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Archive for December, 2013

Minimum wages?

Posted by penuruloki on December 12, 2013


“If it weren’t for my horse…” ~Louis Black

So apparently fast food workers are trying to organize strikes to push for $15/hr wages, and this has people talking about low wage jobs and minimum wages. I don’t normally delve too deeply into those debates, but then I saw something that pretty much blew my mind, and I needed to process it and respond, for the sake of sanity if nothing else. At least I didn’t have an aneurysm.

First, lets point out the obvious. A picture should suffice:

Yes, raising the minimum wage will cause those jobs to be eliminated. The fact is that wages are part of the profits that come from creating wealth (goods and services used to sustain and enrich life). The wages paid for any given job are going to be limited by the wealth created from peforming that job. If those workers are not creating wealth with (sufficiently) more value to customers than $15 for every hour spent (plus the compensation of contributing efforts), then no one will pay them $15/hr to perform that task. That task will cease to be performed by wage labor. This has always been the part that the political left fails to fully acknowledge.

I expect as much from the left. Their failure to accept reality does not surprise me. No, what blew my mind is something I read in a right-wing publication.

“As mentioned above, the evidence suggests that many long-term unemployed workers are “scarred”​—​their lengthy spell out of the workforce is making it difficult for them because firms view workers who have been unemployed for so long as risky hires. Why not reduce the risk associated with the hire by lowering the minimum wage for long-term unemployed workers? A firm may not want to take a $7.25 per-hour risk on a long-term unemployed worker, but might be willing to take a $4 risk. If we lower the minimum wage for the long-term unemployed, then we’ll need to supplement their earnings with an expanded Earned Income Tax Credit or some other government funded wage subsidy.”

Ok, lets be clear about something here. Working a job for minimum wage (at the current level) DOES NOT PROVIDE ENOUGH TO PAY A REASONABLE COST OF LIVING. Minimum wage is fine for a first job as a teenager, or as a second job if you’re saving up for something. No sane person would expect such a job to actually support someone as their primary source of income. In fact, we don’t. People stuck in those income brackets are typically subsidized by government support programs. What he is trying to promote (inexplicably from some kind of “conservative” angle), is more government subsidies, for work that already doesn’t produce as much wealth as is consumed by the worker (it would pay their bills if it did).

You would think, by his logic, that the point was to create work, that the problem to be solved is that we just don’t have enough to occupy us and that we’re in danger of having nothing to do. NO! In fact the object of any economy is to create WEALTH! We don’t need more busy work that produces less than the worker consumes, we need more good jobs that result in a net increase in wealth (and pay the worker their fair share of the profits). If “a firm may not want to take a $7.25-per-hour risk on a long-term unemployed worker,” then the problem isn’t that companies are exposed to too much risk, it’s that companies don’t see sufficient potential of increased economic output, and they have too many applicants available to fill their ranks without giving those workers a chance. The problem of “long-term unemployment” is really just a problem of regular unemployment. The supply of workers looking for jobs is too high in comparison to the number of good jobs available. With lower unemployment, the “long-term unemployed” would have a much better chance of finding a decent opportunity (as companies would have to work harder to fill their open positions).

Friedrich Hayek (idol of conservative economists) tells us that markets are a product of government (stability and accepted rules of exchange being required for any market), and so a dysfunctional labor market should signal interference from a dysfunctional government, but the problem is not the minimum wage (which is unsustainable for primary economic activity without subsidizing it by redistribution of wealth). The more likely problem is all the rules and regulations that add unnecessary costs to the process (e.g., “rents”, legal bills), and prevent producers from entering markets against entrenched competition (permitting and licensing regulations; patent law). I find it telling that the author came up with government subsidized lower minimum wage as an answer instead of lowering barriers to independent entry into the market.

Others seem to be caught in a similar thought process, though for different reasons. In fact, most discussions of the economy seem to take place from the frame of “we need more jobs.” Many leftists seem to support such an ideal from their interpretation of Marx’s theory of abstract labor. Other sources seem to treat work as a means of control; keep people busy for 8-12 hours a day so they don’t have time to complain/agitate about the problems developing in the world around them. This is all madness. The only reason to perform work is the material contribution it provides. Pumping resources and energy into work that doesn’t provide a net contribution to the surplus of wealth is a recipe for decline and collapse. Spending resources on a net consumption of wealth is the definition of leisure, not labor. The fact that the worker does not desire or enjoy the activity doesn’t make it any more beneficial to society as a whole.

At the very least, if a worker can not contribute to the surplus of wealth in a meaningful way, they can at least minimize their consumption of wealth by avoiding the extra expense that comes with commuting and other costs incurred simply to join the workforce. In a more ideal form, we should be encouraging those who can not currently contribute to society to spend their time improving their own human capital so they can contribute more in the future. There are numerous online and local learning resources (available at minimal/no extra cost) that they could use to such an end. Why on earth are we advocating subsidies for the net destruction of wealth as an ideal worth pursuing? I’m normally very sympathetic to the moral hazard that comes from living without contributing to your own welfare, but is avoiding that individual moral hazard sufficient reason to engage all of society in the equal moral hazard of endless, meaningless busy work?

The “fast food worker at ~$15/hr” in the picture linked above should represent a triumph of civilization, the efforts of proud engineers, managers, and technicians, that allows all those workers currently doing little more than flipping burgers the chance to contibute something more meaningful to society. Why do we fear it? Why would we want MORE of those jobs? Minimum wage is fine for part time work that puts a little extra into the pockets of those who get their main sustanence elsewhere, but if we’ve sunk to the point that we see the existence of a minimum wage as the obstacle that prevents us from harnessing the full power of our society, then we’ve lost our way.

I don’t believe that government intrusions into markets provide satisfactory solutions to our problems, but it’s worth noting that we’re more likely to promote the creation of wealth by raising the minimum wage than by lowering it. We do not need, and should not want, the producers of our society to be driven into jobs where they will need to be perpetually subsidized to survive. What we have now is depressing, but what some people propose is pure madness.

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