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devil duck

minimum wages

So a month or two ago, Hillary officially joined Bernie in calling for a nationwide $15 minimum wage, on grounds that it'll reduce inequality and the "corporate welfare" phenomenon whereby McDonald's and Walmart can assume the Federal government will keep their low-paid workers alive. Republicans consider a $15 minimum wage -- or any minimum wage -- a job-killer, on grounds that when you make something (including labor) more expensive, people buy less of it.

Both are right, in a way. The Republican argument that a $15 minimum wage would eliminate all the jobs currently getting paid less than that is simplistic, ignoring the fact that when you put more money into low-income people's pockets, they spend it and stimulate the economy. And it seems harmless to take that money out of the pockets of large corporations that, for want of good investment opportunities, have been just sitting on it for eight years. But I think it's also dangerous to completely discount the job-killing potential.

Let's start with a reductio ad absurdum: if a $15 minimum wage is good, why not $20, or $30, or $50, or $100? At any given minimum wage level, workers whose value to their employer is less than that will be unemployable. With a $100/hour minimum wage, either (a) the majority of working Americans lose their jobs, or (b) inflation devalues the $100/hour until it matches their job productivity. Now, a certain amount of inflation would be welcome in the current economy (by everybody without a large bank account), but betting that the inflation would kick in before the unemployment did sounds risky to me. Anyway, it seems clear that above some level, a minimum wage will cost jobs; the question is whether we're currently above or below that level.

This is now a quantitative, empirical question, not a qualitative matter of principle, and its answer probably depends largely on geography and the local cost of living. $15 in New York City is a lot less money than $15 in rural Iowa, which is in turn a lot less money than $15 in Puerto Rico. A $15 minimum wage in New York City would be almost adequate to live on, and stimulate the local economy; the same wage in Puerto Rico would be comfortable for the people who got it, and could well devastate an already-struggling local economy by making many people unemployable.

So what would be a better solution? We can reasonably consider both a government solution and a free-market solution. The government solution is to set minimum wages based on the local cost of living (although finding the right formula to appropriately weight local factors against non-local factors would be tricky). (I guess another option would be setting minimum wages at the state level, as at present, but that predictably produces a "race to the bottom" effect.) The free-market solution is for workers and their employers to negotiate geographically appropriate wages. But we all know that when an individual, non-superstar worker "negotiates" with a multi-national corporation, the latter is in a much stronger bargaining position and will probably pocket almost all of the worker's productivity. The obvious counterbalance to this is unionization: if we still had strong unions in this country, we might not need a minimum wage law at all.

In short: if you don't want to see a nationwide minimum wage law, encourage your workers to unionize instead.

Comments

I mostly agree with your upshot, but I want to quibble a little bit about how you talk about the "job-killing potential" of a minimum wage. It's the same way folks on the right typically do, and it's weirdly non-business-like, and obscures certain lines of remedy.

And it seems harmless to take that money out of the pockets of large corporations that, for want of good investment opportunities, have been just sitting on it for eight years.

This is... I don't even know. The question of whether or not large corporations "have" a lot of money in their "pockets", and the question of whether they're investing it or not is immaterial.

The issue is their profit margin.

It is totally reasonable to peg a minimum wage law to a business' profit margin, thereby achieving the equivalent of legally mandated profit sharing: if your business is doing well, you must kick a share of it back to your employees.

Imagine a Federal law that was based on some such function, such that any given employer had its own annually calculated minimum wage – and the law requires that information be wherever that company solicits for employees, from on the "careers" page of their website to in the text of help wanted ads. (Yes, even: "WANTED: Java programmer 40+ years experience. Agile and FORTRAN a plus. $100k+ doe. EOE, FMW:$10.11") My intent in forcing that info public is to ensure that potential and actual employees know what their legal rights are (if every business has different minwages, how do you know what the floor is when you apply for a job? How do you know if your employer is underpaying you per the law?) But a side effect is that instantly there's this very public number that can't help but serve as a proxy indicator of how healthy the business is. Sure, companies will attempt to game the system to hide the profits and not have the FMW go up - but if they do that, they make the company look weak to lenders and (if publicly traded) shareholders.

We'd have to have some special exception for startups - the fact that you are still burning through the angel money doesn't mean you can pay your receptionist $0/hr. And likewise for troubled businesses. Maybe there needs to be a floor default, possibly $15/hr.

ETA: Or maybe we do let it vary right down to $0/hr – but good luck competing for labor with the business down the street paying $20/hr.

ETA2: And we have a rule that temps' FMW is that of the client, not the employer, thereby killing that loophole.

Edited at 2016-07-28 01:31 pm (UTC)
The question of whether or not large corporations "have" a lot of money in their "pockets", and the question of whether they're investing it or not is immaterial.

I meant "harmless" with regard to the economy as a whole -- obviously most companies themselves would see a dramatic increase in their payroll expenses as harmful. But money sitting in a company's bank account doesn't "create jobs" the way it would if it were either invested in plant expansion or paid to low-income workers who will immediately spend it.

It is totally reasonable to peg a minimum wage law to a business' profit margin, thereby achieving the equivalent of legally mandated profit sharing: if your business is doing well, you must kick a share of it back to your employees.


