Mish's Global Economic Trend Analysis

Reader Question: Is the Minimum Wage Really a Maximum Wage?

Posted: 26 Apr 2015 08:47 PM PDT

A reader asked me if I ever hired someone for the minimum wage. He also believes the minimum wage is really a maximum wage.

From Drew ...

Mish, I'm curious if you have ever had to actually pay someone minimum wage to work for you week in, week out, year after year?

I've signed plenty of paychecks myself, and honestly, I could never employ someone and pay the minimum wage knowing it was not enough for that person to live on, regardless of whether or not the "market" says I could hire them for that price. I have willingly paid more, and they always very much appreciated it, and I also felt like I got more effort since they knew I was paying them more. But I know that's not how large corporations work.

I believe you would argue whether or not the minimum is enough on which to live is irrelevant and not the concern of the employer.

If that is correct, then what bothers me is that we have so many businesses whose profitability relies on keeping these wages as low as possible, for as long as possible, no matter how it affects them, no matter how many are on food stamps, subsidized housing, subsidized daycare, subsidized transportation (bus and train passes), all of which are costs not borne by the business but still must be paid in order for that employee to work for minimum wage.

I believe there must be an ethical or moral argument that for a business to be considered profitable it must be profitable for the various entities that rely on that business to produce its profits. The supplier won't deliver the goods if they are not making a profit, and when Wal-Mart demands a few cents off each pallet next year, it's the lowest guy on the pyramid that ends up paying for it.

Strangely enough, according to the history of the minimum wage it began with King Edward III setting a maximum wage for laborers in 1348 after the Black Plague.

The minimum wage law we have now is really a maximum wage for unskilled labor, since according to the theory the wage paid would fall below the minimum set if not fixed by law. How Orwellian they have managed to turn it around and make it sound good by calling it a minimum when it really is a maximum wage. This can easily be seen by the mega-corporations that rely on paying minimum wage, and your earlier contention that every dollar increase in the minimum wage would mean marginal locations closing and fewer jobs for unskilled workers.

If they called it a maximum wage, how much easier it might be to organize labor?

Well, I wish I had figured this out a long time ago. At least now I know the truth.

Thanks.

Drew

Questions First

First, let's address Drew's question: I have not employed anyone, at any wage, other than myself (self-employed).

Minimum Equal Maximum?

Drew is wrong about minimum being maximum and proof is voluntary pay hikes by Walmart and McDonald's.

Living Wage Nonsense

The one thing Drew is correct about is that I would indeed argue "whether or not the minimum is enough on which to live is irrelevant and not the concern of the employer".

The primary concern of the employer is to make enough profit to stay in business. The primary concern of a public business is to maximize shareholder returns.

It must be that way. If the goal of businesses was hiring people rather than to make a profit, no one would bother!

There are numerous businesses that could not make a profit at $15 an hour. I wonder how many independently owned McDonald's franchises would go under at a $15 minimum wage.

In theory, businesses could raise prices. In fact, they would have to.

But how many people think fast-food is already overpriced? It's a given that the higher the minimum wage the lower the employment if for no other reason than the drop in customer demand.

I have seen studies that attempt to disprove that statement. Such studies are nonsense. Because of population growth and saturation of stores, employment tends to go up over time in spite of minimum wage hikes, not because of them.

Government Subsidies

Someone asked me the other day "Why is it OK for Walmart and McDonald's to pay wages so low the employees have to be subsidized by the government?"

I responded with four questions:

Would we be better off if Walmart hired no one?
Who sets subsidies?
Are subsidies too high?
How many people on fixed income want and need low prices they would not get if everything had a higher price?

The only way to pay people more is to hike prices or accept lower profit. That sponsors still more questions.

What does higher prices do to those on fixed income with little savings?
Do we throw retirees under the bus like Bernanke did for the benefit of a marginal number of people who get higher wages?

Many people are not worth the minimum wage. Some businesses have so little profit they can only afford minimum wage

If McDonald's workers don't want to work there, why don't they quit? Why don't they find another job or start their own business?

Make the minimum wage $15 and I 100% guarantee you there will be fewer stores and lower overall employment.

Blame the Fed

If money went further, no one would be upset at the current minimum wage. In fact, if money went far enough, people would be thrilled by the current minimum wage.

The problem is not lack of a "living wage". The problem is the Fed demanding higher prices in a deflationary world.

Businesses are not to blame for higher prices and income inequality. Those protesting Walmart and McDonald's ought to be picketing the Fed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Sunday, April 26, 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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