There are plenty of things society needs done to keep displaced workers productive (with better pay and a sense of actual accomplishment) while giving them breathing room to figure out 'what next?' I don't believe for a second that we're doing workers in the sub-basement of the economy any favors by keeping them locked down there. It isn't a binary (either they work in these crap jobs or they sit at home and deteriorate) decision... there are a variety of options between the extremes.
[1] I'm suspicious of the majority of cases where this claim is made. A rational business person would see that such a business is already marginal and that they would likely be better off shutting it down and redeploying the capital elsewhere for a better return. This happens all the time. If the owner can't see this, keeping the business on life support isn't doing anyone any favors.
I agree with you, I would never own a restaurant or bar personally. But profits are really ~10% for the average mom n pop restaurant. It's just how it is. So $1mm in annual sales makes you $100k, more or less. People like owning restaurants, despite their best financial interests.
Arguably there are way too many restaurants, in part due to low interest rates. If there were fewer restaurants, the volume would go up and the average restaurant would do a larger gross and be able to handle low or lower margins.
Consider that if someone lived through the last time the US had significant price inflation as an adult, they are 70+ years old. Costs are going up for anything with tight supply, including for labor. Very few working age adults, or business owners, have any experience with that. The transition will be alarming and painful but there is no back peddling now. Businesses with slim margins and an inability to rapidly raise prices just will fail.
Which is fine, but then it’s silly to base minimum wage policy on whether or not it will make somebody’s already-irrational hobby business less profitable.
And part of the problem is cultural. There is social capital that exists alongside human and financial capital, and because its hard to quantify we end up with this sort of hidden value that isn't accounted for.
That’s an OK life.
There are a variety of options completely outside of that continuum.
Like, how about a democratically planned economy where we intentionally work on things that actually help society instead of just whatever happens to make the most profit for the current owners?
I think a big part of burnout is that the work we're doing is clearly pointless. I'm stuck writing debugging shitty Android apps all day. Can I please go plant some forests or something?
If this was the status quo, there'd be just as many people thinking "I'm stuck outside doing manual labor planting trees. Can I please spent time doing something mindless sitting at a desk in a climate controlled workspace instead?"
Someone out there is deriving value from the android app you're debugging or else it would not be economically viable to keep paying you to do that job.
Where does this sort of axiomatic economic thinking come from?
Tons of software projects really are completely pointless and will never turn a profit or generate value. And not even in a "the bet was worth making way" -- walk into any Fortune 500 and you'll find whole armies of people doing pointless busy work. Not confined to enterprises, though -- "special projects" are a thing in startups too. I've seen 10% layoffs -- literally workforce decimation -- without a single meaningful change to the economic output of the business. And that's the private sector. Anything defense-related is at least 100x worse in terms of pointless busy-work.
I don't quite understand how these sorts of neo-classical micro-econ axioms have such huge mindshare. Business managers are not omnipotent, and many aren't even competent.
Then we could trade jobs for a while. Part of the problem (for us knowledge workers) is that we get pidgeonholed into doing one thing because that's where we have enough experience to convince someone to pay us to work on their thing. Not to mention that switching jobs or taking breaks is more annoying than it ought to be because health insurance and other benefits are tied to employment.
> Someone out there is deriving value from the android app you're debugging
The CEO. Who already has enough money that he could retire if he wanted. I don't think people in general would miss our buggy app if it disappeared tomorrow. I do miss the trees when they disappear, though.
I'm not saying it's not economically efficient to split up jobs this way, but it sure isn't good for your state of mind.
Now do family farms.
I'm dubious of this claim. My experience from observing many friends in this situation at different economic levels (enough savings to take a break in US. Unemployment benefits in Europe) is that they rarely use the time to figure out what is next. Instead they most often use the time to relax and only spend time trying to figure out what is next when pressured to do so by impending financial circumstances (doing nothing depletes savings for those in America and unemployment benefits run out eventually in Europe).
Whether the amount of time afforded by savings or unemployment is 3 months or 2+ years, it's only the last 1-2 months where most people spend time figuring things out.
When all you have to look forward to your entire life is some slog of service industry jobs with little to no benefits or vacation, of course you maximize the amount of time you spend on your own life. Poor people deserve to relax, and I have never had a job in my tech career that compared to the stress or exhaustion of my minimum wage jobs.
If I get fired now, I’d be happy to go find my next career move. Back then, you would have to drag me into another restaurant.
Maybe it is worthwhile killing some businesses, and pushing some people to get new jobs or to live on benefits, if the wage increase for others is a greater benefit to society.
