Jobs and the Minimum Wage
Economics — Posted by Thomas Storck on September 26, 2011 6:40 AMThe argument that a statutory minimum wage destroys jobs or at least hinders job creation certainly sounds plausible. Currently one of the Republican presidential contenders, Representative Michele Bachmann, even seems to be toying with the idea of lowering the minimum wage in an effort to create more jobs. For (so the argument goes) if an employer, or would-be employer, believes that an employee’s contribution to the firm’s revenue does not sufficiently cover his wages and other expenses, he will not create that job or keep that person employed. Paul Samuelson quotes Gary Becker, “Hike the minimum wage, and you put people out of work.”[i] Could anything be more clear? Of course employers want to protect their profits, and of course they will likely hire more employees the more cheaply they can do this. This is just an example of the logic of the free-market: self-interest rules, a concept understood by all Americans.
Although this argument might seem appealing at first sight, and its logic is simple, in fact it is not simple, but simplistic, and deficient both economically and ethically. Let us consider several criticisms that can be made of it.
In the first place this argument presupposes, even if it does not explicitly affirm, that it is possible to calculate the marginal value, the economic worth, of an employee to a firm or business. Of course sometimes this is possible. If you employ two men digging a ditch, and you will earn $10,000 on completion of the ditch, then you can be roughly sure that, after you’ve subtracted your own salary for managing the task, the rest can be attributed to the two workers, probably more or less equally. But this is a simple example. How do you estimate the value contributed by all the various workers in a medical office, for example? Perhaps only one or two, physicians or certified nurse practitioners, actually receive income from patients. One can calcuate the gross income attributable to these, of course, but does that mean that nothing is due to the others, to the receptionist, for example, or the billing specialist? Their contribution is impossible to calculate. Yet without them the physician might not receive much income at all. And we can easily see that this is the case for many kinds of work. Sometimes one employee is so key that without him the concern would produce nothing at all, the operator of a crucial machine, for example. Does that mean all the revenue should be attributed to that one person?
If someone is opening a fast food restaurant, how is the total revenue to be divided among the employer and employees? It might seem that the person who merely sweeps the floor and cleans up the bathrooms doesn’t contribute much. But if the restaurant is dirty and bug-ridden it might attract no customers at all. Thus in a sense all its income depends upon the cleaning crew. But equally upon the cooks and upon the bookkeeper or the manager. But does that mean that the entire gross income should be variously attributed to several different employees or groups of employees at the same time?
The total income of a firm is attributable, as far as labor inputs are concerned, to the entire workforce. Not only is it not possible, but in most cases it doesn’t even make any sense to try to ascertain each employee’s marginal value. As we saw in the examples above, the concept has no application in probably the majority of cases. Depending on how we look at the activity, the income could be attributed to one of several employees alone, to the cook without whom there is no food, to the cleaning crew without whom there are no return customers, and so on. Thus if a firm lays off workers because of a rise in the minimum wage, it is pronouncing upon something which it does not know, namely, their marginal value to the business.
But let us consider a second argument. Since July 2009 the federal minimum wage in the United States has been set at $7.25 an hour. That adds up to $15,080 a year if someone works continually 40 hours a week, all year long. This amounts to $1257 per month. Note that this is gross income, for an employee would have social security and other payroll taxes subtracted, and perhaps state and local income tax as well. The U.S. Department of Agriculture monthly thrifty food budget (June 2011) for a family of two adults and two children varies from a low of $533 to a high of $612 depending on the age of the children, and the low-cost budget goes from $768 to $796. (See www.cnpp.USDA.gov/USDAFoodCost-Home.html, and click on appropriate month.) Thus a family with one minimum wage earner and two children would need to spend from about 40% to well over 50% of its income for even the thrifty or the low-cost food budget. Where I live, in central Ohio, rent of a two-bedroom house is at least $600 a month.
It is true that such a family would probably receive something via the Earned Income Tax Credit (for tax year 2010 the maximum for a family with two children was $5,036) and also food stamps. Both these programs would help raise income toward the frugal comfort that Leo XIII laid down as the minimum befitting human beings, but with the 2011 poverty level for a family of four at $22,350, even with food stamps, such a family would be at or near the poverty level.
