How useful is "living wage"?

[GatorNation]

Long time lurker, and first time poster.  I want to add my 2 cents.

Something that I haven't heard anyone mention is the increased supply of workers if the minimum wage is raised and how it affects current minimum wage earning workers.

If the minimum wage is $8 and it is increased to $15, the quantity supplied of employees will increase.  People who for some reason are not in the workforce (stay at home parents, for example) may decide to join the workforce if they can now earn $15 instead of $8 an hour.  Since there is now a greater supply of employees, employers will have a bigger pool of potential employees to hire from.  For someone who currently earns $8/hr (and are relatively unskilled), they will now be competing with a more skilled and more desired employee for the same job that now pays $15/hr instead of $8/hr.  What this does is essentially push out of the labor force the workers who were earning $8/hr, and instead of earning $8/hr... they are unemployed.  The people who are supposed to benefit from raising the minimum wage are often times the ones hurt the most.

Labor is a commodity like anything else, and will follow the basic laws of economics.  If the problem is that minimum wage workers don't have enough money, then why doesn't government mandate price ceilings for all consumer products (I'm against this too... just a little food for thought)?? 

[galliver]

...enforcing a 'living wage' is simply going to keep a lot of people from ever getting into the pile at all.

I have an issue with this. Please demonstrate more conclusively. Give me some kind of evidence that this happens.

Take the extreme example: no minimum wage, no government policies that provide a disincentive to hiring (payroll taxes, UI). At that point, everyone making $20+/hour would rationally hire servants for $1/hour to do the grocery shopping, clean the house, cook their meals, and warm up the car on winter mornings because the labor could be had for an extremely low price. Actual wages for such work would stabilize out according to supply and demand, but the market price would certainly be below today's cost for these services. This would create a ton of jobs, to the point that anyone who wanted a job could get one. So it's reasonable to expect that further manipulation of the labor market would reduce the number of jobs available. Job losses tend to impact those with the fewest skills/experience because they are least competitive in the labor market.

Demonstrating this conclusively would be quite difficult, because cause and effect of past economic changes can always be disputed. But it's just basic economics that when you impose a price floor above an equilibrium price, you end up with an oversupply (unless demand is perfectly inelastic).

Yeah.  I grew up in a society like that (India)  It sucks.  Sure, if you are middle class you can rationalise it to yourself "I am providing jobs", "they don't need to educate their children anyway", "Krishnan has been our driver for years, he's part of the family".  "No, they really prefer sleeping on the floor"  And meanwhile India still has large unemployment & underemployment, so, no, the market doesn't clear.  Mostly a problem with young men, because for some odd reason they don't make tractable servants.  Twelve year old girls though - yep.  You can then train then up to be ameniable.

The rational thing for the unemployed young men to do is to come & take your stuff.  So you barricade yourself into your house, and into "colonies" (Indian HOA) and hire slightly older men to beat up the young men if they try.

Anecdote - a friend of mine who emigrated to USA, MIT etc. after a few years went back home.  I asked him why, and his response was that, sure in the US he had more freedom & salary, but that didn't make up for having to clean his own toilet.

Thanks. The western world had this too, up to the early 1900's. And standards of living and social mobility of those born to poor families was absolutely awful. No one has ever conclusively shown me that something has changed since then so that we won't go back to industrial-revolution type society if min wage type measures were removed.  Interestingly, it seems most people who support not updating/lowering/eliminating the minimum wage tend to also support getting rid of or minimizing the social safety net. Not quite true in this thread, and it's striking me as ironic that those who generally advocate the free market would prefer that unskilled workers live off welfare than wages!

[Constance Noring]

Re: the argument that Costco is the "good" retailer and Walmart the "evil" retailer -

I've seen lots of quotes like this:

"Maybe the time has come for Wal-Mart to take a lesson from Costco and consider the potential upside of treating employees like human beings."  (Forbes Magazine, of all places)

and this from Obama:

"Costco is an example of a business that is acting on its own to pay its workers a fair wage, supporting increases to the minimum wage because it helps build a strong workforce and profitability over the long run through increased productivity, better morale and lower turnover rates."

Well, I've shopped occasionally at Costco, and pretty regularly at Walmart since one was built close-by. I've noticed that there's a huge difference in their employees. At the local Costco, in general, the employees are well dressed, look alert, speak English well, and look pretty responsible.

At Walmart it's a different story. Frequently, at least at my local Walmart, they don't speak English well, they wear torn or stained clothes, shuffle when they walk, and look run-down. 

I don't want to beat up on Walmart employees, and for sure there's lots who don't fit my stereotype. But the bottom line is - there's no way these Walmart employees could get a job at Costco. They don't have the skills to work there because more is demanded of Costco employees.

A higher minimum wage basically means making it illegal for people to offer their labor at less than a "living wage". It would simply take these lower skilled people out of the work force.

