Since you quoted me, I assume your post is intended to have something to do with mine. But the "last time we raised the min wage" was five years ago. The divergence I spoke of was 35 years ago.
Arguments Against Raising Minimum Wage Don't Hold up
- Thread starter dbphoenix
- Start date
Since you quoted me, I assume your post is intended to have something to do with mine. But the "last time we raised the min wage" was five years ago. The divergence I spoke of was 35 years ago.
DP, I hate to break this to you, but wages HAVE to go up in proportion to value added. You can't "artificially" raise them. Think about how you go about deciding your day to day purchases. Say you go to the grocery store to buy some milk. You notice that next to the gallon of milk you usually buy for 3.12 there is a new Milk called Super Milk and it's 5.00. What is going to make you purchase this new more expensive milk? You look at the labels and notice it seems exactly the same as the milk you usually buy. You even ask a store clerk what is the difference. The store clerk says oh, it has a few vitamins added making it "super milk". The question now is, does this product "add value" to what you normally buy? Are you really going to pay an extra 1.88 for a "few extra vitamins"? See, you have to determine if value has really been added and is that value priced accordingly.
Now, let's say the store decides to stop selling your regular milk at 3.12 in order to "force" you to buy this new super milk, which by the way the grocer has an ownership stake in. Well, this comes down to how elastic this product is and how easily you can substitute milk for something else. If you absolutely have to drink milk and there are no other options (this is the only grocer within 10 miles of your home), then this product would prove to be elastic and you would be willing to pay the higher price. If this product is inelastic, then the increase in price causes you to "substitute" milk for juice and possibly the purchase of some calcium pills. This is how our economy works.
Unfortunately our labor market is very inelastic. And the substitution effect and the income effect govern how employers maximize output. Think of a young kid coming out of college. He has his fancy degree and his shiny suit and crisp resume in hand. He sits down in an interview and spends 30 minutes talking about how wonderful and how smart he is and how he will lead this company forward to new heights. Well, if the interviewer believes him, he might just hire this kid. But what this kid does not understand is that before he walked into that room, 500 other kids walked in there with the same degree, the same grades, the same shiny suit and the same crisp resume and all them to a person said how smart and wonderful they were and how they would lead this company to new heights. In order for one of these kids to be hired, they have to demonstrate some value. They have to convince the interviewer that the purchase of their labor will add value on the margin.
You can't make this company hire one or all these kids. An economic choice is made. Just as you made one when you opted to buy your usual milk at 3.12. So here is the rub. People often ask, well then how did they do it in the old days. Why did companies hire all these people 40 to 50 years ago with less education and paid them even more? The answer is, 40 to 50 years ago companies were much more inefficient. The avg worker was able to add value to a system because there were far more inefficiency gains to be made. Firms could pay more and generate a higher output with a less qualified worker. Now if you are scared right now, you should be. Because what is happening is, as the world becomes faster, smarter, leaner and more automated, the bar gets raised higher and higher. This means that the avg worker today has to be that much smarter, that much more educated then the avg worker of 50 years ago. And 50 years from now, the avg worker will have to be even smarter and more qualified.
This is why it's absolutely crucial that young people today get the most education and skills as humanly possible. The days of just getting a job with a HS diploma are over. Hell in a few years most of those min wage jobs will be automated. They already have McDonalds in Europe in with no employees in the restaurant. You just walk up to a machine and hit a button. In factories 50 years ago where you had men working in assembly lines you now have robots. They are even talking about using robots to replace teachers in schools. Robots that will fly planes. The military has already done this.
You cannot live in the 1950's. You can't just pay people with no skills and no education to do a job that has little to no value and expect the owner to eat the cost, especially in a world where most firms are operating on the margin. And this is not only affecting the poor. While you might not shed a tear for these guys, most of the Wall Street jobs are drying up as well. In the 1980's you could have been a fat over sized jock from Penn State trading bonds at Solomon Brothers making millions. This is when people traded bonds over the phone and you didn't need 2 math degrees to price them. But now those jobs have been replaced by computers. Traders who use to stand in pits on the floor have been replaced by algos who never show up drunk after a long Thursday night of drinking. Many of these guys find themselves out of work with no where to go. This is the reality. Now what do you suggest? We bring back floor traders? Wouldn't that be "fair"? Should we throw away the computers and allow fat oversized ex-jocks to be able to trade again like the old days? I mean, that would be fair no?
Now, let's say the store decides to stop selling your regular milk at 3.12 in order to "force" you to buy this new super milk, which by the way the grocer has an ownership stake in. Well, this comes down to how elastic this product is and how easily you can substitute milk for something else. If you absolutely have to drink milk and there are no other options (this is the only grocer within 10 miles of your home), then this product would prove to be elastic and you would be willing to pay the higher price. If this product is inelastic, then the increase in price causes you to "substitute" milk for juice and possibly the purchase of some calcium pills. This is how our economy works.
Unfortunately our labor market is very inelastic. And the substitution effect and the income effect govern how employers maximize output. Think of a young kid coming out of college. He has his fancy degree and his shiny suit and crisp resume in hand. He sits down in an interview and spends 30 minutes talking about how wonderful and how smart he is and how he will lead this company forward to new heights. Well, if the interviewer believes him, he might just hire this kid. But what this kid does not understand is that before he walked into that room, 500 other kids walked in there with the same degree, the same grades, the same shiny suit and the same crisp resume and all them to a person said how smart and wonderful they were and how they would lead this company to new heights. In order for one of these kids to be hired, they have to demonstrate some value. They have to convince the interviewer that the purchase of their labor will add value on the margin.
