Tuesday, May 27, 2008

Minimum Wage

The hospital has a work-training program for patients. Some jobs are vaguely comparable to competitive employment - washing dishes, operating a cash register - but most are much simpler and require few skills. Our rehab department is teaching generic job skills, such as showing up on time, taking breaks when scheduled, not losing your temper when things go wrong.

As currently constituted, none of the jobs are worth minimum wage, if we define worth as something an actual employer would pay you to do. They weren't worth the old minimum wage, either. But if patients do paid work, they must be paid the minimum wage, to prevent exploitation.

When the minimum wage went up, the program had to cut back hours across the board. It still ran out of money, however, and for the months of May and June, no one will get paid to work anywhere. This is in miniature what opponents of the minimum wage have always foretold would happen on the larger economic scale.

Minimum wage laws were originally an attempt to solve a problem. Some employers took advantage of workers, sometimes in small ways, sometimes across entire industries. It would be too difficult for the government to evaluate every position and employee to determine if he was being paid market value for his labor. It is much simpler to decree that everyone who works must be paid x. This solution is only partially related to the original problem, however. Requiring a minimum wage does solve a number of abuses without having to resort to lengthy studies and calculations. But it does not directly address the problem of abuses. How could it? It sets a bottom to the level of abuse an employer can inflict.

In setting that lower limit other ideas crept in. How much is enough to live on? This is a fine and noble question, but it completely sidesteps the question of what a particular type of labor is worth.

Just because a job exists doesn't mean it is worth $7/hour. Just because a car exists doesn't mean it is worth $1000, even though that is what it likely needs to be worth to sell it and buy another car. It might take a great deal of skill and labor to grow cold-weather yams on an Aleutian island and ship them to market in Juneau. That effort may be "worth" a great deal in some cosmic sense. But if no one buys the yams, the effort isn't worth it. So if you are a yam farmer and aren't making any money, but you hire your brother-in-law because he needs a job, how does that job suddenly become worth $7/hour just because someone is doing it?

The idea of a living wage is an extension of this minimum wage reasoning. Everyone agrees that people should be able to obtain food and shelter. But to get there by decreeing that any job they might happen to pick up is automatically worth that amount of money doesn't follow.


TomG said...

I'll never forget applying for a summer job with a Right to Work group. The minimum wage was something like $2.75 an hour then, and they offered an office position to me for a dollar less an hour. When I mentioned I could get a lot more anywhere else, they stuck to the belief that it was only worth what they paid. It may have been so if there was no minimum wage, but made no sense except to slap on a resume I suppose.

Timothy said...

Skilled labor is generally paid according to what the service is worth in the marketplace. But unskilled labor tends to be paid according to who's willing to do it for the least amount of money. In those cases, a minimum wage law is necessary to prevent abusive conditions.

I subscribe to the "living wage" notion that anyone with a full time job should be able to live on it (eat decently, rent tolerable housing, etc.). Any couple where both have full time jobs should be able to raise a child on what they make. If paying a living wage prices a job out of the market, then maybe that job shouldn't exist. Certianly, if it's important, it will not be priced out.

TomG said...

If you don't mind my saying Tim, if the government forces the job market to ensure a "living wage" then it is negating the very principles of a free market and further thrusting a socialist agenda where big government infringes upon ever more aspects of our lives. The money to support such unskilled folk to be assured the ability to raise a family must come from somewhere - and it would most likely be from the higher-up semi- and fully-skilled workers' pay (thus distorting supply and demand all the way up at least the middle class earners' bracket. My freedom to reject an absurdly lower wage is the lack of supply that would made that group finally decide they'd need to at least offer the minimum wage (even if it's against their beliefs) - or else deem the position unnecessary (which is really what they were doing, de facto). In truth, even the minimum wage distorts the markets true determination of skilled and unskilled supply and demand - and there's many an economic study showing that it really suppresses the earnings even unskilled workers could get in a truly free job market. Except in a socialist world, no one really owes anyone a guaranteed income - rather it ought to be that self-reliance and an awareness of increasing one's capabilities be fostered from an ealy age, so that people know what they want to do ... which would include their zeal, interests, satisfaction, and cost-benefit analyses of what it takes to earn more for higher skilled jobs. Cheers.

David said...

Note that wages are a function not only of individual skill but of the productivity of the economic process of which the individual is a part. Henry Ford was able to extend his famous $5/day wage (a huge increase at the time) to everyone in the factory...including janitors, etc...because the assembly line, together with its supporting production equipment, was so very efficient.

Wages are also sometimes compensation for the negatives that go with a job. Ford was driven to the $5/day wage in the first place because many workers dislike the assembly line and turnover had gotten unacceptably high.

TomG said...

those were really good points to me, david - and the key one in relation to a so-called "living wage" is the affordability factor ... otherwise Henry would have gone bankrupt (and we'd still be whipping horses to get about ;). If a company couldn't afford to guarantee a certain financial lifestyle for all its employees, and it became mandatory, then they'd be out of business - and would themselves along with the unemployed ex-workers end up living on the dole.
Just saw this interesting video on protests in Britain against too much Gov't:

karrde said...

I'm reminded of a saying by Thomas Sowell (economist and editorialist).

"People forget that the minimum wage is zero. Those who are unemployed earn nothing."

TomG said...

Awesome - Sowell's truly one of the clearest thinkers of our time, Econ and otherwise

Larry said...

As ssems to common among blogspot blogs, I can't find an email address (I wonder why that is) so I'll just post this here:

blogspot has decided to spam me on behalf of a blog.

I gave not given blogspot any of my email addresses for the purpose of unsolicited contact.

abuse@blogspot.com has delclined to respond to my complaint.

I am therefore removing your blog from my daily rotation of blogs that I read all that I can identify as blogspot blogs.

I am sorry--I will miss your writing.

Z said...

New to your site. I admire your writing style, your clarity and logic.
I couldn't agree with you more about the ability to laugh at oneself, and this minimum wage piece just NAILS it.

Thanks so much! I'll be baaaaack!


Assistant Village Idiot said...

Thanks z. After reading your blog, I suspect you will like my category "extended comments" in the side bar.

When you have time. You might want to do it in batches.

Z said...

Pelicans? Ships?

Lutheran, may I guess?

Wyman said...

While a lot of your points seem correct, isn't a minimum wage the clearest halfway point, idealistically, between Democratic government programming and Republican free market stratgies? And if that's the case, shouldn't that be accepted as the best solution - safeguards against abuse while letting the market decide what is and is not valuable enough to pay a minimum wage for??

Z said...

well, you could come to my site and whisper in my ear if I'm right or not!! (Smile)