people earning just minimum wage we need minimum wage.
You can't argue that if we removed or lowered the minimum wage that employers would not take advantage of that and would reduce the pay of those that currently earn minimum wage given that evidence.
Based on the normal distribution of worker skills there will aways be plenty of people earning just minimum wage, but you can't infer that far more people are earning $6/hour at a $6/hour minimum wage than would be earning that wage if no minimum wage existed. Such large scale market inefficiencies would not last for long.
Surely there will be some workers who are paid marginally more because of minimum wage laws, but not much more. Because of the large quantity of low paid workers, the gains from automation are significant. One wheat combine does the work of thousands of laborers.
Firms do not "take advantage" any more than workers do. Surely some workers would be paid somewhat less without minimum wage, but surely more people would be employed, gaining skills and experience, etc.
Who really knows what the impact of this would be on various industries over time. The modern world has done away with low skilled manufacturing jobs (which might have been the first rung on a ladder to more skilled jobs) and replaced hundreds of thousands of workers with a far smaller number of robots.
Most advocates of minimum wage prefer to look at the world as a single slice of time in which it's obvious that someone is benefitting from the policy. Over a longer period of time, the benefit is far more difficult to detect and the case for minimum wage evaporates.
Imagine a world in which people could be hired for $2 per hour (where that's all their skills were worth). The state could simply subsidize their paid work. Then it's not a welfare system but a subsidized job training program. Far preferable both for outcomes and for the self identity of those working in the program.
Imagine a world in which people could be hired for $2 per hour (where that's all their skills were worth).
This reminds me of Metropolis. Is a world where a large portion of people work full time, producing just $2/h, really preferable? That's got class society written all over it.
> Based on the normal distribution of worker skills there will aways be plenty of people earning just minimum wage
Why? Wasn't the wage you made supposed to be based on the value you added? Or has that argument gone out the window?
I really don't see any reason why there ought to be a normal distribution of wages. Also, the wages are not distributed that way at all, it's a power law distribution, relatively large numbers of people make little money and relatively few people an enormous amount.
> but you can't infer that far more people are earning $6/hour at a $6/hour minimum wage than would be earning that wage if no minimum wage existed.
Sure you can. That's unassailable logic. Every person earning minimum wage is a datapoint that you can use as evidence. How many people do you suppose are earning minimum wage right now?
> Such large scale market inefficiencies would not last for long.
In countries without minimum wage they last up to today, in countries with they lasted up to the moment that minimum wage was introduced.
> Surely some workers would be paid somewhat less without minimum wage, but surely more people would be employed, gaining skills and experience, etc.
Right. You mean "would be locked in to wages below subsistence level without much chance of improvement". Gaining skills and experience doing what? Flipping burgers? Checking out at the register?
> Who really knows what the impact of this would be on various industries over time.
Shareholder value would increase :)
> The modern world has done away with low skilled manufacturing jobs (which might have been the first run on a ladder to more skilled jobs) and replaced hundreds of thousands of workers with a far smaller number of robots.
You must live in a different world than the one where I live. Where I live we've outsourced those manufacturing jobs to places where there is no minimum wage and there is a disregard to job safety and public health. And in more than just a few cases where there is no age limit for full time work either.
> Imagine a world in which people could be hired for $2 per hour (where that's all their skills were worth).
Imagine a world in which people could be hired for $7 per hour (where that's all their skills were worth).
We already live in that world.
So firms do take advantage.
> Firms do not "take advantage" any more than workers do.
Right. Workers have yet to take advantage of their employers in a single instance, whereas employers have historically abused their workers routinely and still do so today in many places, and would do so in many more given the chance.
The worst thing a worker can do is to strike. And that is - in most places - a government protected right. Coincidentially, most of the places where you can't legally strike also don't have a minimum wage.
Really, I can see a lot of advantages to Capitalism but there are limits to what it can achieve and if it was a perfect system then we wouldn't need minimum wage, and we wouldn't need unions either. In the real world, unfortunately, we need both.
Capitalism is like democracy, it's not perfect but it seems to be the best we've got. Hopefully in the longer term it will turn out that we can and will do better.
Then, on top of all that there is one more factor. The minimum wage sets the base level for all other wages. There would be a tremendous knock-on effect from removing the minimum wage. When minimum wage was introduced everybody benefited (well, except for the highest segment, maybe).
I don't disagree that people should be able to earn a living wage. However it is supply and demand that sets wages (in the absence of a minimum) and so if you are arguing that the minimum wage sets the "floor" you are proposing some fairly mind boggling demand side effects.
Your view also defines workers and firms as adversaries with no shared interest in improving worker productivity (ability to add value). Aside from pure manual labor (for which workers might be whipped to increase productivity and for which virtually no intellect or interest is required) all firms would benefit from improving the human capital value of their labor force.
Strikes are a legacy of the days when work was simply straining one's muscles against the earth or repetitively doing stitching, stamping, etc.
Unions, too, are a legacy of the days when you could be replaced by any willing person ready to step in and earn your wage. Today, Unions are granted additional power (beyond the market power they would have just via collective bargaining) and they essentially impose a tax on certain firms. I'm not anti-union... they serve an important purpose, they just shouldn't have any extra power beyond collective bargaining. New hires shouldn't be forced to join, etc.
In my view, minimum wage laws have a few negative effects:
- they drive low wage work into the black market where there are no protections against abuses.
- they limit employment opportunities for those whose ability to add value is lower than minimum wage... such people become wards of the state, terminally unemployed.
- They make subsidized training arrangements infeasible for low end workers.