Note also what reliance upon the EITC and food stamps does. It socializes part of the employer’s costs, so that his employees are in part paid by taxpayers, but of course, profits accrue simply to himself.
With the minimum wage at $1257 a month, what does that say about our initial question, whether a statutory minimum wage destroys jobs or hinders job creation? I suggest it says this: that the initial question was not the correct question to ask, a red herring in fact. Why is this? Because it is premised on the notion that any job is better than none, regardless of whether a worker and his family can decently live on his wages in frugal comfort.[ii] Thus if a minimum wage destroys jobs, those jobs were not jobs that could actually support human beings in a manner that corresponds to their human dignity. It is true that I might desire to hire around my home a gardner, a cook, a butler and perhaps some other servants and pay them each $3.00 a hour. If unemployment is sufficiently high, I might be able to find some people who will work at those wages. Of course, no one could live at those wages. But as an employer, why should I care? If they die of starvation after a few weeks, there will be others to take their places. But only someone whose notion of society was that of a class of exploiters living off the labor and sweat of everyone else could approve of such a situation. Yet that is exactly what Representative Bachmann appears to be thinking about. $1257 isn’t enough for a family to live on now. So lower it. If those working at this new minimum can’t have children or can’t marry or can’t afford even a rented home, why should the employer care? Why should society care? Why should anyone care? The arrangement is altogether voluntary, isn’t it? No one forced the employee to take a job that now pays $1000 or $800 a month. But why should there be any floor on wages at all? By this line of argument the only sensible thing is to abolish the minimum wage entirely, and let workers compete with each other for whatever crumbs employers will offer. When they or their children die, so what? There are plenty to take their places.
Note also that the idea that lowering or abolishing the minimum wage will affect only new jobs is nonsense. What it will mean is a general lowering of all wages, since workers can now compete against each other with no wage floor to set a minimum. The revival of legal slavery that Belloc and Chesterton foresaw would be merciful in comparison, for the slaveowner at least usually provides his slaves with enough to eat and a place to sleep.
Lastly I advance another economic criticism of the Becker/Bachmann line of argument. It is this: We know that generally any adult worker can produce enough economic goods to support not only himself but several other persons. Of course he needs tools and so forth. If this were not the case, mankind could never have advanced to higher levels of material civilization. There could never have been a class of warriors or priests or scribes or rulers, or even stonemasons or other builders, not to mention young children, because no one could have been spared from the task of obtaining food. For while all these kinds of people are necessary for the welfare of society, their contribution to the economic process is not as producers of primary economic goods. The farmer may need the soldier to protect him from enemy raiders while he is planting and harvesting, but the soldier will need to eat the food grown by the farmer.
What does this have to do with the minimum wage? If every normal adult can produce enough primary economic goods to provide for more than one person, then when a job is designed that (rightly or wrongly) is considered not to be worth more than a minimum wage that is substandard, something is wrong. But the worker is not at fault, rather the job is, for the job has been structured badly. Someone has designed a job which does not take full advantage of the worker’s potential. That is not the worker’s fault. If I had two workers and gave each the same tools and seed and assigned one to cultivate a fertile plot and the other to cultivate a desert waste, I could hardly blame the latter if his harvest was scanty or non-existent. And in a society as complex as that of the 21st century, we do not usually think of the direct connection between the worker’s effort and input and his direct output. Things are much too complex for that. But when we advert to the fact that a worker can produce enough to support himself and his family in frugal comfort, than it behooves us – meaning society as a whole – to see that our economy and its jobs are so structured that they can allow each worker to produce enough of economic value to procure a decent living. This does not mean that everyone must be a producer of primary economic goods, food or fiber or fuel. No, there is plenty of room for complexity in society, so long as we recognize the fact that if a worker seems to be contributing less than the value of a living wage, that is not his fault. Given the right circumstances there would be no doubt that his economic contribution would be sufficient for a living of at least frugal comfort.
