Question about minimum wage laws...

[jrodefeld]

Hello,

 

In the last day or so there have been a lot of news reports about the fast food workers strike where workers are demanding an increase in their minimum pay to $15 an hour.  I just saw a segment by Jon Stewart where he took a sympathetic view toward the cause of the striking workers.  He made fun of business news hosts who were arguing against raising the minimum wage.

 

But as a reader of Austrian economics, I understand that the minimum wage laws are counterproductive and lead to increased unemployment and less job opportunities for the less fortunate.  Yet I want some better arguments to rebut people who argue that it is inhumane to not increase the minimum wage.

 

For example, on this article http://mises.org/daily/2130 the author says the following:

 

"Employers pay a wage no higher than the value of an additional hour's work. Raising minimum wages forces employers to dismiss low productivity workers."

 

I understand this.  Yet for most people, they will point to the tremendous profits of companies like McDonalds and say "Why couldn't McDonalds make only, say $10 Billion dollars in profits a year instead of $15 Billion and pay their workers a little more?  They would still be tremendously profitable but their poor workers would be much better off."

 

What is the best way to rebut this argument?  Because this simplistic line of thinking is probably the way 90% of people think about minimum wage laws.  

 

Why should it be expected that a company like McDonalds should have to cut workers if they make so much money in profits?  And if workers are truly paid the value of their productivity, then why would profits for the company be so much higher than their yearly payment to workers?

 

I am asking these questions not because I believe any of these things, but because this is how most people think regarding minimum wage laws.  I want your best responses regarding minimum wage laws and the fast food workers strike.

 

Thanks for the help.

[Alan C.]

Do supporters of the MW ever tip workers at McDonald's?

 

MW supporters have the ability to improve the lives of MW workers simply by giving them tips.

 

They don't and they won't because that's not what they want. They want other people to pay extra while they pat themselves on the back for caring.

 

It's similar to people who support higher taxes. They can send extra money to the IRS any time they want, or take no deductions, but they never do that.

 

Among the aspects of left-liberalism is reaping rewards while carrying few burdens. You may have noticed that left-liberals tend to gravitate toward fields (eg. government, academia, media) where there is little accountability, where results don't matter, and where they are insulated from the consequences of their ideas.

[TheRobin]

Well, from my little understanding there's a huge difference between minimum wage that's enforced across the board by the state and employees striking for a higher minimum wage in their respective company.

 

I don't know the details of McDonalds finances, maybe it's not that bad an idea for the workers to try and negotiate a new wage. It might not be the worst thing for the management either if the emplyoees feel they're being exploited to sit with them at the round table and talk some numbers. So (again, from my little udnerstanding in economics) I'd say it all comes down to whether the emplyoees want to negotiate with their bosses or run to the state and bring the guns.

[PatrickC]

Here in the UK I had 3 jobs when I was 16 years old in 1985. This was a just after Thatcher abolished the Wage Council, which had traditionally set minimum wages for decades. Everyone from my class had at least one full time job.

 

Since 1999 when the minimum wage was returned, youth unemployment has sky rocketed. It's now not unusual for 23 year olds to have less a years worth of work experience.

[fer]

If profits are so high and the employees are underpaid, a third party (or the employees themselves) could just start a business where they sell cheaper and pay their employees more, they would absorb both clients and unhappy employees from other companies and force mcdonalds to follow to stay in the market.

 

Unless there is something preventing such business coming into existence *cough*state regulations*cough*.

[PatrickC]

The irony is that many corporations actually lobbied govt for minimum wages in the UK. But only because they got the opportunity to control those wage levels year on year.

[Alan C.]

xelent makes a good point about unemployment.

 

I also grew up in the 1980s and never had a problem finding a job, nor did any of my friends and classmates. There were 'mom and pop' shops everywhere. My first computer job was at a 'mom and pop' computer store. I think the minimum wage was $3.35 back then, which is what I was paid. Those businesses are all gone now.