- They draw a sharp distinction between employed an unemployed. It would be far more accurate to determine that a person needs $3/hour of support from the state b/c they can only reliably pull in $4 per hour. In today's world, that person is unemployed or is constantly fired after it becomes obvious that he/she is not fit for minimum wage work.
Sure you can. That's unassailable logic. Every person earning minimum wage is a datapoint that you can use as evidence. How many people do you suppose are earning minimum wage right now?
Technically, to demonstrate that, you'd need to demonstrate that the minimum wage level is an outlier in the overall wage distribution. That should be very easy to see if we had a histogram of how many people earn a given wage, but my Google-fu is failing me on that point.
There are two things an employer can do when considering an employee who they would prefer to pay less than minimum wage: either pay minumum wage, or don't have that employee. There's some cutoff as to which choice the employer makes. You can guess one way, as you do, and most minimum wage earners would be substantially harmed by the removal of the minimum wage. You can guess the other way, as grandalf does, and most current minimum wage earners would be either entirely or near entirely unaffected. Without numbers, either one is still a guess.
Keep in mind that in increase or decrease of the minimum wage will affect all wages higher than minimum wage, with a more pronounced effect on the lower end of the scale.
Minimum wage is 2% of the workforce for full-time employees, a much larger percentage when looking at part-time employees. Minimum wage is also usually found to be associated with either the young, the old or the uneducated, in other words, those that have a bad negotiation position.
It's a good start, but it's based on total income. So, someone with two minimum-wage jobs adding up to (say) 60 hours per week will appear above someone with a job paying twice minimum wage who only works 20 hours a week. That's not what we're looking for if we want evidence that minimum wage is increasing the wages of many on the low end of the scale.
Unfortunately, this happens to be what the census bureau tabulates, which makes it hard to find the data we're actually looking for.
Setting a minimum wage makes some people's wages rise to it - AND, unavoidably, it also makes some people unemployed.
Because not all employers extract the same value from the same workforce, those more efficient will be able to afford the raise. But, by definition, the employers of some of that population will not be able to afford that raise (otherwise the market value would have been greater). This means some people will become unintentionally unemployed.
This is absolutely true, but the net benefit is huge. It's a typical case of an ethical dilemma, no minimum wage is shitty wages for everybody, minimum wage is a living wage for many and no wage for some.
Exceptions to minimum wage are a thing that's been tried in some places but on the whole it didn't work out well, I believe there are still some experiments running in Europe where long term unemployed can work for less than minimum wage in some jobs (but with a time limit) while keeping their welfare.
It is not a net benefit. It is a net loss for society, as less wealth is produced, so society in general gets poorer. It is also a net loss for those that become unintentionally unemployed. The overall salary mass is not raised, but reduced.
I would also add it is completely illegitimate to prohibit a voluntary agreement based on some supposed "greater good".
Your assertion that no minimum wage means "shitty wages for everybody" is unfounded. Wages are determined by productivity, and it's no possible to raise real wages (taking into account other goods prices) with a law. Only an increase in produced wealth can raise wages.
Edit to add: If you imply that the "unintentionally unemployed" ones are a unlucky few, that's not the case. As you would probably know, official unemployment levels are around 20% in some EU countries, while real levels are probably way above that. That means a whole lot of people is not allowed to produce nothing because of minimum wage laws. The wealth prevented from being created is huge.
That is not true. Underemployment does not benefit anyone: it does not provide the employee with a living wage and results in an unproductive workforce. You can't change the fact that there is a minimum amount of money necessary for a reasonable existence, and going below it is just a means for temporary exploitation of workers, in some (although possibly farfetched) fashion similar to slavery.
Subsistence work with no possibility of improvement does not provide society with a net benefit, but only creates a class of permanent poverty marred by undernutrition and an inability escape the tactical issues of living paycheck to paycheck, and it's an especially important issue in a country such as the US where health benefits are few and time off is minimal.
If minimum wage is taken away, market force WILL drive down the wages, but there will be no social benefit, as it will only result in denying opportunities to a very large sector of society.
A reasonable existence is a completely subjective value. Someone with a $5/hour wage today would live better than some kings some centuries ago. So it does not exist that "minimum amount of money".
Society takes a loss. The less wealth is produced, the poorer the society is. It's as easy as that.
What denies opportunities is denying someone the possibility of working because he's not productive enough.
Yes, but A: goals and effects are two very different things and B: it was created in an increasingly foreign world and every year it is less obvious that the original logic holds. (I mean that in a very general sense, not in an immediate "discard minimum wage and return to a libertarian paradise" sense; as robots become more and more capable and really start eating into the low wage jobs we may have to consider things like guaranteed minimum incomes or other radical proposals.)
"Employers as a rule extract a multiple of value from their employees time, not just a little bit over."
In my opinion, not if you do a full accounting. Profit margins for established, successful companies in the vast majority of industries tend to run in the single digits percentages, bursting up to 10% or the low teens for some rare cases. And then there's the tech industry, which is another story altogether. It may be true in some abstract sense that companies extract multiples of value over what they pay but it isn't true in a useful sense.
Generally speaking, I deny that there's a huge amount of room for people to cut minimum wages, because employers do not make radical profits on their employees. The job market isn't perfectly efficient, but it's more efficient than that. A person/task that can't justify minimum wage in the modern economy is a person not hired and a position not created, not a person generating 2$/hr of value but forcibly paid minimum wage.
Now, if the economy was grotesquely inefficient and the average company made 200% profit and the only way to pry money out of their hands was with a minimum wage, I'd agree, but that's not the world we live in. It's certainly a world we hear about a lot in propaganda but it doesn't correspond to reality.