[RD] What is the Point of a Minimum Wage?

[Synobun]

Here's a question: What do you think the point of a minimum wage is?

Recently, the City of Vancouver released a report saying that an affordable 1-bedroom apartment in the city is $2000/mo. Our minimum wage is currently $12.65/hr. At full-time hours, you're at least $100 short on paying rent, not even taking into consideration all of your other necessities.

This has understandably been ridiculed by, well, everyone except our equivalent to Republicans.

But something that keeps cropping up in the discourse is the typical right wing/conservative retort: You're not supposed to be able to survive on minimum wage, so it doesn't matter that minimum wage earners cannot afford a 1-bedroom apartment.

Another retort is that the rate is for the city core and not the surrounding neighbourhoods. This could be a good point, but I live fairly close to the southern edge of the city limits and a 1-bedroom apartment here is still at least $1200/mo. If you want a managed apartment building (aka, not living with your landlord in a split house), bump that up to a minimum of $1400/mo.

So even if you live elsewhere in the city, or perhaps even in a connected city that has public transit to Vancouver, you're still going to end up paying 70-90% of your income on rent.

This is far different than how it used to be. It's also dramatically different than the recommended expense percentage for rent which is still at 30% of your income.

Anyways, the "typical retort" is confusing to me. It is confusing to me because to my mind, the entire premise and point of a minimum wage is that it should be survivable. You should be able to afford basic housing on a minimum wage. Forced group living is not basic housing. In my mind, basic housing is a space that is your own, free from intervention and reliance on others. If you have to share your space, you don't have access to proper housing. Perhaps a full-fledged 1-bedroom apartment is unreasonable, but "bachelor" suites aren't much cheaper and aren't built. Micro-suites are built like dorms (shared bathrooms, shared kitchens), and still expensive ($900/mo).

So if there is no expectation of survival, then there is no point to having a minimum wage. You might as well abolish the minimum wage if that's the belief.

I am no economist. Perhaps I am missing something. So I turn to CFC. What do you think the point of a minimum wage is? Should the "minimum" be survivable, or should it meet some other metric?

 

[Imaus]

By definition, if the minimum wage is enough to survive on, it is thus the living wage.

 

[Cheetah]

Minimum wage is a crude tool employed by good people who are stopped from using better tools by bad people.

It should be set at a level were it is enough to live on, yes.

Norway doesn't have minimum wage as such, but instead we have strong unions and a strong culture of cooperation between employers and employees. Each sector in the economy usually have their own salary negotiations between the union and the business organisation, to set some minimum rules or guidelines for the increase that year. It's customary that the export industry sector goes first, and sets the guidelines for the other sectors.

This results in each economic sector having their own «minimum wage», which is much more dynamic and adjusted to economic and business realities than some minimum wage set by politicians.

Interestingly, most sectors have one minimum range for people below 18, and another for people 18 and above. The first one is smaller, as it's not intended to live on, but intended for high school students working part time. The above-18 salaries are should be enough to live on.

Rent is becoming increasingly too expensive in many Norwegian cities too, and there are often stories of how nurses or teacher's salaries aren't high enough for them to live in the cities. While their salaries have never been the greatest, I'd argue that this has more to do with an uncontrolled increase in housing costs, than in them falling behind salarywise.

It's bad in any case, and needs to be fixed.

 

[AmazonQueen]

The point of a minimum wage (same as wage councils) is that large companies are likely to be paying it anyway due to unionization so having a minimum wage prevents small companies undercutting large companies. Hence large companies are more likely to support regulation the more a market is regulated.

 

[Hrothbern]

Without affordable housing... the minimum wage becomes a meaningless metric

Housing rent level and who owns houses is too low on most leftish political agendas

 

[El_Machinae]

It's a regressive tax to find labour negotiating disparity. You hope that it generates enough a multiplier effect 2 counteract the Lost productivity from introducing a price floor. It's a bad strategy to have the minimum wage be capable of independently supporting someone

 

[Berzerker]

The minimum here is ~$7.50/hr and needs to be bumped up a bit. Sanders wants a $15/hr minimum. Thats gonna kill jobs and/or inflate prices. The MW should be based on localities' cost of living with the minimum federal tied to the lower end of the scale.

 

[Hrothbern]

It's a regressive tax to find labour negotiating disparity. You hope that it generates enough a multiplier effect 2 counteract the Lost productivity from introducing a price floor. It's a bad strategy to have the minimum wage be capable of independently supporting someone

How do you mean bad idea ?

That someone living alone being able to do that from a minimum wage is bad for the overall level of economy ?

 

[Birdjaguar]

Labor costs are usually a business's biggest expense. They want to keep those expenses a low as possible. Minimum wage laws are designed to minimize the exploitation of employees by owners. Current thinking is changing the perception and trying to equate minimum wage with a living wage that is sufficient to support a person.