This third argument moreover shows the superiority of Distributism as a way of organizing an economy. Under Distributism, although not everyone need be a primary producer or an individual owner, a greater number will be than under either capitalism or socialism. Therefore it will be easier to see the direct connection between one’s work and one’s work product, to see that the normal adult who is willing to work can more than provide for his welfare and that of his family. If he is restricted by the design of his job to producing less than that, that is not his fault. It means that not enough capital was invested in providing him with the tools or other goods he needs, perhaps because his employer is attempting to take advantage of his work effort and hire someone on the cheap.
The case against the minimum wage is plausible only if we look at things through the blinders created and fastened upon us by capitalism, a system in which there is always pressure to lower wages and which regards employees as so many unfortunate burdens upon the company. If all employees could be replaced by robots, so much the better. Of course, how the majority of mankind could then procure food and shelter or who could afford to buy the robot-produced products is not something that is considered in this sort of thinking. This conception of society so utterly lacks any sense of solidarity, any idea of the common good, any regard even for our fellow men toiling along with us toward Heaven or Hell, that it is a wonder any Christian can hold it. Catholic Christians especially have even less excuse, since the Church’s social doctrine is clear that the economic order must be judged according to ethical criteria. Without those ethical criteria, we are not a human society, but merely a bag of cats tearing each other apart.
I must add by way of appendix, that I am addressing one question only here: Does a statutory minimum wage destroy jobs or hinder job creation? I am not arguing that a minimum wage set by law is the only conceivable way of achieving wage justice. In the United States today a minimum wage is absolutely necessary, as it is the only possible means of putting a floor under wages. But where there were strong unions or a robust system of occupational groups (guilds) through which most economic regulation was conducted, it might not be necessary to have a legal minimum wage. Or in a highly Distributist economy in which almost everyone was an owner of productive property, likewise a minimum wage law might be redundant. But in America today it is necessary, indeed it should be raised considerably above what it is now.
Notes
[i]. Microeconomics (17th ed., 2001) p. 79.
[ii]. I am speaking only of adult workers here. I am not addressing the question of wages for teenagers living at home with their parents.
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The idea that “raising the minimum wage will destroy jobs” implies that employers are currently paying for production that they don’t need. Or, to turn it around, if they won’t need that person’s production after the minimum wage increase, then they don’t need that person’s production before the minimum wage increase.
That’s probably a gross oversimplification, though.
The issue of the minimum wage is one of the many things that convinced me that the conservative movement in the US was just as morally bankrupt as the socialist (liberal) movement.
The argument used to be made that minimum wage jobs were for kids just entering te workforce, and they could use these jobs to gain experience and move up to better jobs. That was when I was young and we still had factories and such. I know MANY folks up my way (I live in the poorest county in NY State) who, if the can find work at all, must attempt to raise their families on minimum wage, or close to it.
Why is it that the same people who complain that we need to lower the minimum wage will scream “class warfare” when it us suggested that there might be a cap on the maximum wage?
“Why is it that the same people who complain that we need to lower the minimum wage will scream “class warfare” when it us suggested that there might be a cap on the maximum wage?”
Well said, Bill.
Mr. Storck, respectfully I disagree with your assessment. The minimum wage is a means of (accidentally) legislating certain jobs out of existence with the best of intentions (or more often, the intention of gaining votes). If I’m not mistaken, this was exactly the case for telephone operators when the minimum wage was raised above a level capable of maintaining their employment, which led to the automation machines we have everywhere today. Minimum wage hikes tends towards the automation replacement of workers, which is another way of saying corporate capital risk increases via new automation investment at the expense of less risky but more expensive (in the long term) human laborers. Low minimum wage does not preclude a person from earning a day’s wage for a day’s work, it more frequently means that a day’s wage requires multiple jobs. The reality of multiple jobs and roles in a society has been lost on today’s citizenry (in America) among most, which is a shame, and the trend correlates well with the rising entitlement generation(s). I personally believe in Distributism foremost among all political-economic theories, but I still contend that there are hard lessons that the Catholic Church has not taken to heart with regards to certain principles, and minimum wage is one of them. I’m certain I won’t convince you of this, but your article’s hypotheticals ring very hollow to my ear.
Good day to you.