 

For the first time in history, we're seeing millions of young adults in their twenties who have never worked even a single job, and now they're largely unemployable (even with college degrees).

 

Other than placating constituencies, politicians may also be thinking that raising the MW will generate more tax revenue. They'd get additional taxes from some people, but at the cost of others losing their jobs.

 

fer makes a good point about profits.

[LovePrevails]

My flatmate insists that because of the fiscal multiplier effect, minimum wage increases do not increase unemployment so long as they are reasonable because of the fiscal multiplier effect, people on low incomes spend their money in their local economy creating job growth vs. the people who are paying them who "horde it" as he puts it

 

there seems to be a lot of evidence to support this position

what is the debunk?

[Dylan Lawrence Moore]

Do supporters of the MW ever tip workers at McDonald's?

 

MW supporters have the ability to improve the lives of MW workers simply by giving them tips.

 

Oh man that cracked me up.

 

It is really quite interesting with the "left" that they don't understand that the policies they proclaim are hypocritical and counter-productive. As if wanting to do something magically makes that thing happen.

My flatmate insists that because of the fiscal multiplier effect, minimum wage increases do not increase unemployment so long as they are reasonable because of the fiscal multiplier effect, people on low incomes spend their money in their local economy creating job growth vs. the people who are paying them who "horde it" as he puts it

 

there seems to be a lot of evidence to support this position

what is the debunk?

 

Just off the top of my head, even if more money gets spent in a local "poorer" economy, wouldn't that local poorer economy still be subject to the same minimum wage laws of higher income areas? Even if a few people from a low income area were able to take some more money home from a high income area, wouldn't the minimum wage law still be stifling there?

[tasmlab]

This doesn't directly affect your argument but is nice table setting.  Less than 1% of the US population and maybe about 2% of the workforce actually earn minimum wage, and about 4% of the hourly workforce make minimum.  It's not like it's a problem that is endemic to everybody.  Two-thirds of this population are all at the bottom of their careers, being 22 years or younger.

 

http://www.bls.gov/cps/minwage2012.htm

 

So even before we get into economic impact, multipliers, the violence of the state, providing tips, etc., it's not as if we have all of these heads of families earning the low pay.  You can congratulate your friend for identifying some political minutia that's pretty boring considering the US government they love currently spends $500B a year murdering brown people overseas.

 

I've heard some politicians (Rand Paul I think) cleverly say that we shouldn't make working illegal for people not worth the minimum wage.  I doubt this will get you far with a lefty friend.

I think there is also something about McDonalds workers in particular that's easy to target since everyone, even young people, actually get to see and interact with them.  And to some degree almost everybody at some point in their life has had this looming fear that if things got tough enough in their own lives, they may have to take a job at McDonalds.

[Josh F]

My flatmate insists that because of the fiscal multiplier effect, minimum wage increases do not increase unemployment so long as they are reasonable because of the fiscal multiplier effect, people on low incomes spend their money in their local economy creating job growth vs. the people who are paying them who "horde it" as he puts it

 

there seems to be a lot of evidence to support this position

what is the debunk?

They might spend more money, but if things cost more $ to purchase because of increased labor costs, then it doesn't help.  So a burger is $1, and the burger flipper makes $1 an hour.  Then the flipper gets $2 so the burger becomes $2.  Now for people who didn't get a raise, are things cheaper or more expensive?

[Marcus Clarke]

Use the argument for morality.  It is immoral to use violence to force someone else to pay a certain wage to someone.  One can not morally put a gun to head of my boss, and demand money from him.  Likewise, one can not morally hire people to point guns at business owners across the "nation", and demand money from them.

[LanceD]

My flatmate insists that because of the fiscal multiplier effect, minimum wage increases do not increase unemployment so long as they are reasonable because of the fiscal multiplier effect, people on low incomes spend their money in their local economy creating job growth vs. the people who are paying them who "horde it" as he puts itthere seems to be a lot of evidence to support this positionwhat is the debunk?

