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> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. > Just

> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. > Just as a monopolist can set prices higher than would be the case in a competitive market, a monopsonist can set prices artificially lower. A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job. That's why minimum wage laws and workers rights are important. Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker. The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies.

throwawaysea 6y ago
You're redefining what a 'free market' means. If one side has a greater need or desire, that is still within the bounds of what a free market is. The market creates incentives and disincentives to fulfill different market demands, by creating an incentive to supply what's in demand (by paying more) and a disincentive to supply what we don't need more of (by paying less).
- gjulianm 6y ago
  Not a greater need or desire, but a fundamental need. It's an important distinction. In a perfect market, if the only offers to buy a product are too low, you will stop production and close the company because you can't make a profit. In the labor market, if the salaries are too low, people will still take the jobs because low income is better than zero income.
bcrosby95 6y ago
Also, do textbooks actually say that? Because it seems trivially false: if a worker is actually paid that, then there's no money left for investors.
- deleted 6y ago
  [deleted]
- oivey 6y ago
  It’s also obviously untrue given the fact that wages in the US have stagnated while productivity has continued to grow. That’s despite a floor on wages.
  - colinmhayes 6y ago
    No it's not obviously untrue. Productivity growth has been driven by capital, not labor.
    - e12e 6y ago
      > Productivity growth has been driven by capital, not labor. What does capital produce?
    - sudosysgen 6y ago
      What produces capital?
    - Fargren 6y ago
      If I dig one hole a day with my hands and ten holes a day with a shovel, I still dug the nine extra holes even if I don't own the shovel.
      - AnimalMuppet 6y ago
        I believe that colinmhayes' point is that you dug the extra nine holes because there was a shovel, not because you got better at digging holes with your hands. The productivity gain was because a shovel was being used. It didn't matter who owned the shovel, it mattered that you were digging with one. But that's not completely true, because a person who only knows how to dig with their hands still only digs one hole a day, even if there's a shovel just lying there. Knowing how to use the tools does in fact make you a more productive worker. It seems to me, then, that part of the gain from the productivity from better tools should go to the worker who knows how to use the tools. And part should go to the person who bought the tools.
danenania 6y ago
Right, many minimum wage opponents focus on the scenario where someone is worth e.g. $14/hr to a business, and rightly point out that this person won't be hired with a $15/hr min wage. BUT without a minimum wage, someone worth $50/hr can be paid $5/hr if anyone can do the job. It strikes me that this situation is far more common than the first scenario, and minimum wage opponents tend to ignore it in their arguments. Minimum wage sets a floor for the market. That could theoretically increase unemployment in some industries with razor thin margins, but it's far from a given.
- prostoalex 6y ago
  > someone worth $50/hr can be paid $5/hr if anyone can do the job What business sectors enjoy consistent 90% gross margins?
  - danenania 6y ago
    That's not the right question to ask, since many other costs besides labor figure into gross margins.
    - prostoalex 6y ago
      What formula then is used in calculating “someone worth $50/hr“? Does it omit or include those costs?
      - danenania 6y ago
        It's not always easy to quantify. Consider people like janitors or security guards. They may be absolutely critical to the business running even though they don't produce revenue directly. Even if minimum wage was set to $100/hr for these jobs, it would still be worth it for many companies to hire them, since producing any revenue could be contingent on having people in those positions. At the same time, they are very competitive labor markets, so without a floor, the pay could go very low despite being essential to the business. When someone is directly contributing to revenue, like a factory worker or salesperson, it's a bit simpler since you can look at their output, but you still need more information than gross margin to know the maximum a company could profitably pay an employee, since a company might design their operations very differently depending on the price of labor.
strbean 6y ago
> companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time This will be the case as long as we have monetary policy based on the idea that "100% employment is the apocalypse". It seems like it is accepted as fact that 100% employment would lead to hyperinflation, despite the fact that this has never occurred. It is a totally untested theory that is suspiciously convenient for employers and shitty for workers.
- dannyw 6y ago
  Monetary policy is to benefit the owners; not the workers. 100% employment will drive wage growth as demand exceeds supply. That’s not good for the stock market.
  - pratik661 6y ago
    Source? That is an extraordinarily broad statement to make. Central Banks' (the primary institutions behind monetary policy) primary goal is to promote a stable environment for commerce. This typically means maintaining a stable rate of inflation (2-4% for mature economies, 4-7% for frontier economies). This often requires performing a balancing act between managing unemployment and inflation. We have PLENTY of evidence to suggest that inflation is harmful for everyone, ESPECIALLY for low income workers. The stock market usually has ZERO consideration in the decisions central bankers typically make.
    - lotsofpulp 6y ago
      Whatever their goal is, the execution obviously benefits owners of capital disproportionately more than sellers of labor. If economic growth is more than the interest rate, the owners pocket the difference. If economic growth is less than the interest rate, the owners get bailed out. But in all cases, growth for the sellers of labor always lag the growth for the owners of capital.
    - aNoob7000 6y ago
      The Federal Reserve has been trying to get inflation above 2% consistently for over 10 years. What are the chances that they get that even now with rates at zero? Also, I would disagree with you about the Federal Reserve not targeting the stock market or other assets. Anytime in the past couple of years that the stock market in the USA has dropped roughly 10-15%, the Federal Reserve has jumped in dropped rates. They might say the don't target the market, but in reality that is what they are doing. I think biggest issue in the future will be how will the Federal Reserve ever raise rates. They can't even go above 2.5% without the market collapsing.
missedthecue 6y ago
A free market does not mean that both sides want something with equal desire. I need food to survive much more than Krogers needs my business to survive. This does not mean that grocery sales are not a free market. A free market means that the supply and demand of goods rely on price signals rather than a centralized planner. Labour is absolutely a free market. As wages in one particular area increase, people respond to that price signal by learning the relevant skills and working in that field and getting greater salaries. It's also why Amazon (and essentially no business) pay $7.25 an hour, even though they legally could.
- gjulianm 6y ago
  > I need food to survive much more than Krogers needs my business to survive Yes, but you can buy from anywhere other than Krogers and the cost of switching is almost negligible. A job is very, very different in that regard. Responding to your edit: > As wages in one particular area increase, people respond to that price signal by learning the relevant skills and working in that field and getting greater salaries. Learning the relevant skills costs time and money. If your wage is too low, you won't be able to learn new skills. And moving and changing jobs is not that easy for most people.
  - missedthecue 6y ago
    Yes, but you can buy from anywhere other than Krogers and the cost of switching is almost negligible. A job is very, very different in that regard. It doesn't matter who I buy from, I need food much more than any retailer needs my business. I can sell my labour to many different companies with a relatively low switching cost. The average time people between jobs is lower than it has ever been. Learning the relevant skills costs time and money. If your wage is too low, you won't be able to learn new skills. And moving and changing jobs is not that easy for most people. If the price of steel increased, building new mines to extract iron ore would cost great sums of money as well. It is not easy for all mining companies to do this. It doesn't mean that the market is not relying on price signals to coordinate the production of goods.
    - 6y ago
deegles 6y ago
I think it makes sense to get rid of a minimum wage requirement after universal healthcare and a basic income is implemented. Capitalists whine that the free market should be allowed to play itself out, but conveniently forget that labor is not a free market as is mentioned above.
prostoalex 6y ago
> That's why minimum wage laws and workers rights are important. How do you translate that into numbers? If $15/hr is better than $14/hr, wouldn’t $150/hr be 10x better, and if so, what’s wrong with a comfortable $1,500/hr? I think that’s where economists start to differ.
- yarrel 6y ago
  How much should workers pay their employers for being able to work, since working is a benefit? We can differ reasonably about how much, surely. A minimum wage is not set in a vacuum, and high numbers that ignore this fact do not illustrate anything useful.
- bitdotdash 6y ago
  Slippery slope / Straw-man fallacy. One is to do with tying the minimum wage to a livable wage. The other is just large numbers for the sake of trying to win an argument. No one is arguing for $150/hr. The argument is simply that you aught not to be able to run a business and extract a profit if the cost to do so is employing people at such a low wage that they require governmental handouts just to pay rent and eat food. Given that, imaginary large numbers like $150/hr or $1500/hr do not come into play and thus do not need to be considered.
  - mrkstu 6y ago
    That is still better for society than not having the economic activity. What exactly is the benefit of wholly depriving the putative worker of a job vs. making up the difference with something like food stamps and Medicaid?
  - OCASM 6y ago
    They don't need the handouts. They could for example live in communal spaces and share resources. What exactly is "livable" anyways? Millions of people live every day with only a couple of dollars a day.
    - RockIslandLine 6y ago
ccffpphh 6y ago
The issue is that nobody is entitled to anything. You aren't de facto entitled to receiving money for any services you may or may not provide, regardless of whether you're skilled or not, just because you exist. A company exists because one or more people risked wealth in order to create a net positive system - their existence is not as riskless as one would believe.
- throwaway2048 6y ago
  I think we as a society can do better than whinging about how "entitled" people are for wanting to work for livable wages.
- abdullahkhalids 6y ago
  Universal Declaration of Human Rights Article 3 Everyone has the right to life, liberty and the security of person. Article 22 Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality. Article 23 1. Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment. 2. Everyone, without any discrimination, has the right to equal pay for equal work. 3. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. 4. Everyone has the right to form and to join trade unions for the protection of his interests. ------------ You can either give people unemployment (wage without work)[as per 22 or 23(3)] by taxing the companies you mention, or you can make the companies to give money directly to the people in return for work. There is no third way. You can't deprive people of a dignified life by ignoring them.
  - javert 6y ago
    > Universal Declaration of Human Rights Well, I declare differently. Words are wind (unless backed up by an argument). > You can't deprive people of a dignified life by ignoring them. Ignoring someone is not depriving them of anything. Sacrificing some people for the sake of other people--what you are advocating--deprives both groups of a dignified life. Human sacrifice is utterly barbaric and would be outlawed in a truly civilized society.
abvdasker 6y ago
The Marxist perspective is that the employer is incentivized to pay as little as possible to extract the maximum amount of value from the person's labor, realizing the difference as profit (even though crucially that value was created by the worker). An example of this would be software engineers at companies like Apple and Google, whose labor has been shown to produce several times the value of their compensation. Unions and worker cooperatives are meant to counterbalance these forces by giving workers more negotiating power in the case of the former, or aligning the profit motive with employee compensation for the latter.
- cmrdporcupine 6y ago
  I think it's more correct to say that the Marxist (well, labour theory of value) perspective is not that the employer is incentivized as such, but they _have_ to. That the capitalist market _requires_ it or it doesn't work, business won't survive. It's intrinsic to the profit / wage-labour model, even if you switch to something like cooperatives or state ownership. The theory is that surplus value (which can become profit, or be reinvested, etc) exists only through paying the worker less (on aggregate) than the aggregate amount that the worker provides through their labour. The mainstream economics answer to this is to say that the labour theory of value is bunk and that prices are defined purely by market forces. But this kind of misses the bigger picture of what Marx was getting at rather by getting lost in the weeds about price definitions and really is a critique of Ricardo more than Marx. Despite using the term "exploitation" which has moral overtones in English, Marx really isn't casting a moral judgement here. It's a technical description. But he does believe that this phenomenon leads to structural inequality and injustice and that the only resolution is some other kind of property ownership or method of production. Though he was famously vague on what that alternative would be, and people far less intelligent than him were left to fill in the blanks with some rather awful alternatives.