I've had a similar thought. My answer to it was paying employees largely in stock -- not just *giving* them stock (although that has some benefits too) but *renting* them stock in exchange for their labor. Basically, when you get the job, a negotiated number of shares are set aside in your name. You can't sell them, but as long as you continue to work there, you can vote them and you get the dividends from them. A high-value employee's labor is worth more shares of stock than a low-value employee's, but they both get paid in proportion to company dividends, so they both have a vested interest in company profitability.

This approach recognizes explicitly that both capital and labor are essential to a business functioning: you can get stock by giving us money, or by giving us time. And since the "rented" stock is *voting* stock, it gives ordinary employees a voice along with investors. If I look forward to a long career with the company, I'm going to vote against actions and board candidates aimed at producing a profit this quarter at the risk of the company's long-term viability. Conversely, if I need cash or am about to retire, I might vote in the other direction.

Let's think about the numbers. Suppose a company's stock is currently selling at $50/share and paying annual dividends of $2/share (a 4% yield). To hire somebody with an expected salary of $50K, the company would need to set aside 25K shares in that person's name, giving that employee the same voting strength as an investor who kicked in $1,250,000. Which sounds radical in comparison with the current situation, but what's essentially wrong with it? The company pays both of these people the same amount for their contributions, so why shouldn't their opinions be valued equally?

Of course, in the present world, dividends can vary substantially from year to year, which would be nervous-making for employees. But if most of its payroll expenses were reallocated to dividends, the variability would decrease substantially.

Again, start-ups are a problem for this model: even with no payroll expenses, it's hard to declare dividends when you have no revenue yet.
...what are you buying that has a 4% dividend yield? IBM pays 3.5% and Apple is at 2.13%, and six days ago Motley Fool referred to those as "high dividend yield" stocks. (Google apparently doesn't pay a dividend at all? *boggle* I didn't know you could do that.) IBM's about $160/share and Apple a little over $100/share.

So, if Apple wanted to hire an administrative assistant at $50k, in your scenario, they'd have to assign them a bit under $1.5M in stock. Not sure that changes anything, materially, though I do wonder if Apple, or any company, has enough stock to go around to do what you propose.

But I do think I see some problems with it, though I may be misunderstanding what you intend. If what you mean is "we pay employees as usual, it's just we also give them a corresponding amount of voting power in their employing company if it's publicly traded": 1) Landlords can't be paid in voting power. 2) What about privately held companies? 3) I am unimpressed with the amount of power this gives employees; companies aren't democracies. This sounds to me like selling one's birthright for a mess of pottage.

But if what you mean is "we pay employees in dividends": oh hell no. I propose setting a floor to employee's compensation based on the profitability of the employer; tying all employee compensation to the profitability of the employer is horrific. The latter makes all employees necessarily investors in the company, which no doubt sounds lovely to middle class people who dream of becoming tech billionaires. But the very employees we're talking about protecting – those earning at the very bottom of the scale – have zero tolerance for economic risk.

Paying employees with dividends turns employees into investors in the company. This may sound weird, I would venture to say we maybe should consider it a right of people to choose to be employees rather than investors. Mandating employment schemes that tie employee compensation to profitability is like paying employees in lottery tickets. Your janitors and secretaries have very little they can do to improve the profitability of the company, but now they're exposed to the same economic risks any investor is? No.

Also, this may seem like hair-splitting, but it's not: dividends are not just tied to profits, they come from profits. But employee compensation is an expense, and it absolutely must remain so, legally. You pay your employees before reckoning profits.
The 4% dividend yield was a number out of thin air, just to make the arithmetic easy. And yes, Google has never paid a penny of dividends in its almost-twenty-year history; it pays its investors in stock appreciation. As for "has enough stock," a company can create stock out of thin air, and as long as the new stock is guaranteed never to be sold (only rented), it doesn't dilute the resale value of existing stock (except indirectly by diluting its voting power).

You're quite right that companies aren't democracies, and aren't supposed to be. (Remember the foofaraw a few months ago about a bunch of interns at a big company petitioning to change the dress code, and being fired en masse for, effectively, applying the tactics and rights appropriate in a democracy to a corporate environment?) People who have spent their careers as corporate managers, for the most part, actually do know more about managing a company than people who have spent their careers as janitors. So this might well be a really lousy idea for a company. OTOH, trusting day-to-day decisions to a skilled manager is one of those corporate decisions that is almost certainly in the best interest of long-term company profitability, and therefore in the best interest of profit-sharing employees.

The economic-risk thing occurred to me too; that's why I made the point that with most of payroll reallocated into dividends, dividends would be much less variable than they are now at most companies. There would still be some risk, and I imagine that if any company actually adopted this scheme, it would actually take a hybrid approach combining a certain amount of guaranteed salary with a certain amount of stock-rented-for-labor. The breakdown between the two would presumably depend on the employee's risk tolerance and job responsibilities.

I'm quite aware that this is a radical proposal, unlikely to ever be adopted in this simple form. It's a thought experiment: let's figure out the advantages and disadvantages of this hypothetical approach, and maybe somebody will find a way to combine most of the advantages with few of the disadvantages.