Andromedus,
Greetings and thanks for a comment, even if negative.
But I’m not clear on your thrust: Are you saying people should be content to work multiple jobs, two, three, however many it takes to put food on the table? If this is what you’re advocating, this is surely to say that certain people shouldn’t be able to
live human lives, but rather exist like animals on a treadmill. Or have I misunderstood you?
Mr. Storck,
The assumption that does not belong is the one that presumes that because a thing is called a “job,” it ought to provide a living wage to an individual. Simply because there is work to be done does not necessitate a 0900-1700 Monday-Friday at $X/hour program. Such an unfortunate modern construct is at best arbitrary and at worst counter-productive and hurtful. I am not suggesting that the average worker should run like a rat on a wheel. What I am suggesting is that social tradition combined with misguided wage laws have resulted in the expectation of what a “job” actually is being entirely unrealistic, while the reality of jobs is that they are being legislated and thereby automated out of existence. Wage laws tend to further consolidate capital upwards by replacing low-wage workers with robotics and mechatronics of every sort, despite the noble intent being to improve the position of the underprivileged. This means that money that would have gone to wage-earners instead goes to capital automation investments. This only furthers the necessity of social taxes, which furthers the Capitalist rift and in turn exacerbates the Keynsian requirement for increased capital taxes in order to keep the lower classes fed and satiated; in other words, that predictable cycle ensues.
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Such is counter, or at least completely unaffiliated with, the goals of Distributism. Distributism cries against wage-centric societies in general, and instead argues for micro-capitalist ventures where wages are relegated to a role subordinate to that of shared equity and product ownership. The promotion of anything wage-related, particularly as it relates to increasing the inertia of wage earnings in society, is the true promoter of rat-race economics. I say this because it simultaneously promotes the Keynsian balancing act required to bridge the class gap that wage laws inevitably exacerbate. At a minimum, therefore, wage laws promote government dependency, which is yet another antithesis of Distributism. Some workers need to work a multiple of what we have come to call “jobs,” and those who wish to amass some capital in order to take part in a capitalist venture (joint or solitary) will work more and harder jobs. That is the kind of devotion that is necessary to “get ahead” under any economic system, Distributive or otherwise, and thus I choose self-determination when operating inside a Capitalist society over the wage-law alternative because instead of promoting sacrifice and work ethic, it in fact undermines it.
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A final noteworthy second order effect of wage-laws and the welfare-class that it tends to create, is that a poor citizen who works and a poor citizen who lives off of a rich man’s taxed dollar are not equal men. One is taught the importance of promptness, of respect for one’s superiors, of attention to detail, of etiquette, and understands the value of money because he has earned it himself. The welfare man, while he may have known those same lessons at some point, gradually forgets their importance, and thus the teachings are lost on his children. As a result, the moral character of a society that chooses class dependency over self-determination will gradually degrade, while the latter will learn the important lessons that the fat children of the wealthy likewise seldom learn, thus arming the poor entrepreneur with the ethical tools needed to rise. In a Capitalist system, this arrangement is preferable to wage-laws, although far from the superior ideal of Distributism.
Andromedus, I agree with you in large part. I remember a judicial dissenting opinion in which the justice remarked that, if the responsibility for each employee’s financial well-being belonged to anyone, it was to society as a whole, not to any individual employer. (I paraphrased somewhat, as I don’t recall the exact quote.) Given that (to me) very reasonable assessment, might it be a good idea for some social transfer payments to go to lower paid workers, even under Distributism? These could be under the direct auspices of any level of government, from local to national and all points in between. Or it could be indirect, the employer, guild, or cooperative taking care of it in exchange for lowered taxes. I’m worried about too-easy reliance on Distributism making everything better by itself. There are plenty of small businesses, after all, struggling to make ends meet now, and I can’t for the life of me see why a change of economic regime would change that.