  - abvdasker 6y ago
    Thank you for the more precise definition. Broadly I think Hacker News could use a little more discussion of Marx, which is why I brought it up.
LoSboccacc 6y ago
> Workers can't usually live too much without finding a job. > Companies will always push for lower wages wherever they can but it's not just megacorp tho. minimum wage will lower employment from small business significantly; i.e. small shop owner will get by with one less garcon to pay the other one more. and if you think that can be resolved just by ample unemployment benefits, look no further than the Dublin heroin epidemic. maybe two tier of minimum hourly wage + progressive hour cap could work: x$/month minimum wage for part time capped at 20 hour/week, x+50%/month for full time workers. but it's a thorny issue where in the fight between drones and megacorp it's easy to incur in collateral damage around the middle.
- monocasa 6y ago
  Who are these mom and pops that are hiring extraneous workers? If they can get rid of a position, they probably already have.
  - kube-system 6y ago
    They're out there. Mom-and-pops are not known for their efficiency. I've known some that hire people as a favor to friends/family/community. ("hey, my kid needs a summer job, do you have a job for them?") Heck, there are entire mom-and-pop shops that exist not as a serious income stream, but as a hobby. If you're running a business with <5 people, hiring an 'unnecessary' person could just be a luxury so that the business owner can take a vacation or get an extra hour of sleep... and when times are tough, they forego that luxury. These are probably not a significant part of the overarching discussion here, though.
    - monocasa 6y ago
      I've seen "my kid needs a summer job" way more at medium size $100m/yr revenue companies where that can be hidden in the budget easier, and you can get a kickback for internships if you play your cards right as one of those companies. And it is relevant, because there's a lot of data that there is no negative effect on employment elasticity, but there is significant publication bias in the field. And what always gets brought out is the argument that "businesses will start letting extra people go". They already do that even without minimum wage increases.
throwaway894345 6y ago
> A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job. I'm generally in favor of stronger job protections and so on, but I'm not aware of any definition of "free market" which supposes that all players have equal leverage. As I understand it, an economy with powerful corporations and relatively weak workers could still satisfy the definition for 'free market'; in other words, power dynamics are orthogonal to market freedom.
- fsckboy 6y ago
  > I'm not aware of any definition of "free market" which supposes that all players have equal leverage. bog standard microeconomics 101 uses as an assumption that no player can thru individual choices affect prices in the market, i.e. all players do have equal leverage, zero. "free market" has more than one usage, but economics's conclusions are valid only if the assumptions are met.
  - throwaway894345 6y ago
    Fair enough; we're using 'leverage' differently. I didn't realize it had a formal economic definition. Never the less, my point stands: that employers can afford to wait for a given worker's labor prices to come down to the market price for their labor is affirmative evidence that the labor market is free whereas the OP considers this evidence that the labor market is unfree.
    - avmich 6y ago
      Unpacking this: > employers can afford to wait for a given worker's labor prices to come down So employers can wait. > is affirmative evidence that the labor market is free For employers. > whereas the OP considers this evidence that the labor market is unfree For employees - they can't wait (that much), see above.
david38 6y ago
Minimum wage, applied universally, absolutely validates worth of a worker. If the minimum wage is set too high to plant grapes for example, grapes will not be grown. $15/h too high to flip burgers? Ok, I guess we don’t need fast food. Oh wait. Except it somehow doesn’t put the corps out of business.
- nickff 6y ago
  Most arguments against minimum wages are not concerned with the impact on businesses, they are concerned with the impact on low-skill workers, inexperienced workers, and unusual workers (i.e. individuals with restricted schedules, or issues communicating).
- sushshshsh 6y ago
  We are already seeing Flippy the burger flipping robot taking over jobs originally meant for humans. The technology for Flippy is only getting cheaper and better, the quality of human labor is already at its most optimal point and is only getting more expensive due to laws passed. Now, you could make Flippy the robot illegal, and maybe x number of businesses would eat the cost of the more expensive workers. But something else will suffer as a result, and I would argue it would involve price, efficiency, quality, and compliance...
  - entropicdrifter 6y ago
    Or you could make an automation tax and use it to fund UBI
    - Stupulous 6y ago
      You could only use it to help fund UBI, unless UBI is significantly less than minimum wage. If the price of buying the robot and running it plus automation tax exceeds what you would spend on employing people at minimum wage, businesses would just keep employing people.
      - chc 6y ago
tastyfreeze 6y ago
It is not the role of government to set prices of labor or products. If a company wants to pay less than market rate for labor they will find themselves without employees. By letting the market dictate the price of labor, wages certainly fall from the artifically high price now. But, that is the result of people willingly entering a contract for the lower pay. People choosing to work for some money instead of no money. People choosing to work to improve their lives instead of being supported by welfare. Minimum wage removes the choice. Minimum wage infringes on your freedom of contract.
- nakedlunch 6y ago
  Is the freedom to accept a contract for poverty wages to avoid starvation a desirable feature in our society?
  - jlawson 6y ago
    Since we have a social safety net, nobody needs to do such to 'avoid starvation' so the question makes no sense.
  - flyingfences 6y ago
    Is the alternative - a total absence of contracts offered to those people - a desirable feature in our society?
  - tastyfreeze 6y ago
    If labor costs less products as a result cost less. How do you reconcile your view with the success of Singapore? A country with no minimum wage and a comparatively free market. There is income disparity in every time and every place. The question to ask is do the rules of the game allow anybody to succeed. Minimum wage is a rule that says some people just don't get to play.
    - gjulianm 6y ago
      > How do you reconcile your view with the success of Singapore? A country general success does not equal the success of its poor people. There are not many income inequality stats of Singapore, but the ones I've seen [1] actually put Singapore with a similar income inequality to the US. Furthermore, it is a small country (5M people) with a pretty high GDP per capita (8th in the world). I don't think you can extract too many conclusions that would be applicable to other, bigger countries. > The question to ask is do the rules of the game allow anybody to succeed. Minimum wage is a rule that says some people just don't get to play. And without a livable minimum wage, you'll get people that are working full time for peanuts. They won't be able to save, get healthcare, provide their kids with good education, etc. Are those people succeeding? 1: https://en.wikipedia.org/wiki/List_of_countries_by_income_equality https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...
changoplatanero 6y ago
the firms in the market are competing against each other and that's what drives up the wages. it's not so much about the relative power between the employee and the employer
hankchinaski 6y ago
high regulation and subsidies effectively make ‘doing business‘ a nightmare. the real question is: who are the value creators? how can you reward everyone appropriately based on how much value they create and how much risk they incur whilst keeping an healthy base level (minimum wage) for those who don’t? i think the answer is in the middle. too much regulation is harmful for businesses which are ultimately the risk takers and the value creators in our economies
AnthonyMouse 6y ago
> companies have more power in negotiation, they have more information You're just asserting this without any argument or evidence. > and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job. Workers don't specifically need a job at that company. Even if they need a job, they can go work somewhere else. And if that isn't the case, you have bigger problems than minimum wage. > The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies. Even if you want to do this, it still makes minimum wage a ridiculous policy, because it harms the same workers it's purporting to help. The ones who work for companies that can absorb the cost get more, but the others lose their jobs. When there are policies that do only one and not the other (e.g. UBI), there can be no justification for the one that does the bad thing in exchange for no relative advantage.
- AlexandrB 6y ago
  > You're just asserting this without any argument or evidence. This is ridiculous. If I assert that the sky is blue, I don't think I need to provide a list of sources. Under what possible circumstances does the average individual have more negotiating power or more information than a multinational organization with teams of lawyers, an HR department, and access to labour market research? Edit: To add, when we talk about minimum wage jobs we're usually talking about low-skilled labor. Please explain how a ditch-digger can have negotiating leverage over the average road construction company?
  - AnthonyMouse 6y ago
    > Under what possible circumstances does the average individual have more negotiating power or more information than a multinational organization with teams of lawyers, an HR department, and access to labour market research? You're assuming a level of competence for corporate HR departments that isn't in evidence. What do you think they have that you can't get from Glassdoor or similar? Not much, if anything. > Please explain how a ditch-digger can have negotiating leverage over the average road construction company? By taking a job at some other ditch-digging company, or Walmart, or Uber, or anywhere else, until one company offers a better wage than the other. For commodity positions it's not even really a negotiation for either party -- everybody on both sides knows what ditch diggers get paid, the employers offer that much and the employees accept that much because anybody who offered less or demanded more wouldn't find any takers. Which is also why there can't be any meaningful information asymmetry -- when everybody knows the prevailing wage for that category of work, there is nothing else you really need to know in terms of wage negotiations.
unfortun8 6y ago
Irony is Adam Smith only brings up markets in terms of a free labor market. Labor must be free to move among opportunities. Fearing that extreme division of labor would make a person a limited thinking tune easily swayed by corrupt political intentions. Amazing how 200+ years ago, and even more if you lump Plato & Aristotle’s awareness of human behavior, how true much of their concerns still apply. It’s almost as if humans haven’t evolved much socially, we haven’t escaped the same theme. We’ve merely improved the world around us.
opportune 6y ago
That entire excerpt is bollocks. I seem to recall a pretty influential treatise explaining how wages tend towards the exchange-value of the labor to produce a good, not the use value or even marginal exchange value of the good itself.
bgorman 6y ago
Your chain of causality is actually completely wrong. At 15 dollars an hour only a few companies can hire unskilled workers. At 1 dollar an hour many people can pay workers that amount, so there is more competition out there for wages. The idea that there is a monopolistic employer in the US labor market is laughable. Even for monopolistic industries like telecom there are multiple options. Minimum wage jobs should not be expected to be a long term viable career choice. Minimum wage jobs are a way for people to get their first experience, and then move one once they have gained valuable skills. People like to twist reality by imposing arbitrary constraints e.g. workers need to be able to get paid 15 dollars an hour without needing to relocate or learn new skills. The world isn't a charity, and anyone disputing that price floors don't result in shortages is frankly uneducated.
- gjulianm 6y ago
  > Your chain of causality is actually completely wrong. At 15 dollars an hour only a few companies can hire unskilled workers. At 1 dollar an hour many people can pay workers that amount, so there is more competition out there for wages. That theory is good if there's a surplus of job offers, something that doesn't happen outside of very specific sectors. Moreover, your argument assumes that changing jobs is easy and risk-free, when in reality it's not, specially for unskilled workers. > Minimum wage jobs should not be expected to be a long term viable career choice. Why not? Of course it's not the optimal career choice, but why wouldn't one be able to live off a full-time job? > Minimum wage jobs are a way for people to get their first experience, and then move one once they have gained valuable skills. Yeah, the "serving fast food" skill that is so demanded in the current job market. > workers need to be able to get paid 15 dollars an hour without needing to relocate or learn new skills If you don't get paid a livable wage, you can't save for moving and/or changing jobs, and it will be far harder to pay and/or have time for further education. Non-livable wages just lock people into poverty. When the alternative is losing your house, or your healthcare, or starving, people will be forced to make non-optimal long-term decisions because it's their only option.