This idea is ridiculous. For one, poor people tend to buy cheap low end goods that are primarily involve minimum wage workers in their path to the consumer. Increasing the MW will make these things more expensive, and thusly eat up all the extra cash these MW people have. For two, you don't become wealthy by hoarding money. You become wealthy by investing money, investment grows economies, employs workers and drives progress as well as granting potential returns to the investor. Hoarding just results in bath tubs full of money you can bathe in but continuously lose value and make you poorer due to inflation.

[Aikenrooster]

Hello,

 

In the last day or so there have been a lot of news reports about the fast food workers strike where workers are demanding an increase in their minimum pay to $15 an hour.  I just saw a segment by Jon Stewart where he took a sympathetic view toward the cause of the striking workers.  He made fun of business news hosts who were arguing against raising the minimum wage.

 

But as a reader of Austrian economics, I understand that the minimum wage laws are counterproductive and lead to increased unemployment and less job opportunities for the less fortunate.  Yet I want some better arguments to rebut people who argue that it is inhumane to not increase the minimum wage.

 

For example, on this article http://mises.org/daily/2130 the author says the following:

 

"Employers pay a wage no higher than the value of an additional hour's work. Raising minimum wages forces employers to dismiss low productivity workers."

 

I understand this.  Yet for most people, they will point to the tremendous profits of companies like McDonalds and say "Why couldn't McDonalds make only, say $10 Billion dollars in profits a year instead of $15 Billion and pay their workers a little more?  They would still be tremendously profitable but their poor workers would be much better off."

 

What is the best way to rebut this argument?  Because this simplistic line of thinking is probably the way 90% of people think about minimum wage laws.  

 

Why should it be expected that a company like McDonalds should have to cut workers if they make so much money in profits?  And if workers are truly paid the value of their productivity, then why would profits for the company be so much higher than their yearly payment to workers?

 

I am asking these questions not because I believe any of these things, but because this is how most people think regarding minimum wage laws.  I want your best responses regarding minimum wage laws and the fast food workers strike.

 

Thanks for the help.

The correct answer is twofold:  

 

A) increasing the minimum wage isn't what's wrong.  It's that the minimum wage won't purchase as much as it used to, when it was set.  I think the minimum wage, in the US, in the 1960s was around $1.60/hour.  If you tied the minimum wage to the price of silver, today the minimum wage would be around $23, per hour.

Again, people are blaming businesses and not government.  We live in a society where prices are going up.  That's insane!  Economies of scale, and more efficient use of scarce resources should dictate prices going down, but our government continues to print up more and more money, thereby making our dollars worthless.

B) McDonald's has a lot of minimum wage employees riding the clock, but not really producing a whole lot.  If there were no minimum wage, a greedy, productive S.O.B., such as myself, would come into the workplace and attempt to bump you out of a job by 1)producing more than yourself, and/or 2)working cheaper.  When I proved myself to the employer, I would attempt to get a raise.  The minimum wage worker can't really do this, because he's already being paid more than he should be when he starts.  

 

Or, can he?  Can a well spoken, productive, employee, at McDonald's, who is willing to take management classes, and other sorts of training workshops, and study the requisite material, move up through the corporation?  I think he could.  This is mean, but, there is sort of a reason why minimum wage employees make minimum wage, and that's because they're not very productive.  They're sort of wanting a handout, via government dictate, to be paid for not producing much.

 

I don't think McDonald's would be profiting $15 Billion, per year, if we lived in a truly free society, where corporations weren't a government created fiction, but, so what if they did?  They went into business to make a profit, not to give people jobs.  When they invent robots to do it all, then robots will be doing it all, and we'll all be out of work.