Or perhaps the Costco employees look alert, well-groomed, and generally pleasant because they work for an employer that properly compensates them for their time and labor, as opposed to an employer that treats them as a disposable resource that exists solely for the benefit of the company's bottom line.

[Jamesqf]

...and it's striking me as ironic that those who generally advocate the free market would prefer that unskilled workers live off welfare than wages!

But if the government is requiring that wages be greater than what would be justified by the market, the difference IS welfare.

[SteveRyeCurd]

...as opposed to an employer that treats them as a disposable resource that exists solely for the benefit of the company's bottom line.

I want to point out that this works the other way around too:

1. Most workers will dispose of their employer once a much better job comes along.
2. Most workers sell their labor for the benefit of their own bottom line.

This is the way it's supposed to work in a voluntary trade - in this case, trading labor for money.  Unless there's a contract involved, either party can terminate the relationship at any time - that's what makes it voluntary.

[Constance Noring]

...as opposed to an employer that treats them as a disposable resource that exists solely for the benefit of the company's bottom line.

I want to point out that this works the other way around too:

1. Most workers will dispose of their employer once a much better job comes along.
2. Most workers sell their labor for the benefit of their own bottom line.

This is the way it's supposed to work in a voluntary trade - in this case, trading labor for money.  Unless there's a contract involved, either party can terminate the relationship at any time - that's what makes it voluntary.

You're quite right to italicize 'supposed', because in theory, you're correct. But unfortunately, there are a lot more Wal-Marts than Costcos in this country, and that much better job may never make an appearance. There are very few places in the United States where a buffet of job options present themselves to the working class (or much any class, these days), and besides, when people hold out for that hoped-for better job, aren't they told to take what they can get and be grateful for it?

[the fixer]

One of the goals is apparently to make it so that minimum wage earners in Seattle could theoretically actually live here: but I'm not sure it really works out accomplishing that. They earn more, demand for the cheaper places to stay increases, it gets even harder to afford housing. Seattle isn't as bad as San Fran, but it isn't cheap either.

Right; scarcity drives prices. If everyone wants to live in Seattle to earn more money, they should be willing to pay more to do so. That will just push up prices because supply of housing, food, parking, etc. within the city is constrained.

I'm a landlord now so I don't mind this at all personally, but it's not going to help the people it's supposed to help. The rental market here for cheap places is already out of control.

[anisotropy]

lol reading these replies make me lose hope. Is there a way out of this hopeless battle then ?

[the fixer]

I posted an alternative in another thread: http://forum.mrmoneymustache.com/off-topic/why-i-support-the-minimum-wage-increase/msg285702/#msg285702

I basically feel like forcing employers to impose social equality is too disruptive of the market and can't be that effective because it's not the employer's job in the economy. A minimum wage is also targeting people only by how much they make, not how much they need, and paying people excessively just leads to more consumption/inflation. I'd rather see programs that improve social equality come from the government, funded with taxes. This makes it much more transparent who's paying the price, and certain actors in the economy can be targeted or exempted from pitching in a fair share. You can also impose means tests on the benefits to ensure that you're only helping the people that need it. Finally, you can measure the outcomes of the program because you can clearly see who's a recipient, who's not, and how much their situation improves over time. The challenge is to keep such government programs simple and funded, but unfortunately we're not very good at either.

[galliver]

...and it's striking me as ironic that those who generally advocate the free market would prefer that unskilled workers live off welfare than wages!

But if the government is requiring that wages be greater than what would be justified by the market, the difference IS welfare.

If you look at the market as a system, you are restricting the value of one variable in the system (based on your ethical values/desired outcome) and allowing the rest of the system to adjust accordingly. Not 100% free, but much more reliant on the market than *literally* redistributing income by taxing those earning a medium-high wage and giving handouts to those who are earning unacceptably low wages.

And there's a psychological cost to this, too. Generally speaking, people *want* to provide for themselves. To accept charity is shameful, demoralizing, and depressing, as I have gathered from firsthand accounts. Hell, I hated having to ask my parents for help in college, and I'm sure going for government aid is worse!

[the fixer]

If you look at the market as a system, you are restricting the value of one variable in the system (based on your ethical values/desired outcome) and allowing the rest of the system to adjust accordingly. Not 100% free, but much more reliant on the market than *literally* redistributing income by taxing those earning a medium-high wage and giving handouts to those who are earning unacceptably low wages.

I strongly disagree that a price control is less disruptive to an economy than taxes/subsidies, as would most economists.

[galliver]

If you look at the market as a system, you are restricting the value of one variable in the system (based on your ethical values/desired outcome) and allowing the rest of the system to adjust accordingly. Not 100% free, but much more reliant on the market than *literally* redistributing income by taxing those earning a medium-high wage and giving handouts to those who are earning unacceptably low wages.

I strongly disagree that a price control is less disruptive to an economy than taxes/subsidies, as would most economists.

I didn't really say "less disruptive to the economy." I said the rest of the system would adjust, which actually would be more disruptive. But given the state of it now, maybe some disruption is a good thing.