  - dragonwriter 6y ago
    > Non-livable wages just lock people into poverty. No, non-livable income does that. Relying on wages to solve that relegates people to a permanent underclass if they ever experience more than brief unemployment.
cactus2093 6y ago
> The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies. Even assuming everything else you've said is true, that's quite the leap to make. And also quite the oversimplification. There are lots of regulations and subsidies that have been tried where the unintended consequences end up negating most of the benefits, and just turn out to make the entrenched powers even more entrenched and wealthy. Plus there are ideas like UBI that don't fit neatly into the traditional buckets of "regulations and subsidies" and could be another (better?) way to give workers more leverage.
- gjulianm 6y ago
  Of course actual policy is difficult, and complex. UBI or guaranteed income would seem to be the better way to give workers more leverage, but for that one needs to accept that we indeed need to give workers more leverage. You'll see in this thread a lot of people arguing that less regulation will somehow lead to better wages, when in reality that will only increase the power imbalance between workers and businesses and push wages lower.
abstractbarista 6y ago
It's just not as simple as "companies have more power in negotiation". At times, it can be. But usually, it is a more complex interaction.
oneplane 6y ago
Minimum wage is not just important for the employer-employee relation, but also in society as a baseline of survivability. If you work a 100% of your time (so no sleep, no rest) and still cannot afford basic requirements for life then I'd argue that a minimum wage is the only way to guarantee that someone working about 8 hours a day can live. If a normal workday cannot pay for a baseline life, the system is simply wrong.
WalterBright 6y ago
> The labor market is not a free market If it is as you say the employer has all the power, then nobody would have a job at more than minimum wage.
wdn 6y ago
The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept. When you find a better offer, you go to the better offer. As for minimum wage, it is hurting the unskilled workers, like high school students, college students who are looking for experience. If you are stuck in a minimum wage job, then this is what the market is paying for your skill set. If you think you worth more, then proof it, don't blame the system. When I was in high school, I was working in an unpaid internship to get some experiences. I don't know if there is any unpaid internship now or if it is even legal now.
- anoraca 6y ago
  Unpaid internships are definitely still a thing, and they are yet another way that privileged people have an advantage in society. Not many people can afford to work for free unless they have family wealth to support them, or are willing to go into large amounts of debt. Unpaid internships should probably be illegal to make things more fair.
- nucleardog 6y ago
  >> The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job. > The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept. You disagreed with him while not actually addressing his point at all. Care to elaborate how you think he's wrong here?
  - jsmith99 6y ago
    They are arguing about semantics. The labour market is a free market but not a totally efficient market as some participants use their power over demand or supply (huge corporations, unions) to drive different outcomes to a perfectly competitive market where all participants are price-takers.
- Broken_Hippo 6y ago
  Unlike, say, buying a game, most folks can't just decide not to work. If you need to eat, pay rent, child support, need health insurance, or a slew of other things - you can't say no. You must work. Period. The safety net isn't good enough not to take that minimum wage job, especially if you are a childless adult. The only real thing keeping you from being paid less is minimum wage, and that's there because companies aren't fair about hiring practices. The only reason you were able to work an unpaid internship is because your family not only didn't need you to work, but they also didn't need you to watch younger siblings in your free time. To top it all off, that was offered to you - this isn't a thing most folks can do. Not to mention that unpaid internships are often slavery under a different name. If someone wants to give someone experience or train someone, they should pay. I wish people would quit acting like the market is fair by any means or like people have a real choice in working. Neither of these things are true with the labor market.
macspoofing 6y ago
Where are you getting all this stuff from? It's like you're only reading communist blogs where they engage in creating fictitious straw-men of every aspect of a market-based economy. This is not how the world works. >The labor market is not a free market: companies have more power in negotiation That's not what a free market means. And I don't know how you can say companies have more power in negotiation. They post their rates, and people apply or they don't. There are millions of alternative jobs. If I sell my car, I post the price and if I don't like the offer, I don't take it. Are you claiming that this is not an aspect of the free market? A friend of mine is a shift supervisor at a food supplier. He uses a staffing agency to augment their full-time workforce during busy seasons. The company he works for pays above minimum wage (and so does the staffing agency even after commission). If he calls in 10 people, maybe 6 will come in and 2 will leave mid-shift (and those 10 are those that accepted the job). If he calls people in on Saturday, those ratios are even worse. He offers full-time positions to agency workers he likes and gets denied often because those workers may actually prefer the flexibility of agency work (e.g. they can choose to work this week, but not next week). There are wages that people will just not work for. Even if minimum wage laws were lifted, people aren't going to go work at MacDonald's for $1/hr. Talk to any small business owner and hear what they have to say about that. And you also see this will undocumented labour (i.e. where minimum wage regulations are ignored). Those laborers may be getting less than minimum wage (but even that isn't a sure thing, when factoring in the type of job - skilled or unskilled - and lack of taxes), but they certainly aren't getting paid pennies either. >Workers can't usually live too much without finding a job. Sure they can. What are you talking about? Tens of millions of people, for all kinds of reasons, either choose not to work, or choose to work part-time.
- B4CKlash 6y ago
  Ironic that you complain about the parent maintaining a particular set of ideology while maintaining a similar set of irrational beliefs... Just looking at your first point. Companies wield an extreme asymmetric information advantage about 'your' specific hiring cohort. They know who has applied to the job, the size, relative experience, and in many cases they know the expected salary range of those individuals. They know the explicit and implicit cost of their benefits on an actuarial scale - costs potential-employee will never know. They have a firm understanding of their actual needs and a higher degree of flexibility. Like other comments have concluded - it's easier for an organization to fold tasks into other jobs. Employees, especially when you consider health insurance (and that of a family) is tied into these decisions. In today’s model potential employees are required to negotiate with themselves (as a result of being unaware of the qualifications, expected incoming, etc. of the pool). We wonder why salaries remain stagnant... If you look at CEO pay as a counterexample it becomes obvious. It's not about adding or demonstrating value, it's about extracting value and an understanding of your ability to extract value. CEO compensation is a published number in public companies. "High CEO pay reflects economic rents—concessions CEOs can draw from the economy not by virtue of their contribution to economic output but by virtue of their position." https://www.epi.org/publication/ceo-compensation-2018/ https://www.epi.org/publication/ceo-compensation-2018/
lawnchair_larry 6y ago
But that is theory. It might be true, it might not, but it’s irrelevant. Many “protections” and well-intentioned policies fail to accomplish the expected outcome, and we routinely forget to judge them based on their results rather than their intentions.
Certhas 6y ago
Universal Basic Income would also help with this problem.
- shirakawasuna 6y ago
  If you're interested in UBI, you may also be interested in UBS, universal basic services. UBI is potentially weak to things like increases in the cost of living and inflation, whereas UBS at least ensures that we must always face a semantic justification of what counts as meeting a service requirement, such as housing, food, etc. They are not mutually exclusive, either. https://universalbasicservices.org/ https://universalbasicservices.org/
aeternum 6y ago
I believe you could make the labor market much more competitive with one simple and easy to implement change: Make it a requirement that companies publish salaries. We did this with CEO pay and it resulted in huge increases in CEO pay because it removed the information asymmetry. We make companies disclose important safety and nutrition information to the public so consumers can make good decisions about purchases, why not enable people to make good decisions about employers as well?
least 6y ago
Minimum wage laws aren't important. Forcing companies to classify freelancers as employees or gig workers as employees is harmful and leads to less work available. If you want to meaningfully create leverage for laborers, you need to ensure their livelihood is not dependent on being employed. A negative income tax or some other form of UBI would serve better to accomplish this goal. On the flipside, providing all the basic needs of living to someone can potentially lead to a large drop in labor supply and create its own problems.
collyw 6y ago
Thomas Sowell makes quite a convincing argument that minimum wages stop people getting onto the bottom rung if the employment ladder. He convinced me to an extent, in that it can be useful for young people starting out and small companies that couldn't otherwise afford staff. But I do think it need to be balanced with some checks to stop it being exploited by companies who can afford it.
aidenn0 6y ago
>> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. This sentence is just wrong. First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit. Textbooks actually say that a worker will be paid no more than the marginal product of labor, and if labor is in short supply, they will be paid very close to their marginal product of labor. If there are a huge number of workers willing to work for $5/hr then workers won't tend to make even a penny more than this. Information asymmetry and differences in negotiating power will further distort this, but the initial premise is already a strawman of basic microeconomics.
- deleted 6y ago
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- rbanffy 6y ago
  > First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit. That's true for a single employee, but you don't need to make a profit out of every single employee. If you do, your CEO will be extremely underpaid in relation to the rest of the market.
  - aidenn0 6y ago
    I am willing to work as the CEO of Walmart for say $750k per year. The fact that I don't work there means that either: 1. Voting Walmart shareholders think that the having Doug McMillon for $24M/year is a better deal than having me for $750k/year 2. Voting Walmart shareholders are unaware that reasonably intelligent people with no executive experience are willing to work for a lot less than McMillon. 3. There are other forces at play; e.g. CEOs as Veblen goods or good-old-fashioned corruption. Maybe the board members are also C level employees (at different companies) and they are colluding to keep the C level compensation high. #2 seems rather unlikely so pick one of #1 and #3. #1 Certainly does not contradict my use of intentionally, since they believe that McMillon
    - 6y ago
Romanulus 6y ago
Have you considered the converse of very larger companies that have a stranglehold on their market (like Walmart, perhaps) pushing for a higher minimum wage to stifle smaller businesses in the same domain? It seems like a viable tactic, though I will admit I have not looked into it much myself.
ChrisLomont 6y ago
>companies have more.... and >Workers can't usually live too much without finding a job. Conversely, most workers can go to a different job, and hiring is expensive, so companies cannot simply keep spending on hiring and get no workers, so companies must offer enough value to attract workers. Workers also have information companies do not - they know where else they might or are looking, they sometimes have competing offers in hand, and they can always not take a job based on these things. >Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker. Conversely, workers will always push for more wages wherever they can, without a care for the actual value they produce for their employer. And it's much easier for a worker to go elsewhere than it is for a company to replace all workers. Both sides have interest in getting a good balance on wages.
roenxi 6y ago