Its also worth noting that practically no businesses close when minimum wages have been increased in the past. People suggest its a problem,and logically it makes sense, but it doesn't seem to actually happen in practise.
When something happens that universally makes the labor costs go up, and you expect for many businesses to go into the black, what you will instead see is that the very worst company goes out business and all of the others will put pressure on their land owner for lower rents pointing out that they are next. The landowner wants their land to be used and not be earning nothing for years, so they will lower rents. For a restaurant, if everyone is in the same boat, is agnostic to labor costs.
Higher labor costs makes real estate prices go down. Automation makes real estate prices go up. With interest rates going down bringing real estate up, we have plenty of space to rise minimum wage to balance.
Well, it might by your argument make commercial rents, and thus commercial prices, go down. But it also means more money chasing the median residential unit (whether rent or purchase), so it should increase residential prices. Absent zoning constraints, that would seem to encourage shifting from commercial to residential land use
But notice how this argument is based around the margins. When labor goes up, rents go down and food costs go up slightly. Someone who used to just barely be able buy fast-food from McDonalds will suddenly not be able to, and instead be forced to buy more from the grocery store. But there might be two customers that would have otherwise bought food at Five Guys who now buy from McDonalds.
You might see a shift from commercial to residential, or you might see a shift to 4+1 mixed. The town might buy the space and put in a park. You might put in a high-rise. Anything could happen based on the situation.
Whenever the argument of raising the minimum wage comes up, we always hear these stats that 50% of businesses will go in the black, and we will destroy the economy. It's much more subtle than that. The effect that we see is tiny tiny percentages that are overwhelmed by other factors.
There might be some effect diffusing upwards, but I doubt it.
The problem got pushed somewhere, but where?
Very rarely does the owner of the business just eat the cost except in the very short term. If the business doesn't close usually one of two things happen:
(1) there are fewer hours available because books need to be balanced. Some workers that are able to keep their hours do better at the expense of those whose hours are cut. Basically this ends up being a wealth transfer between some hourly workers and others.
(2) prices eventually go up and cause localized increases in prices. Within two to three years you end up with the situation where that new higher minimum wage has about the same purchasing power locally as the previous minimum wage had.
A job in the richest country in the world should not pay starvation wages.
A minimum wage is a decision a society makes, that says "this is the minimum market rate for a human that we consider non-exploitive", it's not an economic decision made to maximize GDP or profit. If a company can't afford to operate in a way that's non-exploitive then it needs to reconfigure or die out, because it doesn't belong in your society.
People constantly argue for the rights of businesses which pay incredibly poorly, as if that is effecting mom and pop shops which are by and large already closed and gone, and when they were around ended up paying a bit more. Maybe a community is better when there’s a collection of local businesses moving money locally instead of a big nowhere-place off the turnpike paying slave wages and moving money back to corporate HQ? America’s business climate is pretty sick compared to so much of the world.
How is this bad?
First, inefficient employers like McDonald's have an entrenched position in the industry because of their massive scale and their real estate holdings. A new entrant in the market already has an uphill battle - if they don't want to rely on government subsidies (e.g., because they want to attract employees who would rather be paid directly for their work), their task is even harder.
A free market in the sense Adam Smith meant it - not a free-for-all, but free to enter - would treat it as a policy goal that new companies would have a fair shot at competing.
I'd understand the argument that government welfare and a low minimum wage are important to support new entrants, by making it possible for them to compete against the entrenched companies. But that's not what's happening; it's the entrenched companies that are effective beneficiaries of these policies (cf. https://www.cnbc.com/2020/11/19/walmart-and-mcdonalds-among-...).
Second, passing the costs along to the consumer along with raising wages has the effect of increasing the purchasing power of low-income consumers. If the minimum wage goes from X to 2X, which causes the cost of items at McDonald's or Wal-Mart to go from Y to 2Y (which it won't, because labor costs aren't the entire costs, but for the sake of argument assume they are), then people being paid the minimum wage are in basically the same position for their everyday purchases: they get twice as much money, but they spend twice as much money. But they've also got larger expenditures - renting or buying a home, buying a car, paying medical bills, etc. The cost of emergency surgery isn't going to double just because the minimum wage goes up (even though much more of the cost is labor) - surgeons are paid way above the minimum wage already.
What this means is that people being paid a high minimum wage are equally able to live their ordinary lives, because they can afford the increased cost of goods made by other minimum-wage employees, but they are more able to make expenditures that improve their lives (e.g., more able to deal with medical issues before an emergency) - and more able to make purchases that stimulate the economy. Instead of buying N hamburgers a year and a car that costs Z which they use for five years, they can now buy the same N hamburgers a year and a car that costs 1.2Z.