[Livemike]

 

I understand this.  Yet for most people, they will point to the tremendous profits of companies like McDonalds and say "Why couldn't McDonalds make only, say $10 Billion dollars in profits a year instead of $15 Billion and pay their workers a little more?  They would still be tremendously profitable but their poor workers would be much better off."

 

$5 Billion is about $2777 per McDonald's employee per year.  Assuming that they work a 40 hour week, 45 weeks of the year (and I know many work a lot less than this) that's $1.5 /hr more, much less than what is being asked for.  

But even if it wasn't, so what?  Yes the shareholders could decide to be generous to their workers and pay them more.  Or they could take the money from dividends and be generous to people who don't work for them.  It's a mystery to me why people assume that giving people more than they are actually worth for a service is  the best way to be charitable.

[Jer]

Use the argument for morality.  It is immoral to use violence to force someone else to pay a certain wage to someone.  One can not morally put a gun to head of my boss, and demand money from him.  Likewise, one can not morally hire people to point guns at business owners across the "nation", and demand money from them.

+1

I had a conversation with a lefty statist girl who told me she was applying for an unpaid internship. I asked why it's ok for her to work for $0 but not good for a person to work for $5/hr. She understands the idea that she is getting valuable job experience but wouldn't agree that an unskilled person should have the same right to work at mcdonalds for whatever wage she could negotiate.

 

So I went for morality, "You're saying people should be put in prison or shot for wanting to work for less than you think they should be paid."

She couldn't counter with anything except "Lets just agree to disagree"

At least she didn't tell me to go to Somalia...

[aeonicentity]

very good questions, here's the answer:

 

For an employee to be hired, they MUST produce some ammount of money relative to the ammount of money they cost. If a worker only produces $4.00 an hour worth of labor, then they're only worth at most $4.00. An employer has no choice but to do any of the following:1) Keep the employee, and take the losses as neccessary to operate someone else's productive job.

2) Fire the employee, and invest in labor saving devices, or cut the job entirely.

3) If there are more than 1 $4.00 an hour value employees, fire one of them, and merge the responsibilities of the job.

4) Fire the employee,  and redistribute his job among other employees and raise wages accordingly (its much easier to pay for a few hours of overtime for min-wage employees than pay for a whole new employee).

 

It is often considered that profits are evil in corperations, as if profits are some how excess money that doesn't do anything, and goes under the matresses of rich fatcats. This is a giant lie.

 

Profits are like wages for lenders. All buisnesses operate on some level of credit. It is imperative to have this kind of capital to make large purchases, and manage growth. No one wants to invest in a company that doesn't grow (Because all investors are looking for gain). Profit is an indicator of how much a buisness has left over to pay investors. Since many investors pay for mcdonalds to operate, mcdonalds has to provide a significant ammount of money to its shareholders to keep them invested, and continue positive growth. So that money isn't being withheld from the employees, its being used to pay people who have much more value to the company, the shareholders. So the reason why mcdonalds can't just pay their investors less and their employees more, is that investors who have invested in the company would leave in droves if the company took a 33% cut in profitablity. Imagine if your investment lost 33% of its value! You'd be outraged! You committed money to these people for them to return value on! Over the last year McDonalds has returned 10% on the investment, and constistantly grown by about that every year for 5 years. but what if that was only 6%? That's not much better than returns on municipal bonds. More people would invest in those instead of McDonalds, and the company would loose capital. This would be the end of mcdonalds, you might as well fire everyone now.

 

Just from my own rough estimates You'd have to cut profits by 10 BILLION dollars to afford a $15/hour wage (this is my rough estimate, so its not 100%, but it should be in the ball park). so you'd have to cut profits by 66% to afford this pay increase, which would mean McDonald's stock would be worth slightly more than T-Bills. This pay rase for employees would litterally DESTROY McDonalds. There's no way around this. if a buisness offers a 3% return over 5 years to investors NO ONE WILL INVEST IN IT, which means that they won't be able to afford their now 25 billion dollar operating expenses as investors sell their stock like the shit it is.