Hasn't the experience, considering Asia, been that the greatest benefit of free markets is for low-paid workers? I buy a lot of notionally 'American' products (iPhone, computer gear, electronics) that are all manufactured in Asia for cost reasons. A bunch of places have become extremely wealthy in the last century, basically creating a middle class out of poverty, through a strategy of cheap-wages-lots-of-manufacturing. Coincidentally, the greatest reductions in poverty are all in Asia. And one shudders to think what the Chinese could be achieving if their government was a bit more competent and left people alone to prosper. Is there evidence that the poor in America are prospering under high minimum wages? The stats I've seen suggested it is basically status-quo for the last 50 years. Minimum wage is a small part of the puzzle, granted, but it isn't necessary to generate absurd improvements in the general welfare.
ouid 6y ago
most of these problems can be solved by just giving everyone the right to say no to labor with a guaranteed poverty income. It's not enough money to live on comfortably, but it gives the labor negotiator a chance to walk away from a monopsonist.
bravo22 6y ago
Which is why instead of mispricing labour through minimum wage you can have a negative income tax which makes up the difference. The nice thing is that it will apply to everyone -- working or not, sick or not, on mat leave or not, can't work because of covid or not. You top-up people's income and that's paid for through taxes. You take the benefit of efficiency and productivity from the entire economy and return it to the people at the bottom. You don't have a right to a job, or a particular income. You have a right for society to not leave you dangling when in need. Your ability to get a job or have more income should be determined by market forces. Put a negative income tax in place and ensure a minimum level of funds for every citizen and see how quickly Amazon's treatment of its warehouse workers improve. Far more than any union could provide.
- Retric 6y ago
  Having a negative income tax is reasonable without removing minimum wage as they deal with different things. Removing the minimum wage is effectively a subsidy for companies and industry’s that would then pay below the old minimum wage. Considering how often people in the US make below minimum wage even when it’s illegal, it seems like a bad idea. Instead even higher minimum wages can be used to drive automation.
  - zanny 6y ago
    I don't think a minimum wage is ethically justified in a minimum standard of living society unless that value in progress through automation is justified. The arguments for minimum wage are always to insure it provides a livable wage, but economists generally rightly dislike it for limiting labor opportunities to ones above that wage threshold. In the absence of a minimum standard of living you rightly should cling to minimum wage laws like the lifeboats they are for the working poor. Once participation is voluntary forfeiting minimum wages seems like a very promising bargaining chip against capital to get a negative income tax / UBI actually put into law. I think I'd rather see UBI / NIT and have progress towards the singularity slowed for lack of a high minimum wage to pressure automation than the status quo of extreme unhappiness and poverty (and the corresponding social unrest, drug abuse, crime, mental illness, physical ailment, etc). Of course if we can have our cake and eat it too that would be great... I'm just saying to leave the minimum wage on the bargaining table, insuring survival seems like the more important goal.
shirakawasuna 6y ago
If workers were paid the value of what they produce, there would be no profit, no payoff for investors / owners. Classic Economist, laundering in free market sociopathy through bad economics. If you're ever interested in taking a more removed perspective view of that particular magazine, take a look at their old articles. 1850s-60s (e.g., slavery). Late 1800s and early 1900s (labor rights). Nazi-related stuff.
- FabHK 6y ago
  > free market sociopathy > Nazi-related stuff I think today's Economist does not correspond to your caricature. FWIW, they've endorsed the Democrat candidate in 5 of the last 7 US presidential elections, and I'm confident that soon it'll be 6 out of 8.
  - shirakawasuna 6y ago
    The free market sociopathy is still there, of course. Nazi Germany no longer exists so they can no longer rationalize doing business with it. They're doing the same things they've always done, just with modern issues. They'll be just as disgusting in hindsight for most people. A critical reading of them now will make it so that one doesn't have to wait. PS, you heard it there first: buy slave-made sugar.
- tprice7 6y ago
  "the value of what they produce, there would be no profit, no payoff for investors / owners" It depends if "the value of what they produce" means marginal output or average output. Due to the law of diminishing returns, typically average output is greater than marginal output. The theory predicts that wages = marginal output: if wages are less, you can increase profits by hiring more workers, if they are more, you can increase profits by laying people off. So it comes to an equilibrium where the marginal output matches market wages. Since this is less than average output, it is still possible to make a profit. I agree though that the article is being misleading here since "the value of what they produce" is an ambiguous term that should probably refer to average output rather than marginal output.
mr_toad 6y ago
How does a minimum wage help with asymmetrical negotiating power and information for the majority of the workforce? If this was the justification for the minimum wage (it almost never is), it’s a pretty ham-fisted solution.
zerof1l 6y ago
The wage employee will be paid is some baseline plus or minus how much the bargaining power employee has. The baseline wage is determined by how much a person with such characteristics is being paid in the industry for similar work in a given country, state, city. Usually, such characteristics should be limited to things like education and prior experience. In practice, they can include immigration status, nationality, current physical location, and other things that can be perceived as unfair. By how much employees' income will diverge from this baseline is determined by the bargaining power and bargaining skills. This includes anything that can convince the employer to pay more. For example, if you currently have a job you may be less desperate to get a new job, meaning you can refuse a bad job offer more easily. If your status in the country is uncertain and you can't work legally in the country, regardless of how educated or skilled you are, you don't have as much bargaining power and you can be paid four to five times less than a citizen. What I'm getting at is that in reality, employee's income is not determined by the product of labor he produces. It is determined by what similar others are being paid for similar work and bargaining. Usually, the lower bound is minimum wage and the upper bound is the company's income.
- konjin 6y ago
  >The wage employee will be paid is some baseline plus or minus how much the bargaining power employee has. Given that corporations have been happy to work people to death, that baseline is zero.
momokoko 6y ago
We should also remember that the dual mandate of the federal reserve in the US targets an unemployment rate of 4%. This means that low skill workers will never have negotiating power. Not due to laws of economics but by US government policy. I’m not here to argue about whether that is the right choice. Or debate about what the target inflation rate should be etc. But if the US government is going to intentionally maintain a minimum scarcity level of employment options for low skilled workers, it is only reasonable that the US government enact policies that protect these low skilled workers on the other side.
anonytrary 6y ago
> ...companies have more power in negotiation... Workers can't usually live too much without finding a job... That's why minimum wage laws and workers rights are important. Is this true? Do you agree that reducing the minimum wage would open up more jobs that couldn't previously exist, and increasing it would close existing jobs? For example, if I want to start a lemonade stand that serves my entire neighborhood, I'm gonna need help. If I have to pay the help $50/hr at minimum, then I will probably not open the lemonade stand. I think in this case it is obvious that too high of a minimum wage can result in a suboptimal outcome. The next best solution is to enter an informal agreement with my worker, which is an even worse outcome because now no one is protected.
pdonis 6y ago
> a worker is paid his “marginal product of labour”, which means the value of what he produces The marginal value of what he produces. Which means that if there is a minimum wage in effect, the employer might be forced to pay the worker more than the marginal value of what he produces. Which in practice means that employer starts looking for ways to eliminate that job, since it costs more than it is worth. If employers do not do that in the presence of minimum wage laws, it simply means the laws are having zero effect because the minimum wage is below the free market equilibrium wage for that job anyway. > The labor market is not a free market It is if there are no laws fixing prices, i.e., no minimum wage laws. None of the things you list prevent a market from being a free market. A free market is not a market where everyone has equal negotiating power, equal information, or equal ability to deal with some good or service not being available. A free market is a market in which all transactions are voluntary--i.e., a transaction happens only if both parties believe that that transaction, at that price, will make them better off. Any third party dictating the terms of transactions--of which minimum wage laws are just one of many examples--makes the market a non-free market. The fact that the third party believes that it is "improving" something doesn't change the economic fact that it is forcing the market to not be free, and therefore making the market less efficient. > Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker In a free market, they can't, because their competitors will be willing to pay more for workers that are worth more in terms of productivity. Tech companies are good examples: they are willing to pay a high premium for workers that can create a lot of value by writing good code and more generally doing good, reliable software engineering. Companies that try to pay less for such workers simply don't get them. > The only way to counter that push is by giving more power to the worker No, that doesn't counter anything, because "the worker" is not one person and does not have one interest. The best way to help workers is to raise their productivity, so that the work they do is worth more and can command higher wages. But really, even that misstates it, because it treats the workers as though they weren't capable of raising their own productivity if given the opportunity, and need "help" in doing so. Which is the big problem with all the grand schemes to "help the worker": it's people with no skin in the game themselves trying to dictate to everyone else how they should play.
martin_bech 6y ago
We dont have a minimum wage here in Denmark, yet fastfood workers get: 18usd an hour, 5 weeks paid vacation, maternity leave, pto for childs 1st sick day, 8% on top of sallary towards personal pension plan.
- bjelkeman-again 6y ago
  We have something similar in Sweden. Instead we have well established unions and negotiations that set salaries that even companies that aren’t formally part of the negotiation process follow. These are called collective agreements. “In Sweden about 90 per cent of all employees are covered by collective agreements, in the private sector 83 per cent (2017). Collective agreements usually contain provisions concerning minimum wages. Sweden does not have statutory regulation of minimum wages or legislation on extension of collective agreements to unorganized employers.” https://en.wikipedia.org/wiki/Collective_agreement#Sweden https://en.wikipedia.org/wiki/Collective_agreement#Sweden
neilwilson 6y ago
"That's why minimum wage laws and workers rights are important. " But ultimately pointless when there are insufficient jobs - which there always are since "inflation targeting" ensures there always will be. The actual problem is that there are 20 dogs and 19 bones. What we need is a Federal Job Guarantee. An alternative job that everybody has a right to access paying the living wage. Then simple competition sorts the rest out. The task of the private sector is to eliminate all jobs and replace them with automated capital. Once there is a job alternative in place, we can let the private sector get on with that task.
Beldin 6y ago
> Companies will always push for lower wages wherever they can Except for executive compensation. There they very often actively push for more compensation.
Wolfenstein98k 6y ago
"Free market" doesn't mean the parties have equal bargaining power (no two parties in the world do). It means that the parties are free to bargain directly with one another, without a third party (i.e. government) injecting the interests of those not party to the bargain. A free market allows a farmer to trade barley with a buyer from another nation - an unfree market sees the government(s) disallow this due to protectionist policies lobbied for by unrelated farmers who benefit from decreased competition.
mcv 6y ago
I think we might be able to do without a minimum wage if we had a livable basic income. If people can afford to say no to a job, I think the negotiation balance will be much improved, and the labour market might become a lot more free. How high a basic income would have to be for this to happen, I don't know. But I think with sufficient BI, crappy jobs will have to pay a lot more to attract people, whereas fun, interesting jobs might have more employees competing for them. That would be the sign of a healthy free market at work, I think.
robk 6y ago
Or governments - see the NHS as an example on low doctor pay
rrrrrrrrrrrryan 6y ago
> The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies. The only way? You don't think unions can give more power to the worker?
- gjulianm 6y ago
  You need regulations and subsidies to protect and make unions effective...
  - rrrrrrrrrrrryan 6y ago
    Yeah, that's fair.