 

[Ajidica]

Labor costs are usually a business's biggest expense. They want to keep those expenses a low as possible. Minimum wage laws are designed to minimize the exploitation of employees by owners. Current thinking is changing the perception and trying to equate minimum wage with a living wage that is sufficient to support a person.

As implemented as part of the New Deal, minimum wage was generally understood to be synonymous with living wage and was presented to the people as such.

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.

Throughout industry, the change from starvation wages and starvation employment to living wages and sustained employment can, in large part, be made by an industrial covenant to which all employers shall subscribe. It is greatly to their interest to do this because decent living, widely spread among our 125, 000,000 people, eventually means the opening up to industry of the richest market which the world has known. It is the only way to utilize the so-called excess capacity of our industrial plants. This is the principle that makes this one of the most important laws that ever has come from Congress because, before the passage of this Act, no such industrial covenant was possible.

On this idea, the first part of the Act proposes to our industry a great spontaneous cooperation to put millions of men back in their regular jobs this summer. The idea is simply for employers to hire more men to do the existing work by reducing the work-hours of each man's week and at the same time paying a living wage for the shorter week.

http://docs.fdrlibrary.marist.edu/odnirast.html

“No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.” (1933, Statement on National Industrial Recovery Act)
“By living wages, I mean more than a bare subsistence level — I mean the wages of a decent living.” (1933, Statement on National Industrial Recovery Act)
“Do not let any calamity-howling executive with an income of $1,000 a day, who has been turning his employees over to the Government relief rolls in order to preserve his company’s undistributed reserves, tell you – using his stockholders’ money to pay the postage for his personal opinions — tell you that a wage of $11.00 a week is going to have a disastrous effect on all American industry.” (1938, Fireside Chat, the night before signing the Fair Labor Standards Act that instituted the federal minimum wage)
“All but the hopelessly reactionary will agree that to conserve our primary resources of man power, government must have some control over maximum hours, minimum wages, the evil of child labor and the exploitation of unorganized labor.” (1937, Message to Congress upon introduction of the Fair Labor Standards Act)

https://takingnote.blogs.nytimes.com/2014/03/07/f-d-r-makes-the-case-for-the-minimum-wage/

If people are trying to change the perception, it is only because the wealthy and vested interests 'convinced' us that minimum wage did not mean what its creators understood it to mean.


Personally, I would prefer to ditch the minimum wage and replace it with a robust, cradle to grave welfare state; but since that isn't happening a minimum wage is the next best thing.

 

[Berzerker]

Aren't all these people gathering our food getting less than the minimum wage? Not the farmers of course, but the guest workers.

 

[peter grimes]

It's a regressive tax to find labour negotiating disparity.

Please walk me through this - you're generally reliable on economic policy stuff, but I don't see how the minimum wage is a tax at all, let alone a regressive one.

You hope that it generates enough a multiplier effect 2 counteract the Lost productivity from introducing a price floor. It's a bad strategy to have the minimum wage be capable of independently supporting someone

Is it really lost productivity, or is it more accurately lost profit? The same worker is capable of the same amount of output per time independent of the wage he's being paid, whether it's MW or 2xMW, no? You could argue the higher wage will attract a more productive class of worker, but that shifts the discussion away from the effects of the MW being as low as it happens to be.

If the MW shouldn't be capable of a basic level of support, what should it do? And if the MW shouldn't provide a sustenance floor, what mechanisms or policies should?

 

[Birdjaguar]

As implemented as part of the New Deal, minimum wage was generally understood to be synonymous with living wage and was presented to the people as such.

If people are trying to change the perception, it is only because the wealthy and vested interests 'convinced' us that minimum wage did not mean what its creators understood it to mean.

That is how it started, but over time it became a protection. When possible businesses have found workarounds to pay less like with tipped workers. Corporate objections to raising the minimum wage have kept it from sustaining a person and reduced it to exploit reducing for decades now.

 

[hobbsyoyo]

I agree with OP that the goalposts have been moved on how we frame minimum wage. We're basically now at a point where conservatives are attempting to rebrand it in order to justify what they have allowed it to become as they have blocked natural increases with inflation. In a previous career, I worked with enough adults to know that the other boogeyman conservatives throw out is false - that minimum wage is really only for kids working their way through school.

 

[El_Machinae]

Please walk me through this - you're generally reliable on economic policy stuff, but I don't see how the minimum wage is a tax at all, let alone a regressive one.

I'll use the same example I used in the other thread. I bill clients at $100 per hour. The marginal cost of operating is $30/hr. Now, let's assume that there's a minimum wage of $10 and I'm able to pay at minimum wage. So, $60 profit/hr.