As long as government policy continues to enable both wages and prices remaining low, the economy is stuck.
(It does mean that the relative purchasing power of rich consumers goes down - they can buy the same number of vacation homes, but they can't buy as many McDonald's hamburgers - but that hardly seems like a concern. You can only eat so many hamburgers, and they're probably not buying very many hamburgers from McDonald's anyway.)
If the state chooses to offer benefits, great! But the state shouldn’t blame businesses having to offer those benefits.
If the state wants people to have more money than the market provides, the state can simply increase benefits to that level.
Wage subsidies are supported by both conservative and liberal economists.
I am not saying it's a net good or bad for the economy by the way, I don't think I am qualified for that. But I can tell be pretty confident that exploitive wages are bad for employees and good for employers, a balance for which we have a lever to adjust.
For example, my wife is an administrative assistant for an NGO. She makes about average for an administrative assistant, but that makes her one of the highest paid employees.
Some of the employees are true believers and donate much of their salary back. Others are broke, and can hardly make it by.
Most are women with husbands who make the real money.
I know for a fact that the “higher ups” get paid less than the lower end. But many are retired lawyers and bankers. They also have seats on the board.
Some of the people who work there do so at great personal cost. The kids just out of college can barely eat.
Is this exploitive?
If my wife was the primary breadwinner, it sure as heck would be.
But everyone there could easily make much, much more in a heartbeat.
No one is working at McDonalds out of the kindness of their heart. For my partner's work, they simply have a delineation between volunteer participation and worked hours, and it makes it very clear which hours you're paid for and which you aren't. They have "working bees" and "volunteer weekends" and so on, and people are happy to sign up for them.
Similarly, theatres (as in performance art not cinema) are often for-profit but still quite heavily volunteer reliant, because people want to support the arts and the theatres wouldn't run without them they can make it work. If a petrol station tried to do that, no one would sign up for the volunteer program, and "the market" has happily chosen which businesses can run with volunteered labour or not.
The CIA is able to recruit people for the Clandestine Service who could easily make millions at a bank. They get paid about 90k a year, for more work.
Why? Because they get to be freaking secret agents!
Are they being exploited? I know some folks who used to work for intelligence agencies. They seem to think so. The “secret agent” factor is bullshit. They have to live in high cost of living areas. And 99% of the time the job sucks.
Mostly just office work.
I certainly see something exploitive about that … offering one thing and not giving it.
The military is famous for that shit.
I’m sure there are other industries that do the same. Hollywood comes to mind. So does programming computer games. Etc.
A great example in your favour is pilots working for minimum wage because people just want to be pilots so bad. But these are really exceptions, the vast majority of people just want to eat and make rent with any job and they're not able to. Companies know they've got no choice but to work at non-livable wages, so that's the most prominent exploitation around minimum wage that we're trying to solve by raising it. Make it so people in poverty don't have to trade there lives in exchange for money that can't even sustain their position in poverty.
My own experience is that failing firms pay more. They can’t offer security, and tend to lay off as many people as possible. The layoffs leave the firm top-heavy. In order to recruit new staff they have to pay more. Who wants to be VP of a failing company?
Regarding propping them up, I don’t see how making up the difference between a given wage and the amount necessary to live a decent life is propping up the company.
I’m very much in favor of minimum wage laws. But I don’t see them as government propping up failing companies.
They should enforce things like minimum wage because it's doing welfare and social support, but they have the power regardless.
Before the (significant) wage subsidy, they used to almost always be paid under the table. Now they earn a proper salary with all extra security that entails.
If I don't have a job I go workout during the day, learn new skills, and read. Without kids that is, with kids I take care of the kids.
If you want to argue that the minimum wage increases unemployment, and that the unemployment tends to be long term, go ahead and argue.
But don’t ask us to take it as an article of faith.
Maybe you didn't read the article. but in summary, because the businesses are not paying enough, the businesses have less employees.
Its not that the employees wont have jobs, but they will just have a higher paying job somewhere else.
I'd call it a wrong conclusion to assume that the thing that people do to unwind after a busy workday or what people do who are unable to work due to depression is the same as what people undertake when they can sustain themselves without spending the majority of their waking hours commuting and working.
Also, I feel like this isn't even worth addressing, but no, work is not a government-sponsored day care for workers.
Otherwise said, these not ending is bad thing.
And none of that is for benefit of worker.
It's not logical to kill businesses by arbitrarily raising the minimum wage. Do you think the people they employ are better off not working at all? These people may not have a decent enough salary, but they get to work as opposed to staying at home and degenerate (mentally and physically). I always thought the better solution is to help them financially in other ways (greater tax credits, negative taxes?).