throwawaysea 6y ago

You're redefining what a 'free market' means. If one side has a greater need or desire, that is still within the bounds of what a free market is. The market creates incentives and disincentives to fulfill different market demands, by creating an incentive to supply what's in demand (by paying more) and a disincentive to supply what we don't need more of (by paying less).

gjulianm 6y ago
Not a greater need or desire, but a fundamental need. It's an important distinction. In a perfect market, if the only offers to buy a product are too low, you will stop production and close the company because you can't make a profit. In the labor market, if the salaries are too low, people will still take the jobs because low income is better than zero income.

bcrosby95 6y ago

Also, do textbooks actually say that? Because it seems trivially false: if a worker is actually paid that, then there's no money left for investors.

deleted 6y ago
[deleted]
oivey 6y ago
It’s also obviously untrue given the fact that wages in the US have stagnated while productivity has continued to grow. That’s despite a floor on wages.
- colinmhayes 6y ago
  No it's not obviously untrue. Productivity growth has been driven by capital, not labor.
  - e12e 6y ago
    > Productivity growth has been driven by capital, not labor. What does capital produce?
  - sudosysgen 6y ago
    What produces capital?
  - Fargren 6y ago
    If I dig one hole a day with my hands and ten holes a day with a shovel, I still dug the nine extra holes even if I don't own the shovel.
    - AnimalMuppet 6y ago
      I believe that colinmhayes' point is that you dug the extra nine holes because there was a shovel, not because you got better at digging holes with your hands. The productivity gain was because a shovel was being used. It didn't matter who owned the shovel, it mattered that you were digging with one. But that's not completely true, because a person who only knows how to dig with their hands still only digs one hole a day, even if there's a shovel just lying there. Knowing how to use the tools does in fact make you a more productive worker. It seems to me, then, that part of the gain from the productivity from better tools should go to the worker who knows how to use the tools. And part should go to the person who bought the tools.

danenania 6y ago

Right, many minimum wage opponents focus on the scenario where someone is worth e.g. $14/hr to a business, and rightly point out that this person won't be hired with a $15/hr min wage. BUT without a minimum wage, someone worth $50/hr can be paid $5/hr if anyone can do the job. It strikes me that this situation is far more common than the first scenario, and minimum wage opponents tend to ignore it in their arguments. Minimum wage sets a floor for the market. That could theoretically increase unemployment in some industries with razor thin margins, but it's far from a given.

prostoalex 6y ago
> someone worth $50/hr can be paid $5/hr if anyone can do the job What business sectors enjoy consistent 90% gross margins?
- danenania 6y ago
  That's not the right question to ask, since many other costs besides labor figure into gross margins.
  - prostoalex 6y ago
    What formula then is used in calculating “someone worth $50/hr“? Does it omit or include those costs?
    - danenania 6y ago
      It's not always easy to quantify. Consider people like janitors or security guards. They may be absolutely critical to the business running even though they don't produce revenue directly. Even if minimum wage was set to $100/hr for these jobs, it would still be worth it for many companies to hire them, since producing any revenue could be contingent on having people in those positions. At the same time, they are very competitive labor markets, so without a floor, the pay could go very low despite being essential to the business. When someone is directly contributing to revenue, like a factory worker or salesperson, it's a bit simpler since you can look at their output, but you still need more information than gross margin to know the maximum a company could profitably pay an employee, since a company might design their operations very differently depending on the price of labor.

strbean 6y ago

> companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time This will be the case as long as we have monetary policy based on the idea that "100% employment is the apocalypse". It seems like it is accepted as fact that 100% employment would lead to hyperinflation, despite the fact that this has never occurred. It is a totally untested theory that is suspiciously convenient for employers and shitty for workers.

dannyw 6y ago
Monetary policy is to benefit the owners; not the workers. 100% employment will drive wage growth as demand exceeds supply. That’s not good for the stock market.
- pratik661 6y ago
  Source? That is an extraordinarily broad statement to make. Central Banks' (the primary institutions behind monetary policy) primary goal is to promote a stable environment for commerce. This typically means maintaining a stable rate of inflation (2-4% for mature economies, 4-7% for frontier economies). This often requires performing a balancing act between managing unemployment and inflation. We have PLENTY of evidence to suggest that inflation is harmful for everyone, ESPECIALLY for low income workers. The stock market usually has ZERO consideration in the decisions central bankers typically make.
  - lotsofpulp 6y ago
    Whatever their goal is, the execution obviously benefits owners of capital disproportionately more than sellers of labor. If economic growth is more than the interest rate, the owners pocket the difference. If economic growth is less than the interest rate, the owners get bailed out. But in all cases, growth for the sellers of labor always lag the growth for the owners of capital.
  - aNoob7000 6y ago
    The Federal Reserve has been trying to get inflation above 2% consistently for over 10 years. What are the chances that they get that even now with rates at zero? Also, I would disagree with you about the Federal Reserve not targeting the stock market or other assets. Anytime in the past couple of years that the stock market in the USA has dropped roughly 10-15%, the Federal Reserve has jumped in dropped rates. They might say the don't target the market, but in reality that is what they are doing. I think biggest issue in the future will be how will the Federal Reserve ever raise rates. They can't even go above 2.5% without the market collapsing.

missedthecue 6y ago

A free market does not mean that both sides want something with equal desire. I need food to survive much more than Krogers needs my business to survive. This does not mean that grocery sales are not a free market. A free market means that the supply and demand of goods rely on price signals rather than a centralized planner. Labour is absolutely a free market. As wages in one particular area increase, people respond to that price signal by learning the relevant skills and working in that field and getting greater salaries. It's also why Amazon (and essentially no business) pay $7.25 an hour, even though they legally could.

gjulianm 6y ago
> I need food to survive much more than Krogers needs my business to survive Yes, but you can buy from anywhere other than Krogers and the cost of switching is almost negligible. A job is very, very different in that regard. Responding to your edit: > As wages in one particular area increase, people respond to that price signal by learning the relevant skills and working in that field and getting greater salaries. Learning the relevant skills costs time and money. If your wage is too low, you won't be able to learn new skills. And moving and changing jobs is not that easy for most people.
- missedthecue 6y ago
  Yes, but you can buy from anywhere other than Krogers and the cost of switching is almost negligible. A job is very, very different in that regard. It doesn't matter who I buy from, I need food much more than any retailer needs my business. I can sell my labour to many different companies with a relatively low switching cost. The average time people between jobs is lower than it has ever been. Learning the relevant skills costs time and money. If your wage is too low, you won't be able to learn new skills. And moving and changing jobs is not that easy for most people. If the price of steel increased, building new mines to extract iron ore would cost great sums of money as well. It is not easy for all mining companies to do this. It doesn't mean that the market is not relying on price signals to coordinate the production of goods.
  - 6y ago

deegles 6y ago

I think it makes sense to get rid of a minimum wage requirement after universal healthcare and a basic income is implemented. Capitalists whine that the free market should be allowed to play itself out, but conveniently forget that labor is not a free market as is mentioned above.

prostoalex 6y ago

> That's why minimum wage laws and workers rights are important. How do you translate that into numbers? If $15/hr is better than $14/hr, wouldn’t $150/hr be 10x better, and if so, what’s wrong with a comfortable $1,500/hr? I think that’s where economists start to differ.

yarrel 6y ago
How much should workers pay their employers for being able to work, since working is a benefit? We can differ reasonably about how much, surely. A minimum wage is not set in a vacuum, and high numbers that ignore this fact do not illustrate anything useful.
bitdotdash 6y ago
Slippery slope / Straw-man fallacy. One is to do with tying the minimum wage to a livable wage. The other is just large numbers for the sake of trying to win an argument. No one is arguing for $150/hr. The argument is simply that you aught not to be able to run a business and extract a profit if the cost to do so is employing people at such a low wage that they require governmental handouts just to pay rent and eat food. Given that, imaginary large numbers like $150/hr or $1500/hr do not come into play and thus do not need to be considered.
- mrkstu 6y ago
  That is still better for society than not having the economic activity. What exactly is the benefit of wholly depriving the putative worker of a job vs. making up the difference with something like food stamps and Medicaid?
- OCASM 6y ago
  They don't need the handouts. They could for example live in communal spaces and share resources. What exactly is "livable" anyways? Millions of people live every day with only a couple of dollars a day.
  - RockIslandLine 6y ago

ccffpphh 6y ago

The issue is that nobody is entitled to anything. You aren't de facto entitled to receiving money for any services you may or may not provide, regardless of whether you're skilled or not, just because you exist. A company exists because one or more people risked wealth in order to create a net positive system - their existence is not as riskless as one would believe.

throwaway2048 6y ago
I think we as a society can do better than whinging about how "entitled" people are for wanting to work for livable wages.
abdullahkhalids 6y ago
Universal Declaration of Human Rights Article 3 Everyone has the right to life, liberty and the security of person. Article 22 Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality. Article 23 1. Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment. 2. Everyone, without any discrimination, has the right to equal pay for equal work. 3. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. 4. Everyone has the right to form and to join trade unions for the protection of his interests. ------------ You can either give people unemployment (wage without work)[as per 22 or 23(3)] by taxing the companies you mention, or you can make the companies to give money directly to the people in return for work. There is no third way. You can't deprive people of a dignified life by ignoring them.
- javert 6y ago
  > Universal Declaration of Human Rights Well, I declare differently. Words are wind (unless backed up by an argument). > You can't deprive people of a dignified life by ignoring them. Ignoring someone is not depriving them of anything. Sacrificing some people for the sake of other people--what you are advocating--deprives both groups of a dignified life. Human sacrifice is utterly barbaric and would be outlawed in a truly civilized society.

abvdasker 6y ago

The Marxist perspective is that the employer is incentivized to pay as little as possible to extract the maximum amount of value from the person's labor, realizing the difference as profit (even though crucially that value was created by the worker). An example of this would be software engineers at companies like Apple and Google, whose labor has been shown to produce several times the value of their compensation. Unions and worker cooperatives are meant to counterbalance these forces by giving workers more negotiating power in the case of the former, or aligning the profit motive with employee compensation for the latter.

cmrdporcupine 6y ago
I think it's more correct to say that the Marxist (well, labour theory of value) perspective is not that the employer is incentivized as such, but they _have_ to. That the capitalist market _requires_ it or it doesn't work, business won't survive. It's intrinsic to the profit / wage-labour model, even if you switch to something like cooperatives or state ownership. The theory is that surplus value (which can become profit, or be reinvested, etc) exists only through paying the worker less (on aggregate) than the aggregate amount that the worker provides through their labour. The mainstream economics answer to this is to say that the labour theory of value is bunk and that prices are defined purely by market forces. But this kind of misses the bigger picture of what Marx was getting at rather by getting lost in the weeds about price definitions and really is a critique of Ricardo more than Marx. Despite using the term "exploitation" which has moral overtones in English, Marx really isn't casting a moral judgement here. It's a technical description. But he does believe that this phenomenon leads to structural inequality and injustice and that the only resolution is some other kind of property ownership or method of production. Though he was famously vague on what that alternative would be, and people far less intelligent than him were left to fill in the blanks with some rather awful alternatives.
- abvdasker 6y ago
  Thank you for the more precise definition. Broadly I think Hacker News could use a little more discussion of Marx, which is why I brought it up.