 

But what about those rich bastards on the top? Can't they cut their sallaries?

 

Sure, except if the CEO of McDonalds cut his ENTIRE WAGE to $0 and gave it back to mcdonalds employees, you'd buy everyone a $0.12 pay raise for that year. You'd need to fire 10 ceos an hour for the entire year to effect a $1 pay raise for the entire mcdonald's staff. How many CEOs does McDonald's have on the pay rolls? Not 87,600, that's for damn sure.

 

McDonalds is actually a company running on a razors edge. They can't raise wages without cuting into profits, which would make their company uncompetative in the market

[Alan C.]

This is the inevitable result of minimum wage laws (and other regulatatory burdens). It's going to become even more difficult for young people to get their first job and learn a trade. Even something as menial as food prep can teach people invaluable skills (eg. coordination, prioritization, and communication).

 

Bolt Burgers: the most high-tech burger you’ll ever order, coming soon

 

It is a restaurant full of screens -- touchscreen systems for ordering your food and making your drinks, tablets at every table, and a 16-foot-wide projected TV screen to watch while you wait for your order.

 

You can order food without having a single interaction with another human being...

 

. . .

 

One of the technological centerpieces of Bolt Burgers is a no-flip burger grill. The device can cook a six-ounce burger in exactly three minutes, to the exact same level of doneness every time. It can make 1,200 burgers an hour.

 

 

It won't be long before burger chefs are also replaced with burger-making machines.

 

They don't go on strike, instigate lawsuits, or require "benefits." Employers also won't have to match their Social Security.

[Marcus Clarke]

The real question is why do parents allow their children to grow up without the skills and training necessary to obtain a job that is worth more than the minimum wage?  It is a constant thought in my mind that my children have to build up knowledge, learn skills and acquire habits that can allow themselves to make money or to make money for other people in the form of a job.

[ProfessionalTeabagger]

I would ask the person - Who should get let go or not get employment because the minimum wage workers wanted more? Which poor people should get screwed because these other poor people want more cash? 

[Culain]

[tasmlab]

The real question is why do parents allow their children to grow up without the skills and training necessary to obtain a job that is worth more than the minimum wage?  It is a constant thought in my mind that my children have to build up knowledge, learn skills and acquire habits that can allow themselves to make money or to make money for other people in the form of a job.

 

Amen brother!  Apparently 13 years, five days a week of public education seems to be inadequate to produce someone of even marginal utility.

[aeonicentity]

Amen brother!  Apparently 13 years, five days a week of public education seems to be inadequate to produce someone of even marginal utility.

 

That is because there is no real motivation for teachers to create marginally utility in their students. They get payed the same regardless if their students succeed or fail. I suppose many teachers are motivated by the higher aspiration of making kids reach their potential, however these teachers are not always the ones you have.

[TheRobin]

even if they wanted to, their hands are still bound by the system (curriculum, school rules and such). Iirc John Taylor Gatto was very motivated and tried a lot of stuff to provide the best help for his studentsbut in the end he still quit, cause he realized that despite all that, he's still holding them back more than helping them reach their potential.

 

edit: (http://www.johntaylorgatto.com/underground/prologue2.htm) yeah I remembered somewhat accurately it seems

[LovePrevails]

[Justin K.]