[Melody]

Labor is a commodity. What other commodities have a price floor?

Petroleum is a commodity. Gold is a commodity.
Labour is highly unique and therefore by it's nature not a commodity. For example I have specific qualifications, skills, personality and experience that make me very suited to certain jobs, whereas other people would not suit these jobs (A doctor might be a highly intelligent and qualified person but they'd still make a lousy structural engineer). Commodities also have global markets whereas labour has always traditionally been a highly localised market (yes, the internet is changing this, but slowly, slowly, and some things will never be able to be globalised, i.e. most services.)

[Melody]

The point that everyone seems to miss is that minimum wage isn't supposed to be a 'living wage'.  It's where you start out, when you're for instance a high school kid making spending money working at a fast food joint.

I'm not so sure minimum wage isn't supposed to be a living wage. If it's not, how are people earning it supposed to live while they're trying to move up?

It's all well and good to say that the only people making minimum wage should be high school and college students, and stay at home parents or retirees who want a little extra cash. But that's not who's actually earning min wage. It's millions of late 20 and early 30 somethings, many of whom have a child.

You can't put pandora back in the box and yes, they probably shouldn't have had a kid. But they did. The question is how do we deal with it? We can go ahead and keep the minimum wage at $7.25 but we're all going to pay the price in the form of welfare, medicaid, and food stamps.

Wouldn't it be better for people to be paid enough so that most of them didn't qualify for those programs? Make companies charge the true cost of all the "cheap" crap they sell.

I know people should exercise self regulation etc, but access to health education, cheap contraception and reconsidering if abortion should really be a crime will all help to address the reproduction before it happens.  Again, living wage isn't a 100% solution for poverty, it's part of the picture.

In Australia they have addressed the step on the ladder concept through a sliding scale minimum wage from ages 15-21 (though many employers choose to pay full wages from age 18), starting at 50% of adult wages and moving up each year. There is also a lower pay scale for apprentices (75% of minimum wage), because as stated you won't be an apprentice for life. (You also have no "self improvement costs" as your course fees are paid by your employer and a tool allowance is paid by the government). The apprentice one is being revisited as the typical apprentice is now 18 not, 15 when he or she starts and there is an argument the amounts may not be adequate/ are deterring people from upskilling.

[Melody]

It would simply take these lower skilled people out of the work force.

Walmart's not suddenly going to stop needing employees just because they have to pay them more.

It would actually put the onus on the employer to train people. When I worked at a large supermarket chain in Australia I was given 16 hours of training before they let me loose. Everyone (even if they had worked in retail before) was required to do this (paid) training. After 3 months another 8 hours was required. Yes, this costs money, but we were more efficient as a result. But you also need government supported literacy and skills programs as well, because people need a baseline ability.

[GoldenStache]

Lots of Australians on board..  Things to keep in mind.. Australia has a population roughly the size of the state of New York.  It is far easier for smaller populations than larger populations.

If you go by standard of living:
1.   Norway   0.943   3.9   25.8
2   Australia   0.929   7   
3   Netherlands   0.91   5.1   
4   United States   0.91   8.5   40.8
5   New Zealand   0.908   6.8   
6   Canada   0.908   5.5   32.6
7   Ireland   0.908   5.7   34.3
8   Liechtenstein   0.905       
9   Germany   0.905   4.3   28.3
10   Sweden   0.904   4   25
http://www.mapsofworld.com/world-top-ten/world-top-ten-quality-of-life-map.html

Only the US and Germany are on this list and are also in the top 25 by population (Germany#16 at 80Mil, U.S.#3 at 318Mil)
Australia is #51 with 23Mil…  Australia does not have the immigration problem that the US has as well. 

What many Americans refuse to think about is how much of the increase in the minimum wage will be transferred to other countries.  At one time (tried to find if it is current but data is old) money transfers to Mexico from the U.S. was the countries 2nd highest revenue generating industry (Mexican Oil is #1).  (knock to my own data) it was not clear how much of this data included black market drug money but it is ASSUMED to be a low amount due to the margins required to send money and the tracking involved.  It is roughly estimated that $60-$100 BILLION is transferred out of the U.S. economy by low to minimum wage workers. 

Your own DD will do you good. 

[clifp]

One of the things that hasn't been discussed is that for the fairly small minority workers who are actually trying to support a family there are number of other government programs that are better targeting those in need. 

For instance I single mom working 2000 hours at minimum wage ($1200/month) s eligible for  $3250/270/month Earned Income (and possible more if she has child care expense, student loans etc.)
In most place they woman would also be eligible for SNAP (aka food stamps), the amount is highly variable and depends on cost of living for the area, rent etc. but $250-$450/month is pretty typical.
If the child is under 5 years, WIC for another $100 or so.
Add it all together the single mom making a minimum wage is getting close $2,000/month in wages and benefits, which is the same as $12/hour job with no government program support..