LoSboccacc 6y ago

> Workers can't usually live too much without finding a job. > Companies will always push for lower wages wherever they can but it's not just megacorp tho. minimum wage will lower employment from small business significantly; i.e. small shop owner will get by with one less garcon to pay the other one more. and if you think that can be resolved just by ample unemployment benefits, look no further than the Dublin heroin epidemic. maybe two tier of minimum hourly wage + progressive hour cap could work: x$/month minimum wage for part time capped at 20 hour/week, x+50%/month for full time workers. but it's a thorny issue where in the fight between drones and megacorp it's easy to incur in collateral damage around the middle.

monocasa 6y ago
Who are these mom and pops that are hiring extraneous workers? If they can get rid of a position, they probably already have.
- kube-system 6y ago
  They're out there. Mom-and-pops are not known for their efficiency. I've known some that hire people as a favor to friends/family/community. ("hey, my kid needs a summer job, do you have a job for them?") Heck, there are entire mom-and-pop shops that exist not as a serious income stream, but as a hobby. If you're running a business with <5 people, hiring an 'unnecessary' person could just be a luxury so that the business owner can take a vacation or get an extra hour of sleep... and when times are tough, they forego that luxury. These are probably not a significant part of the overarching discussion here, though.
  - monocasa 6y ago
    I've seen "my kid needs a summer job" way more at medium size $100m/yr revenue companies where that can be hidden in the budget easier, and you can get a kickback for internships if you play your cards right as one of those companies. And it is relevant, because there's a lot of data that there is no negative effect on employment elasticity, but there is significant publication bias in the field. And what always gets brought out is the argument that "businesses will start letting extra people go". They already do that even without minimum wage increases.

throwaway894345 6y ago

> A lot of economic arguments forget these ideas. The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job. I'm generally in favor of stronger job protections and so on, but I'm not aware of any definition of "free market" which supposes that all players have equal leverage. As I understand it, an economy with powerful corporations and relatively weak workers could still satisfy the definition for 'free market'; in other words, power dynamics are orthogonal to market freedom.

fsckboy 6y ago
> I'm not aware of any definition of "free market" which supposes that all players have equal leverage. bog standard microeconomics 101 uses as an assumption that no player can thru individual choices affect prices in the market, i.e. all players do have equal leverage, zero. "free market" has more than one usage, but economics's conclusions are valid only if the assumptions are met.
- throwaway894345 6y ago
  Fair enough; we're using 'leverage' differently. I didn't realize it had a formal economic definition. Never the less, my point stands: that employers can afford to wait for a given worker's labor prices to come down to the market price for their labor is affirmative evidence that the labor market is free whereas the OP considers this evidence that the labor market is unfree.
  - avmich 6y ago
    Unpacking this: > employers can afford to wait for a given worker's labor prices to come down So employers can wait. > is affirmative evidence that the labor market is free For employers. > whereas the OP considers this evidence that the labor market is unfree For employees - they can't wait (that much), see above.

david38 6y ago

Minimum wage, applied universally, absolutely validates worth of a worker. If the minimum wage is set too high to plant grapes for example, grapes will not be grown. $15/h too high to flip burgers? Ok, I guess we don’t need fast food. Oh wait. Except it somehow doesn’t put the corps out of business.

nickff 6y ago
Most arguments against minimum wages are not concerned with the impact on businesses, they are concerned with the impact on low-skill workers, inexperienced workers, and unusual workers (i.e. individuals with restricted schedules, or issues communicating).
sushshshsh 6y ago
We are already seeing Flippy the burger flipping robot taking over jobs originally meant for humans. The technology for Flippy is only getting cheaper and better, the quality of human labor is already at its most optimal point and is only getting more expensive due to laws passed. Now, you could make Flippy the robot illegal, and maybe x number of businesses would eat the cost of the more expensive workers. But something else will suffer as a result, and I would argue it would involve price, efficiency, quality, and compliance...
- entropicdrifter 6y ago
  Or you could make an automation tax and use it to fund UBI
  - Stupulous 6y ago
    You could only use it to help fund UBI, unless UBI is significantly less than minimum wage. If the price of buying the robot and running it plus automation tax exceeds what you would spend on employing people at minimum wage, businesses would just keep employing people.
    - chc 6y ago

tastyfreeze 6y ago

It is not the role of government to set prices of labor or products. If a company wants to pay less than market rate for labor they will find themselves without employees. By letting the market dictate the price of labor, wages certainly fall from the artifically high price now. But, that is the result of people willingly entering a contract for the lower pay. People choosing to work for some money instead of no money. People choosing to work to improve their lives instead of being supported by welfare. Minimum wage removes the choice. Minimum wage infringes on your freedom of contract.

nakedlunch 6y ago
Is the freedom to accept a contract for poverty wages to avoid starvation a desirable feature in our society?
- jlawson 6y ago
  Since we have a social safety net, nobody needs to do such to 'avoid starvation' so the question makes no sense.
- flyingfences 6y ago
  Is the alternative - a total absence of contracts offered to those people - a desirable feature in our society?
- tastyfreeze 6y ago
  If labor costs less products as a result cost less. How do you reconcile your view with the success of Singapore? A country with no minimum wage and a comparatively free market. There is income disparity in every time and every place. The question to ask is do the rules of the game allow anybody to succeed. Minimum wage is a rule that says some people just don't get to play.
  - gjulianm 6y ago
    > How do you reconcile your view with the success of Singapore? A country general success does not equal the success of its poor people. There are not many income inequality stats of Singapore, but the ones I've seen [1] actually put Singapore with a similar income inequality to the US. Furthermore, it is a small country (5M people) with a pretty high GDP per capita (8th in the world). I don't think you can extract too many conclusions that would be applicable to other, bigger countries. > The question to ask is do the rules of the game allow anybody to succeed. Minimum wage is a rule that says some people just don't get to play. And without a livable minimum wage, you'll get people that are working full time for peanuts. They won't be able to save, get healthcare, provide their kids with good education, etc. Are those people succeeding? 1: https://en.wikipedia.org/wiki/List_of_countries_by_income_equality https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...

changoplatanero 6y ago

the firms in the market are competing against each other and that's what drives up the wages. it's not so much about the relative power between the employee and the employer

hankchinaski 6y ago

high regulation and subsidies effectively make ‘doing business‘ a nightmare. the real question is: who are the value creators? how can you reward everyone appropriately based on how much value they create and how much risk they incur whilst keeping an healthy base level (minimum wage) for those who don’t? i think the answer is in the middle. too much regulation is harmful for businesses which are ultimately the risk takers and the value creators in our economies

AnthonyMouse 6y ago

> companies have more power in negotiation, they have more information You're just asserting this without any argument or evidence. > and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job. Workers don't specifically need a job at that company. Even if they need a job, they can go work somewhere else. And if that isn't the case, you have bigger problems than minimum wage. > The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies. Even if you want to do this, it still makes minimum wage a ridiculous policy, because it harms the same workers it's purporting to help. The ones who work for companies that can absorb the cost get more, but the others lose their jobs. When there are policies that do only one and not the other (e.g. UBI), there can be no justification for the one that does the bad thing in exchange for no relative advantage.

AlexandrB 6y ago
> You're just asserting this without any argument or evidence. This is ridiculous. If I assert that the sky is blue, I don't think I need to provide a list of sources. Under what possible circumstances does the average individual have more negotiating power or more information than a multinational organization with teams of lawyers, an HR department, and access to labour market research? Edit: To add, when we talk about minimum wage jobs we're usually talking about low-skilled labor. Please explain how a ditch-digger can have negotiating leverage over the average road construction company?
- AnthonyMouse 6y ago
  > Under what possible circumstances does the average individual have more negotiating power or more information than a multinational organization with teams of lawyers, an HR department, and access to labour market research? You're assuming a level of competence for corporate HR departments that isn't in evidence. What do you think they have that you can't get from Glassdoor or similar? Not much, if anything. > Please explain how a ditch-digger can have negotiating leverage over the average road construction company? By taking a job at some other ditch-digging company, or Walmart, or Uber, or anywhere else, until one company offers a better wage than the other. For commodity positions it's not even really a negotiation for either party -- everybody on both sides knows what ditch diggers get paid, the employers offer that much and the employees accept that much because anybody who offered less or demanded more wouldn't find any takers. Which is also why there can't be any meaningful information asymmetry -- when everybody knows the prevailing wage for that category of work, there is nothing else you really need to know in terms of wage negotiations.

unfortun8 6y ago

Irony is Adam Smith only brings up markets in terms of a free labor market. Labor must be free to move among opportunities. Fearing that extreme division of labor would make a person a limited thinking tune easily swayed by corrupt political intentions. Amazing how 200+ years ago, and even more if you lump Plato & Aristotle’s awareness of human behavior, how true much of their concerns still apply. It’s almost as if humans haven’t evolved much socially, we haven’t escaped the same theme. We’ve merely improved the world around us.

opportune 6y ago

That entire excerpt is bollocks. I seem to recall a pretty influential treatise explaining how wages tend towards the exchange-value of the labor to produce a good, not the use value or even marginal exchange value of the good itself.

bgorman 6y ago

Your chain of causality is actually completely wrong. At 15 dollars an hour only a few companies can hire unskilled workers. At 1 dollar an hour many people can pay workers that amount, so there is more competition out there for wages. The idea that there is a monopolistic employer in the US labor market is laughable. Even for monopolistic industries like telecom there are multiple options. Minimum wage jobs should not be expected to be a long term viable career choice. Minimum wage jobs are a way for people to get their first experience, and then move one once they have gained valuable skills. People like to twist reality by imposing arbitrary constraints e.g. workers need to be able to get paid 15 dollars an hour without needing to relocate or learn new skills. The world isn't a charity, and anyone disputing that price floors don't result in shortages is frankly uneducated.

gjulianm 6y ago
> Your chain of causality is actually completely wrong. At 15 dollars an hour only a few companies can hire unskilled workers. At 1 dollar an hour many people can pay workers that amount, so there is more competition out there for wages. That theory is good if there's a surplus of job offers, something that doesn't happen outside of very specific sectors. Moreover, your argument assumes that changing jobs is easy and risk-free, when in reality it's not, specially for unskilled workers. > Minimum wage jobs should not be expected to be a long term viable career choice. Why not? Of course it's not the optimal career choice, but why wouldn't one be able to live off a full-time job? > Minimum wage jobs are a way for people to get their first experience, and then move one once they have gained valuable skills. Yeah, the "serving fast food" skill that is so demanded in the current job market. > workers need to be able to get paid 15 dollars an hour without needing to relocate or learn new skills If you don't get paid a livable wage, you can't save for moving and/or changing jobs, and it will be far harder to pay and/or have time for further education. Non-livable wages just lock people into poverty. When the alternative is losing your house, or your healthcare, or starving, people will be forced to make non-optimal long-term decisions because it's their only option.
- dragonwriter 6y ago
  > Non-livable wages just lock people into poverty. No, non-livable income does that. Relying on wages to solve that relegates people to a permanent underclass if they ever experience more than brief unemployment.