Slightly off topic but I feel like if we are going to regulate the minimum wage, it should be consistent with the cost of certain commodities, like rolls of toilet paper, gallons of gas, gallons of juice, rent. We should have a base average of these things in units and an hour of work multiplied by 40 should be able a minimum standard of living. Sounds kind of commie I know but when I was a young man starting out making $7/hr. At McDonalds, I switched & started working in group homes for $8, I had to work very hard before they paid me 12, then 15, & when I was making 17 an hour, I was the coordinator who supervised a Vocational Center for people with disabilities, I had the behaviorist working underneath me, several managers and assistant managers below them, & beneath that the staff. The idea, that we just give who I was at McDonalds the same pay as what I had worked 10 years for devalues everything I worked to achieve, it makes my value to creditors less. It is insane. There is no way to raise the minimum wage that dramatically, & be fair about it unless you are raising everyone's wage while keeping the costs of goods the same which is impossible. Oh, you mean I don't have to deal with state inspections, payroll, family memebers, doctors, medical training, crisis management certification, I can just go sweep the lot make the same thing? Well why wouldn't everyone just do that then? They probably would, wherein the lower skilled people wouldn't have a job at all. 15 dollars an hour! Yeah sure. I know 30k doesn't sound like a lot, but the payscale is inextricably linked to the minimum. I do think that all salaries should keep pace with inflation in a fair world. That's the real scam.

[AncapFTW]

Hello,

 

In the last day or so there have been a lot of news reports about the fast food workers strike where workers are demanding an increase in their minimum pay to $15 an hour.  I just saw a segment by Jon Stewart where he took a sympathetic view toward the cause of the striking workers.  He made fun of business news hosts who were arguing against raising the minimum wage.

 

But as a reader of Austrian economics, I understand that the minimum wage laws are counterproductive and lead to increased unemployment and less job opportunities for the less fortunate.  Yet I want some better arguments to rebut people who argue that it is inhumane to not increase the minimum wage.

 

For example, on this article http://mises.org/daily/2130 the author says the following:

 

"Employers pay a wage no higher than the value of an additional hour's work. Raising minimum wages forces employers to dismiss low productivity workers."

 

I understand this.  Yet for most people, they will point to the tremendous profits of companies like McDonalds and say "Why couldn't McDonalds make only, say $10 Billion dollars in profits a year instead of $15 Billion and pay their workers a little more?  They would still be tremendously profitable but their poor workers would be much better off."

 

What is the best way to rebut this argument?  Because this simplistic line of thinking is probably the way 90% of people think about minimum wage laws.  

 

Why should it be expected that a company like McDonalds should have to cut workers if they make so much money in profits?  And if workers are truly paid the value of their productivity, then why would profits for the company be so much higher than their yearly payment to workers?

 

I am asking these questions not because I believe any of these things, but because this is how most people think regarding minimum wage laws.  I want your best responses regarding minimum wage laws and the fast food workers strike.

 

Thanks for the help.

According to Wikipedia, in 2012, McDonalds employed 1.9 million people and earned 5.5 billion in profits.  If they gave all of that profit to the employees, as opposed to the investors, that would be $2894 per employee.  Sounds good, until you realise that no one would invest in a company that didn't turn a profit.  Also, assuming that they  work an average of 30 hours per week, that's only a raise of $1.85/hour, less if the average number of hours per week is higher.  Asking for $15 per hour is like asking the company to sell off assets so that you can double your income, because that's basically what they'd have to do.

 

They might be able to increase their prices a bit, but that will lose them customers.

[2bits]

According to Wikipedia, in 2012, McDonalds employed 1.9 million people and earned 5.5 billion in profits.  If they gave all of that profit to the employees, as opposed to the investors, that would be $2894 per employee.  Sounds good, until you realise that no one would invest in a company that didn't turn a profit.  Also, assuming that they  work an average of 30 hours per week, that's only a raise of $1.85/hour, less if the average number of hours per week is higher.  Asking for $15 per hour is like asking the company to sell off assets so that you can double your income, because that's basically what they'd have to do.

 

They might be able to increase their prices a bit, but that will lose them customers.

 

This thread came back from the dead, but I'm not against taking a swing at a zombie.

 

It's worse than that for McDonalds franchises, which run a much lower profit margin. Almost all the wage increases have to be covered by higher prices, losing them even more customers. It's entirely possible (situation dependent of course) that there is no price which raises revenue enough to cover the wage increases. This is when the restaurant closes and everyone loses their jobs.