Over time I periodically encounter a web site which provides top-notch educational materials for free in Podcast form or on YouTube. I’ve started gathering a page of them.
If, gentle reader, you know about any additional resources, please let me know.
They can be found at the top of this blog, and at this link.
The meme:
Over the last 10 years, the cost of college has risen 25% and the cost of rent has risen 36%. Yet the $7.25 minimum wage has stayed the same.
I’d love to hear someone justify this.
I noted that the person who wrote this meme and most people posting it have no desire to actually hear an answer.
Someone put me up to it.
I replied.
First, you have to remember the principle that when we assign morality to money, we often mis-analyze a problem. Morality, in this case, winds up being aesthetics: that is, not absolute in any sense, but relative to how we think the world should look.
Second, you have to recognize that all transactions are voluntary and dependent upon if we think we’re getting value for what we spend. For example, if you saw a Snickers Bar at the grocery store, you may or may not buy it. But if that grocery store were selling Snickers Bars for $10 per bar when it’s $1 everywhere else? Yeah, no; you’d probably get upset at the grocery store for “price gouging.”
Well, work done by workers is the same sort of thing. (This is not a value judgement on individuals, but on the work they’re performing.) Some work is worth a lot of money to companies because it’s hard to come by people who can do the work, and because those companies value that work.
(So, for example, I can make a six figure salary writing software, not because I’m a better human being than a janitor–but because the company values having an iOS application, and because it’s hard to find someone who can do it cheaply and still get quality work. On the other hand, most people can clean floors, so it’s easy to find a janitor. If suddenly, for example, janitorial services became a specialty position, janitors would make more–as we see when we’re talking about hazmat cleanup. People who do hazmat cleanup are basically janitors–but it’s hard to find competent people who can do the work correctly. Thus, they make more than their non-hazardous materials counterparts.
Both “is it worth it” and “is it hard to find someone to do it” factor into salary: if companies decided it wasn’t worth the money to have an iOS app, I’d be out of a job.)
Third, you have to recognize that a minimum wage is not “we need to force companies to take care of people by paying them a living wage.”
Remember the grocery store. If I told you “well, that’s the only way the people who work there can have a living wage, is by charging $10 for a Snickers Bar”–you’d probably–privately, since we can’t say this part out loud nowadays–say “fuck this; that’s bullshit” and buy your Snickers Bar from another store where it’s $1 instead.
(And we see this All Around Us. There are very few clothing manufacturers who make their clothes in the United States anymore–and most of them are bespoke or luxury brands. Because frankly no-one wants to pay $250 for a button-down shirt or $50 for a t-shirt when you can buy t-shirts 3 for $10 at Walmart. Clothing is an especially good example of “we may think we want to support a living wage in America, but what we really want is cheap shit, even if it’s made by slave labor in China.”)
No, what a minimum wage is is a law against hiring workers to do work that is worth less than a set amount of money.
The weird part is that “what work is worth” is something that, at least in the areas of our economy where we see the most minimum wage workers (fast food, for example), is collectively set.
So, for example, you may want to see McDonalds workers paid $15 an hour–but given that salaries make up the largest component in the cost of making a hamburger, would you be willing to pay $10-$12 for a Double Quarter Pounder with Cheese from McDonalds?
(The criticism of this line of thinking is to point out that other areas of the world have higher minimum wages and yet McDonalds continues to serve customers. And while that is true, McDonalds manages to survive by being an up-brand restaurant. It’s why you can buy wine at McDonalds in France, for example–not because wine is the national drink of France. And yes, they’re paying $10-$12 for a Double Quarter Pounder with Cheese to go with their McWine.
Note that I’ve traveled to Europe and I’m always amused at McDonalds, because most places in Europe are trying very hard to become McCafés: basically coffee shops that serve over-priced hamburgers along with local fair.)
I’m going to set aside two other criticisms, by the way.
The first is that by expecting corporations to provide a living wage, we’re essentially pushing private corporations to engage in public welfare.
And the last time we saw this was during feudal times when aristocrats were expected to take care (“noblesse oblige”) of their serfs.
Second is that we’re now also seeing an uptick in calls to legalize “internships” throughout the economy. Well, an internship is basically a $0/hour job–and the justification used is that “it’s a learning experience.” Most internships aren’t learning experiences, however, as most companies who hire interns are simply not equipped to help teach interns as most internship laws require.
So what happens when we outlaw certain forms of work by setting a minimum price companies are permitted to pay for that work?
Several things happen–all of which are predictable.
(1) Companies try to figure out how to make the work “worth it” to them. Often that means establishing minimum work metrics: they reduce staff and they increase responsibilities.
That janitor expected to clean the bathrooms on a floor? His responsibilities are expanded to include a second floor and also clearing trash cans.
Staff count is reduced; work expected per worker increases.
(2) Companies are less likely to take “a risk” on hiring someone who they don’t know can deliver the work promised, and they establish longer and longer “trial periods” after which someone can be terminated of they don’t “work out.”
(3) Companies turn to automation to minimize the amount of work necessary to do a job. McDonalds, for example, installs order kiosks so fewer people have to work registers.