cactus2093 6y ago

> The only way to counter that push is by giving more power to the worker, and in low-skilled fields with lots of available workers, you need to do that through regulations and subsidies. Even assuming everything else you've said is true, that's quite the leap to make. And also quite the oversimplification. There are lots of regulations and subsidies that have been tried where the unintended consequences end up negating most of the benefits, and just turn out to make the entrenched powers even more entrenched and wealthy. Plus there are ideas like UBI that don't fit neatly into the traditional buckets of "regulations and subsidies" and could be another (better?) way to give workers more leverage.

gjulianm 6y ago
Of course actual policy is difficult, and complex. UBI or guaranteed income would seem to be the better way to give workers more leverage, but for that one needs to accept that we indeed need to give workers more leverage. You'll see in this thread a lot of people arguing that less regulation will somehow lead to better wages, when in reality that will only increase the power imbalance between workers and businesses and push wages lower.

abstractbarista 6y ago

It's just not as simple as "companies have more power in negotiation". At times, it can be. But usually, it is a more complex interaction.

oneplane 6y ago

Minimum wage is not just important for the employer-employee relation, but also in society as a baseline of survivability. If you work a 100% of your time (so no sleep, no rest) and still cannot afford basic requirements for life then I'd argue that a minimum wage is the only way to guarantee that someone working about 8 hours a day can live. If a normal workday cannot pay for a baseline life, the system is simply wrong.

WalterBright 6y ago

> The labor market is not a free market If it is as you say the employer has all the power, then nobody would have a job at more than minimum wage.

wdn 6y ago

The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept. When you find a better offer, you go to the better offer. As for minimum wage, it is hurting the unskilled workers, like high school students, college students who are looking for experience. If you are stuck in a minimum wage job, then this is what the market is paying for your skill set. If you think you worth more, then proof it, don't blame the system. When I was in high school, I was working in an unpaid internship to get some experiences. I don't know if there is any unpaid internship now or if it is even legal now.

anoraca 6y ago
Unpaid internships are definitely still a thing, and they are yet another way that privileged people have an advantage in society. Not many people can afford to work for free unless they have family wealth to support them, or are willing to go into large amounts of debt. Unpaid internships should probably be illegal to make things more fair.
nucleardog 6y ago
>> The labor market is not a free market: companies have more power in negotiation, they have more information and, most important of all, they can deal with a job opening not being covered most of the time. Workers can't usually live too much without finding a job. > The labor market is a free market. If you don't agree the employer offer is fair, you don't have to accept. You disagreed with him while not actually addressing his point at all. Care to elaborate how you think he's wrong here?
- jsmith99 6y ago
  They are arguing about semantics. The labour market is a free market but not a totally efficient market as some participants use their power over demand or supply (huge corporations, unions) to drive different outcomes to a perfectly competitive market where all participants are price-takers.
Broken_Hippo 6y ago
Unlike, say, buying a game, most folks can't just decide not to work. If you need to eat, pay rent, child support, need health insurance, or a slew of other things - you can't say no. You must work. Period. The safety net isn't good enough not to take that minimum wage job, especially if you are a childless adult. The only real thing keeping you from being paid less is minimum wage, and that's there because companies aren't fair about hiring practices. The only reason you were able to work an unpaid internship is because your family not only didn't need you to work, but they also didn't need you to watch younger siblings in your free time. To top it all off, that was offered to you - this isn't a thing most folks can do. Not to mention that unpaid internships are often slavery under a different name. If someone wants to give someone experience or train someone, they should pay. I wish people would quit acting like the market is fair by any means or like people have a real choice in working. Neither of these things are true with the labor market.

macspoofing 6y ago

Where are you getting all this stuff from? It's like you're only reading communist blogs where they engage in creating fictitious straw-men of every aspect of a market-based economy. This is not how the world works. >The labor market is not a free market: companies have more power in negotiation That's not what a free market means. And I don't know how you can say companies have more power in negotiation. They post their rates, and people apply or they don't. There are millions of alternative jobs. If I sell my car, I post the price and if I don't like the offer, I don't take it. Are you claiming that this is not an aspect of the free market? A friend of mine is a shift supervisor at a food supplier. He uses a staffing agency to augment their full-time workforce during busy seasons. The company he works for pays above minimum wage (and so does the staffing agency even after commission). If he calls in 10 people, maybe 6 will come in and 2 will leave mid-shift (and those 10 are those that accepted the job). If he calls people in on Saturday, those ratios are even worse. He offers full-time positions to agency workers he likes and gets denied often because those workers may actually prefer the flexibility of agency work (e.g. they can choose to work this week, but not next week). There are wages that people will just not work for. Even if minimum wage laws were lifted, people aren't going to go work at MacDonald's for $1/hr. Talk to any small business owner and hear what they have to say about that. And you also see this will undocumented labour (i.e. where minimum wage regulations are ignored). Those laborers may be getting less than minimum wage (but even that isn't a sure thing, when factoring in the type of job - skilled or unskilled - and lack of taxes), but they certainly aren't getting paid pennies either. >Workers can't usually live too much without finding a job. Sure they can. What are you talking about? Tens of millions of people, for all kinds of reasons, either choose not to work, or choose to work part-time.

B4CKlash 6y ago
Ironic that you complain about the parent maintaining a particular set of ideology while maintaining a similar set of irrational beliefs... Just looking at your first point. Companies wield an extreme asymmetric information advantage about 'your' specific hiring cohort. They know who has applied to the job, the size, relative experience, and in many cases they know the expected salary range of those individuals. They know the explicit and implicit cost of their benefits on an actuarial scale - costs potential-employee will never know. They have a firm understanding of their actual needs and a higher degree of flexibility. Like other comments have concluded - it's easier for an organization to fold tasks into other jobs. Employees, especially when you consider health insurance (and that of a family) is tied into these decisions. In today’s model potential employees are required to negotiate with themselves (as a result of being unaware of the qualifications, expected incoming, etc. of the pool). We wonder why salaries remain stagnant... If you look at CEO pay as a counterexample it becomes obvious. It's not about adding or demonstrating value, it's about extracting value and an understanding of your ability to extract value. CEO compensation is a published number in public companies. "High CEO pay reflects economic rents—concessions CEOs can draw from the economy not by virtue of their contribution to economic output but by virtue of their position." https://www.epi.org/publication/ceo-compensation-2018/ https://www.epi.org/publication/ceo-compensation-2018/

lawnchair_larry 6y ago

But that is theory. It might be true, it might not, but it’s irrelevant. Many “protections” and well-intentioned policies fail to accomplish the expected outcome, and we routinely forget to judge them based on their results rather than their intentions.

Certhas 6y ago

Universal Basic Income would also help with this problem.

shirakawasuna 6y ago
If you're interested in UBI, you may also be interested in UBS, universal basic services. UBI is potentially weak to things like increases in the cost of living and inflation, whereas UBS at least ensures that we must always face a semantic justification of what counts as meeting a service requirement, such as housing, food, etc. They are not mutually exclusive, either. https://universalbasicservices.org/ https://universalbasicservices.org/

aeternum 6y ago

I believe you could make the labor market much more competitive with one simple and easy to implement change: Make it a requirement that companies publish salaries. We did this with CEO pay and it resulted in huge increases in CEO pay because it removed the information asymmetry. We make companies disclose important safety and nutrition information to the public so consumers can make good decisions about purchases, why not enable people to make good decisions about employers as well?

least 6y ago

Minimum wage laws aren't important. Forcing companies to classify freelancers as employees or gig workers as employees is harmful and leads to less work available. If you want to meaningfully create leverage for laborers, you need to ensure their livelihood is not dependent on being employed. A negative income tax or some other form of UBI would serve better to accomplish this goal. On the flipside, providing all the basic needs of living to someone can potentially lead to a large drop in labor supply and create its own problems.

collyw 6y ago

Thomas Sowell makes quite a convincing argument that minimum wages stop people getting onto the bottom rung if the employment ladder. He convinced me to an extent, in that it can be useful for young people starting out and small companies that couldn't otherwise afford staff. But I do think it need to be balanced with some checks to stop it being exploited by companies who can afford it.

aidenn0 6y ago

>> Textbooks state that, in the absence of a minimum wage, a worker is paid his “marginal product of labour”, which means the value of what he produces. This sentence is just wrong. First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit. Textbooks actually say that a worker will be paid no more than the marginal product of labor, and if labor is in short supply, they will be paid very close to their marginal product of labor. If there are a huge number of workers willing to work for $5/hr then workers won't tend to make even a penny more than this. Information asymmetry and differences in negotiating power will further distort this, but the initial premise is already a strawman of basic microeconomics.

deleted 6y ago
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rbanffy 6y ago
> First of all a rational actor will not intentionally pay a worker the value of their production; you get no profit. That's true for a single employee, but you don't need to make a profit out of every single employee. If you do, your CEO will be extremely underpaid in relation to the rest of the market.
- aidenn0 6y ago
  I am willing to work as the CEO of Walmart for say $750k per year. The fact that I don't work there means that either: 1. Voting Walmart shareholders think that the having Doug McMillon for $24M/year is a better deal than having me for $750k/year 2. Voting Walmart shareholders are unaware that reasonably intelligent people with no executive experience are willing to work for a lot less than McMillon. 3. There are other forces at play; e.g. CEOs as Veblen goods or good-old-fashioned corruption. Maybe the board members are also C level employees (at different companies) and they are colluding to keep the C level compensation high. #2 seems rather unlikely so pick one of #1 and #3. #1 Certainly does not contradict my use of intentionally, since they believe that McMillon
  - 6y ago

Romanulus 6y ago

Have you considered the converse of very larger companies that have a stranglehold on their market (like Walmart, perhaps) pushing for a higher minimum wage to stifle smaller businesses in the same domain? It seems like a viable tactic, though I will admit I have not looked into it much myself.