You can't make this company hire one or all these kids. An economic choice is made. Just as you made one when you opted to buy your usual milk at 3.12. So here is the rub. People often ask, well then how did they do it in the old days. Why did companies hire all these people 40 to 50 years ago with less education and paid them even more? The answer is, 40 to 50 years ago companies were much more inefficient. The avg worker was able to add value to a system because there were far more inefficiency gains to be made. Firms could pay more and generate a higher output with a less qualified worker. Now if you are scared right now, you should be. Because what is happening is, as the world becomes faster, smarter, leaner and more automated, the bar gets raised higher and higher. This means that the avg worker today has to be that much smarter, that much more educated then the avg worker of 50 years ago. And 50 years from now, the avg worker will have to be even smarter and more qualified.
This is why it's absolutely crucial that young people today get the most education and skills as humanly possible. The days of just getting a job with a HS diploma are over. Hell in a few years most of those min wage jobs will be automated. They already have McDonalds in Europe in with no employees in the restaurant. You just walk up to a machine and hit a button. In factories 50 years ago where you had men working in assembly lines you now have robots. They are even talking about using robots to replace teachers in schools. Robots that will fly planes. The military has already done this.
You cannot live in the 1950's. You can't just pay people with no skills and no education to do a job that has little to no value and expect the owner to eat the cost, especially in a world where most firms are operating on the margin. And this is not only affecting the poor. While you might not shed a tear for these guys, most of the Wall Street jobs are drying up as well. In the 1980's you could have been a fat over sized jock from Penn State trading bonds at Solomon Brothers making millions. This is when people traded bonds over the phone and you didn't need 2 math degrees to price them. But now those jobs have been replaced by computers. Traders who use to stand in pits on the floor have been replaced by algos who never show up drunk after a long Thursday night of drinking. Many of these guys find themselves out of work with no where to go. This is the reality. Now what do you suggest? We bring back floor traders? Wouldn't that be "fair"? Should we throw away the computers and allow fat oversized ex-jocks to be able to trade again like the old days? I mean, that would be fair no?
No, they don't. And haven't for 35 years.
Actually they have. Just not at the bottom. And the reason for that is because at the bottom, value is not being added and probably truthfully can't be added. Tell me how much the avg employee makes at Google or AAPL. What about petroleum engineers. What about data scientists? Any kid with an advanced math degree can name his price. You see DP, the salaries will increase in those industries in which the added cost can be absorbed by the increase in output or sales. No, the avg worker at Wendy's is not making more today then 30 years ago and should they? The avg worker at Wendy's 30 years ago did the EXACT same thing as the avg worker today. So how are they suppose to be paid more when the operating costs to run that exact same restaurant today vs 30 years has probably doubled or tripled. Truthfully, they should probably be paid less but at some point, you run into reliability issues.
So minimum-wage workers provide no value? How Dickensian.
Very few do DP. That wasn't always the case. But today we have two extremes, the people at the top who are smart, are smarter then they have ever been. And the people at the bottom, well, let me put it this way. If I could hire the avg min wage earner from the 1950's today, I would take them walking away. A big part of this is education. Another part is cultural. I mean DP look, you run a vending business right? Would you hire a bunch of these kids, just for the sake of hiring them, you know, to play your part? Make them come on ET for you on certain days and give you a break, a day off if you will, would you. Would you hire them even if you knew they were not going to add any value? Perhaps if you were a billionaire and you wanted to do something nice for someone, perhaps. But you won't. And look, I don't know what you really do for a living, you maybe retired. But you and I both know even though your pride will never admit it, you would not waste your money if you saw no real purpose for hiring them. And you know what, I wouldn't either. It annoys me when people argue and debate "what other people should do" when if placed in their situation they would never do those things themselves. I've always said, be the change you want others to be, you never know, someone might just copy your behavior.
If they provide no value, why hire them at all? I'm sure you've heard of inflation, price and wage. And I'm sure you've heard of the cost of doing business. When, for example, you're faced with the choice of going back to the rear of the kitchen and cleaning the pots and pans yourself, just how much is it going to be worth to you to hire someone to do that for you? If it's only a few dollars an hour, you're going to be scrubbing a lot of pots and pans.
The low end labor market is like a put option or insurance policy. Most of the time they are spinning their wheels doing nothing. But on those rare occasions when something is needed and quickly, the payoff is there. I use to work in a restaurant out of high school and got to know the owners really good. They were like my second family. It was a family run business. The son ran the place, mom and dad (in their 60's) worked there every day and DID clean the pots and pans and remedial work. And I got to see and learn a lot about business and operations and how these places really work. I also got to see just how little the avg person did. But the reality is, most of the time, they tried to keep as few people on the clock as possible but they had a min level of labor they needed to keep on stand bye. So if and when we got a sudden burst of business, that option went in the money. This is just the nature of running a business. In the end, the family slowly and surely ended up doing more and more work and they hired fewer and fewer people. They just got tired of kids not showing up for work and being unreliable. And then when they did show up, instead of taking some initiative and cleaning the place and being productive, they would just drink the free soda and hang around and gossip. Pretty sad really. But this family could not have been nicer and more easier to work with. But these kids didn't really give a shit and such is life.
Sounds like they didn't know how to hire. Or fire.
I value minimum-wage workers. You don't. Perhaps that's all that needs to be said.
And how many have you hired?