And companies rearrange work so that the job doesn’t need to be done anymore: workers are now expected to dump their trash cans in the receptacle down the hall rather than having janitors empty them.
And they do this all for the same reason why you probably didn’t pay $250 for the shirt you’re wearing right now, and for the same reason you’d balk at a $10 snickers bar.
And we see this all the time in states where the Federal minimum wage was superseded by a state minimum wage.
It generally takes time for a company to rearrange work so as to get the best value for their labor dollar. Which is why, for the first three years or so, companies simply pay the higher minimum wage and call it a day. Because it takes time to install kiosks and to train workers to dump their own trash.
Because it takes time to find workers willing to clean two floors worth of bathrooms–and to terminate those janitors who can’t or won’t.
Note that this isn’t “billionaires being greedy.” For most companies, such as McDonalds, if we were to take the CEO salary and split it up amongst all of its workers, their salary would add perhaps another $1 to $2 to the annual salary of the workers who work for them.
Companies like McDonalds’: that is, companies in fast food, hospitality, some sectors of health care, all avenues of food distribution (such as grocery stores)–they all operate on razor-thin margins. Grocery stores are the most impressive because they literally make around 2.2 cents per dollar in profits.
Seriously: if you had $10 million and you thought “I know! I’ll open a grocery store and make money!” you’re either a dreamer or a fool: you would be far better off simply parking your money in state-tax exempt money market funds, as many of those can pay upwards of 3 to 4 cents per dollar invested.
McDonalds franchises are no better; they clear on average less than 6 cents per dollar–meaning for your investment, along with a lot of effort, work, and a bit of risk, you can do barely better than simply handing your money to an investor. (The cost of buying a McDonalds franchise and getting it up and running is perhaps $2 million–from which, if you do things right, you *may* get a profit of $150k/year. Remember: investing in a 3.5% ROI money market fund gets you $70k/year–and all you have to do is cash the check. So if your day job used to pay $100k/year and you saved $2 million–you’re better off keeping your day job.)
Note that most memes get this wrong because they always fuck up the law of large numbers. A billion dollars sounds like a lot of money–but if you divide that up amongst a million people, and spread that money across the 2,000 hours people work–a billion dollars is only 50 cents an hour.
So what happens in sectors of the economy where the work has to be done, and where we cannot stretch out workers to the breaking point?
Simple.
Prices get passed onto customers.
And that’s precisely what happened in sectors such as health care and college education.
In sectors of the economy that were most amenable to automation: that is, where the amount of stuff produced can increase without adding additional workers, prices have remained flat or dropped in price.
We see this, for example, in software development, in the production of toys or television sets. In all those cases, prices could drop because they can be mass-manufactured. Of course to be mass manufactured certain components need to be made in bulk–which is why while there may be dozens of different brands of cheap flat-screen television sets, the guts of those TV sets are more or less the same.
On the other hand, products or services which are labor intensive and which either saw an increase in the amount of labor necessary to do that work (such as in health care or college, where we’ve added administrative requirements that have increased the amount of labor necessary for compliance), prices have gone up faster than inflation.
We also see this in other products such as food and beverages; frankly we’ve automated the hell out of farming and food production–so there is no more efficiencies to be had. (Though in food production we also seem to be moving up-market: buying less food we need to prepare at home and more pre-prepared foods.)
We also see rising prices in child care services for the same reason: to us, “child care” is at best a preschool nursery with one caretaker per dozen kids or so–the idea of leaving our little tykes with a single caretaker per 100 kids in a gigantic auditorium is repellant to us.
Basically, on the graph attached, every sector of the economy where prices went up are areas where labor costs have risen, and where automation cannot reduce prices. (Textbooks have gone up in price because teachers write the textbooks and have used the textbooks in their classrooms as a profit center–despite the availability of often better works on the subject.)
So that was a lot, but the conclusions to draw are:
(1) Minimum wage does not provide workers a “living wage.”
It outlaws certain forms of work.
And work companies want done that become more expensive than they’re willing to pay gets changed: workers are expected to do more, work is automated, work is shifted to other workers.
(2) Companies aren’t infinite pools of money.
In the sectors that employ the most minimum wage workers, companies operate on razor-thin margins–sometimes margins that actually make little economic sense. (I still don’t know why anyone would want to open a grocery store. But they do and I’m thankful for that.)
(3) In those sectors of the economy where labor costs cannot be lowered, prices increase instead.
And that’s WHY we have college tuition and rents going up faster than the rate of inflation. (Well, property prices and rents are also going up faster than the price of inflation because of stupid land-use bullshit–but that’s another long article you don’t want to read. 😛)
While minimum wage stays the same.
—-
Worse, and this is the takeaway from all of this:
It’s a conundrum that cannot be easily solved.
Meaning–and let me be very clear about this–I DO NOT approve of this state of affairs.
I’m only describing it.
But–and this is the key point that, if you read nothing else, you should read this:
We can’t solve the problem by raising the minimum wage.
Fuzzy little things that I find interesting. 