ChrisLomont 6y ago

>companies have more.... and >Workers can't usually live too much without finding a job. Conversely, most workers can go to a different job, and hiring is expensive, so companies cannot simply keep spending on hiring and get no workers, so companies must offer enough value to attract workers. Workers also have information companies do not - they know where else they might or are looking, they sometimes have competing offers in hand, and they can always not take a job based on these things. >Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker. Conversely, workers will always push for more wages wherever they can, without a care for the actual value they produce for their employer. And it's much easier for a worker to go elsewhere than it is for a company to replace all workers. Both sides have interest in getting a good balance on wages.

roenxi 6y ago

Hasn't the experience, considering Asia, been that the greatest benefit of free markets is for low-paid workers? I buy a lot of notionally 'American' products (iPhone, computer gear, electronics) that are all manufactured in Asia for cost reasons. A bunch of places have become extremely wealthy in the last century, basically creating a middle class out of poverty, through a strategy of cheap-wages-lots-of-manufacturing. Coincidentally, the greatest reductions in poverty are all in Asia. And one shudders to think what the Chinese could be achieving if their government was a bit more competent and left people alone to prosper. Is there evidence that the poor in America are prospering under high minimum wages? The stats I've seen suggested it is basically status-quo for the last 50 years. Minimum wage is a small part of the puzzle, granted, but it isn't necessary to generate absurd improvements in the general welfare.

ouid 6y ago

most of these problems can be solved by just giving everyone the right to say no to labor with a guaranteed poverty income. It's not enough money to live on comfortably, but it gives the labor negotiator a chance to walk away from a monopsonist.

bravo22 6y ago

Which is why instead of mispricing labour through minimum wage you can have a negative income tax which makes up the difference. The nice thing is that it will apply to everyone -- working or not, sick or not, on mat leave or not, can't work because of covid or not. You top-up people's income and that's paid for through taxes. You take the benefit of efficiency and productivity from the entire economy and return it to the people at the bottom. You don't have a right to a job, or a particular income. You have a right for society to not leave you dangling when in need. Your ability to get a job or have more income should be determined by market forces. Put a negative income tax in place and ensure a minimum level of funds for every citizen and see how quickly Amazon's treatment of its warehouse workers improve. Far more than any union could provide.

Retric 6y ago
Having a negative income tax is reasonable without removing minimum wage as they deal with different things. Removing the minimum wage is effectively a subsidy for companies and industry’s that would then pay below the old minimum wage. Considering how often people in the US make below minimum wage even when it’s illegal, it seems like a bad idea. Instead even higher minimum wages can be used to drive automation.
- zanny 6y ago
  I don't think a minimum wage is ethically justified in a minimum standard of living society unless that value in progress through automation is justified. The arguments for minimum wage are always to insure it provides a livable wage, but economists generally rightly dislike it for limiting labor opportunities to ones above that wage threshold. In the absence of a minimum standard of living you rightly should cling to minimum wage laws like the lifeboats they are for the working poor. Once participation is voluntary forfeiting minimum wages seems like a very promising bargaining chip against capital to get a negative income tax / UBI actually put into law. I think I'd rather see UBI / NIT and have progress towards the singularity slowed for lack of a high minimum wage to pressure automation than the status quo of extreme unhappiness and poverty (and the corresponding social unrest, drug abuse, crime, mental illness, physical ailment, etc). Of course if we can have our cake and eat it too that would be great... I'm just saying to leave the minimum wage on the bargaining table, insuring survival seems like the more important goal.

shirakawasuna 6y ago

If workers were paid the value of what they produce, there would be no profit, no payoff for investors / owners. Classic Economist, laundering in free market sociopathy through bad economics. If you're ever interested in taking a more removed perspective view of that particular magazine, take a look at their old articles. 1850s-60s (e.g., slavery). Late 1800s and early 1900s (labor rights). Nazi-related stuff.

FabHK 6y ago
> free market sociopathy > Nazi-related stuff I think today's Economist does not correspond to your caricature. FWIW, they've endorsed the Democrat candidate in 5 of the last 7 US presidential elections, and I'm confident that soon it'll be 6 out of 8.
- shirakawasuna 6y ago
  The free market sociopathy is still there, of course. Nazi Germany no longer exists so they can no longer rationalize doing business with it. They're doing the same things they've always done, just with modern issues. They'll be just as disgusting in hindsight for most people. A critical reading of them now will make it so that one doesn't have to wait. PS, you heard it there first: buy slave-made sugar.
tprice7 6y ago
"the value of what they produce, there would be no profit, no payoff for investors / owners" It depends if "the value of what they produce" means marginal output or average output. Due to the law of diminishing returns, typically average output is greater than marginal output. The theory predicts that wages = marginal output: if wages are less, you can increase profits by hiring more workers, if they are more, you can increase profits by laying people off. So it comes to an equilibrium where the marginal output matches market wages. Since this is less than average output, it is still possible to make a profit. I agree though that the article is being misleading here since "the value of what they produce" is an ambiguous term that should probably refer to average output rather than marginal output.

mr_toad 6y ago

How does a minimum wage help with asymmetrical negotiating power and information for the majority of the workforce? If this was the justification for the minimum wage (it almost never is), it’s a pretty ham-fisted solution.

zerof1l 6y ago

The wage employee will be paid is some baseline plus or minus how much the bargaining power employee has. The baseline wage is determined by how much a person with such characteristics is being paid in the industry for similar work in a given country, state, city. Usually, such characteristics should be limited to things like education and prior experience. In practice, they can include immigration status, nationality, current physical location, and other things that can be perceived as unfair. By how much employees' income will diverge from this baseline is determined by the bargaining power and bargaining skills. This includes anything that can convince the employer to pay more. For example, if you currently have a job you may be less desperate to get a new job, meaning you can refuse a bad job offer more easily. If your status in the country is uncertain and you can't work legally in the country, regardless of how educated or skilled you are, you don't have as much bargaining power and you can be paid four to five times less than a citizen. What I'm getting at is that in reality, employee's income is not determined by the product of labor he produces. It is determined by what similar others are being paid for similar work and bargaining. Usually, the lower bound is minimum wage and the upper bound is the company's income.

konjin 6y ago
>The wage employee will be paid is some baseline plus or minus how much the bargaining power employee has. Given that corporations have been happy to work people to death, that baseline is zero.

momokoko 6y ago

We should also remember that the dual mandate of the federal reserve in the US targets an unemployment rate of 4%. This means that low skill workers will never have negotiating power. Not due to laws of economics but by US government policy. I’m not here to argue about whether that is the right choice. Or debate about what the target inflation rate should be etc. But if the US government is going to intentionally maintain a minimum scarcity level of employment options for low skilled workers, it is only reasonable that the US government enact policies that protect these low skilled workers on the other side.

anonytrary 6y ago

> ...companies have more power in negotiation... Workers can't usually live too much without finding a job... That's why minimum wage laws and workers rights are important. Is this true? Do you agree that reducing the minimum wage would open up more jobs that couldn't previously exist, and increasing it would close existing jobs? For example, if I want to start a lemonade stand that serves my entire neighborhood, I'm gonna need help. If I have to pay the help $50/hr at minimum, then I will probably not open the lemonade stand. I think in this case it is obvious that too high of a minimum wage can result in a suboptimal outcome. The next best solution is to enter an informal agreement with my worker, which is an even worse outcome because now no one is protected.

pdonis 6y ago

> a worker is paid his “marginal product of labour”, which means the value of what he produces The marginal value of what he produces. Which means that if there is a minimum wage in effect, the employer might be forced to pay the worker more than the marginal value of what he produces. Which in practice means that employer starts looking for ways to eliminate that job, since it costs more than it is worth. If employers do not do that in the presence of minimum wage laws, it simply means the laws are having zero effect because the minimum wage is below the free market equilibrium wage for that job anyway. > The labor market is not a free market It is if there are no laws fixing prices, i.e., no minimum wage laws. None of the things you list prevent a market from being a free market. A free market is not a market where everyone has equal negotiating power, equal information, or equal ability to deal with some good or service not being available. A free market is a market in which all transactions are voluntary--i.e., a transaction happens only if both parties believe that that transaction, at that price, will make them better off. Any third party dictating the terms of transactions--of which minimum wage laws are just one of many examples--makes the market a non-free market. The fact that the third party believes that it is "improving" something doesn't change the economic fact that it is forcing the market to not be free, and therefore making the market less efficient. > Companies will always push for lower wages wherever they can, without a care for the actual wealth created by the worker In a free market, they can't, because their competitors will be willing to pay more for workers that are worth more in terms of productivity. Tech companies are good examples: they are willing to pay a high premium for workers that can create a lot of value by writing good code and more generally doing good, reliable software engineering. Companies that try to pay less for such workers simply don't get them. > The only way to counter that push is by giving more power to the worker No, that doesn't counter anything, because "the worker" is not one person and does not have one interest. The best way to help workers is to raise their productivity, so that the work they do is worth more and can command higher wages. But really, even that misstates it, because it treats the workers as though they weren't capable of raising their own productivity if given the opportunity, and need "help" in doing so. Which is the big problem with all the grand schemes to "help the worker": it's people with no skin in the game themselves trying to dictate to everyone else how they should play.

martin_bech 6y ago

We dont have a minimum wage here in Denmark, yet fastfood workers get: 18usd an hour, 5 weeks paid vacation, maternity leave, pto for childs 1st sick day, 8% on top of sallary towards personal pension plan.

bjelkeman-again 6y ago
We have something similar in Sweden. Instead we have well established unions and negotiations that set salaries that even companies that aren’t formally part of the negotiation process follow. These are called collective agreements. “In Sweden about 90 per cent of all employees are covered by collective agreements, in the private sector 83 per cent (2017). Collective agreements usually contain provisions concerning minimum wages. Sweden does not have statutory regulation of minimum wages or legislation on extension of collective agreements to unorganized employers.” https://en.wikipedia.org/wiki/Collective_agreement#Sweden https://en.wikipedia.org/wiki/Collective_agreement#Sweden

neilwilson 6y ago

"That's why minimum wage laws and workers rights are important. " But ultimately pointless when there are insufficient jobs - which there always are since "inflation targeting" ensures there always will be. The actual problem is that there are 20 dogs and 19 bones. What we need is a Federal Job Guarantee. An alternative job that everybody has a right to access paying the living wage. Then simple competition sorts the rest out. The task of the private sector is to eliminate all jobs and replace them with automated capital. Once there is a job alternative in place, we can let the private sector get on with that task.

Beldin 6y ago

> Companies will always push for lower wages wherever they can Except for executive compensation. There they very often actively push for more compensation.

Wolfenstein98k 6y ago

"Free market" doesn't mean the parties have equal bargaining power (no two parties in the world do). It means that the parties are free to bargain directly with one another, without a third party (i.e. government) injecting the interests of those not party to the bargain. A free market allows a farmer to trade barley with a buyer from another nation - an unfree market sees the government(s) disallow this due to protectionist policies lobbied for by unrelated farmers who benefit from decreased competition.

mcv 6y ago

I think we might be able to do without a minimum wage if we had a livable basic income. If people can afford to say no to a job, I think the negotiation balance will be much improved, and the labour market might become a lot more free. How high a basic income would have to be for this to happen, I don't know. But I think with sufficient BI, crappy jobs will have to pay a lot more to attract people, whereas fun, interesting jobs might have more employees competing for them. That would be the sign of a healthy free market at work, I think.

robk 6y ago

Or governments - see the NHS as an example on low doctor pay

rrrrrrrrrrrryan 6y ago

gjulianm 6y ago
You need regulations and subsidies to protect and make unions effective...
- rrrrrrrrrrrryan 6y ago
  Yeah, that's fair.