If the minimum wage goes up to $20, it's obvious that my profit goes to $50/hr (ignoring feedback effects on my operating costs). No one sheds the smallest teardrop for my plight. It's effectively a 16% transfer of the profits from someone who hopefully spends it better than I do.

Suppose two alternatives. The first is that the operating cost is $80/hr. In the normal circumstances, I pull $10 per hour profit. With the increase in minimum wage, the profit goes to zero. Alternatively, I bill out my technicians at $50/hr. With a change in minimum wage, the profit goes from $10/hr to $0 per hour. It's a 100% reassignment of the profits.

Because of the minimum wage, the company operating with high margins is tokenly affected. The business with very tight margins is very strong affected. The company that had operating costs of $31 is put out of business unless they can transfer a price increase to their customers.

Is it really lost productivity, or is it more accurately lost profit? The same worker is capable of the same amount of output per time independent of the wage he's being paid, whether it's MW or 2xMW, no?

Lost productivity. There's lost profit, but only because of the lost productivity. If the enterprises are operating at a profit and can survive the minimum wage increase with merely a reassignment of those profits (e.g., my first and third paragraphs), then there's no lost profit.

But, with the price floor, the enterprise that was successful at with a zero profit margin can no longer provide its products and services. That productivity is actually lost. The employment it generated is lost.

If the MW shouldn't be capable of a basic level of support, what should it do? And if the MW shouldn't provide a sustenance floor, what mechanisms or policies should?

A UBI paid for out of a progressive taxation. The MW is a very blunt tool, and all blunt tools have consequences. A UBI doesn't destroy productivity, it's merely a subsidy for low-productivity workers.

Consider a scenario: I have a field of ripe apples about to rot and people require 10 apples a day to live.

MW legislation that I MUST pay people 10 apples per day to pick. If a person can only pick nine apples, then I am going to fire them (regardless) and that person will go onto social assistance (of ten apples per day) or die. And those nine apples will rot. We've lost the productivity. If I wasn't forced to fire them, they'd only need social assistance of one apple per day.

 

[TheMeInTeam]

The most obvious retort is "why do you think low-end housing costs $2000/mo".

 

[Estebonrober]

If they are not paying a living wage are we not propping up the corporation by supplementing their employees income? Is this not becoming the case more and more often?
Also 15$ an hour might get us back to where the minimum was at its best by the time it actually passes nationally. I'll admit had it passed 6 years ago when it first came up it might have been high and then I was arguing it should be regionally adjusted, but now? It should probably be higher in those regions.

Also we have to make a moral decision on some of these businesses. If your business isn't profitable without constant subsidy of below market labor maybe your business just isn't sustainable? Just reverse the view on who is failing the equation.

 

[El_Machinae]

If your business isn't profitable without constant subsidy of below market labor maybe your business just isn't sustainable? Just reverse the view on who is failing the equation.

It doesn't work. First off, an incredible number of people are not living wholly alone. They're in some type of communal living arrangement. For example, teenagers who were able to stay at home until they were done high school.

A business isn't a 'failure' if they're able to tap this labour pool and then provide services. The teenagers require a subsidy in order to live their life, but the two alternatives are that the family is paying the subsidy or the business isn't. If the minimum wage prices them out of the market, then they're just not employed.

 

[Estebonrober]

It doesn't work. First off, an incredible number of people are not living wholly alone. They're in some type of communal living arrangement. For example, teenagers who were able to stay at home until they were done high school.

A business isn't a 'failure' if they're able to tap this labour pool and then provide services. The teenagers require a subsidy in order to live their life, but the two alternatives are that the family is paying the subsidy or the business isn't. If the minimum wage prices them out of the market, then they're just not employed.

This is kind of my point though, aren't 16-18 year olds basically out of the labor market these days? I couldn't find a legit number just the running unemployment number of 16-24 year olds at 9.2%

Also its still subsidizing the business with below cost labor, whether its kids living with their parents or illegal immigrants communing four families in one house.

 

[Cutlass]

The minimum here is ~$7.50/hr and needs to be bumped up a bit. Sanders wants a $15/hr minimum. Thats gonna kill jobs and/or inflate prices. The MW should be based on localities' cost of living with the minimum federal tied to the lower end of the scale.

Neither of the the 2 bolded things happen.




The issue with the MW is that labor monopsony is a thing. What this means is that labor markets do not work efficiently. Employers have too much power to pay wages below a competitive market rate. Because of this, employers of low income workers get excess profits through their ability to confiscate a portion of what their employees would earn in a fully free market. Because of this, a MW can not only make workers better off, but in doing so it does not reduce the number of jobs, or push inflation upwards.