Thomas Storck, economists and managers may not be able to specify precisely the value of each employee, but they can in all likelihood come up with a fairly good educated guess. One also has to take into consideration what someone else looking for a job would be willing to work for. And your analysis of the various workers each doing their part is unconvincing to me. If you have two well-matched sets of such employees as secretaries, janitors, and receptionists, and put one group into a highly profitable business, and the other into a struggling firm, would that justify paying the first set much higher wages than the second? It doesn’t seem to me that it should. By all means, let’s tax away the economic or quasi rent, but don’t treat the employees of one firm differently than the other.
Viking
I agree that the notion of a “job” as something everyone must have in order to support himself is arbitrtary and unnecessary. However, I am speaking to the situation we have now. As a distributist I hope we will evolve to a better condition. But for now, we need minimum wage laws.
I think the Catholic Church has taken things such as the minimum wage to heart. I think that most libertarians and conservatives have yet to take these lessons to heart.
There was an article the other day in the news about Coca Cola claiming that the People’s Republic of China was more business friendly than the US. There is no minimum wage in China. If capitalism is about making the largest amount of profit with the least amount of government interference in their ability to do so, than yes, China is more business friendly.
If I may cut a paste a bit of Rerum Novarum…
. Doubtless, before deciding whether wages are fair, many things have to be considered; but wealthy owners and all masters of labor should be mindful of this – that to exercise pressure upon the indigent and the destitute for the sake of gain, and to gather one’s profit out of the need of another, is condemned by all laws, human and divine. Rerum novarum
“Let the working man and the employer make free agreements, and in particular let them agree freely as to the wages; nevertheless, there underlies a dictate of natural justice more imperious and ancient than any bargain between man and man, namely, that wages ought not to be insufficient to support a frugal and well-behaved wage-earner. If through necessity or fear of a worse evil the workman accept harder conditions because an employer or contractor will afford him no better, he is made the victim of force and injustice.”
Nope, it really does sound like the Church has taken this into consideration.
And a good day to you, too
Andromedus; your comments suggest that the Protestant work ethic and the capitalist ideal of work, the two as Tawney pointed out are linked intimately, are the traditional Christian one. This is incorrect. We prize hardwork as a virtue among many, but it certainly is not the central social virtue that the Protestant work ethic and capitalism would make it. E.F Schumacher and Dorothy Sayers have written at length of the importance of dignified work that allows men to develop our God-given potentials in the social, cultural and spiritual areas of life. In this they in total agreement to traditional Christianity thinking, though in earlier times it was sometimes expressed in even more lofty and metaphysical terms, which are perhaps out of place in a combox. The ‘virtues’ of the self-made man, of getting ahead and so on are an old tale in capitalist society going back centuries and is obviously still popular with the Fox News/National Review crowd and Republican Presidential candidates, not to mention Thatcher and Tebbit. They are not devoid of positive content but they are not the traditional Christian view, rather it was the poison of Geneva which introduced the heresy that any sort of hard work, the ‘work ethic’ is a root to piety.
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As Schumacher lambasted the modern economic system;
‘In what way does it stunt personality” Whatever Mr. Tawney may have had in mind, I should say: mainly by making most forms of work — manual and white-collared — utterly uninteresting and meaningless. Mechanical, artificial, divorced from Nature, utilising only the smallest part of man’s potential capabilities, it sentences the great majority of workers to spending their working lives in a way which contains no worthy challenge, no stimulus to self-perfection, chance of development, no element of Beauty, Truth or Goodness. “Every man,” it has been said, “should be a special kind of artist.” How many men can be artists of any kind in their daily work? The basic aim of modern industrialism is not to make work satisfying but to raise productivity; its proudest achievement is labour saving whereby labour is stamped with the mark of undesirability. But what is undesirable cannot confer dignity; so the working life of a labourer is a life without dignity. The result, not surprisingly, is a spirit of sullen irresponsibility which refuses to be mollified by higher wage awards but is often only stimulated by them.’ T
The virtue of being able to hunker down to such a working life, to do your best and scrimp and save to better yourself is real, but it certainly should not be what a decent social and economic system is built around.
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Also it is not the traditional Christian view that we owe respect to just any superiors. One of the traditional schema for viewing society was the hierarchical division between the Church/clergy, warriors headed by Sacred Royalty and Empire and craftsman/farmers. Each held its place only because it was part of a divine, natural order and because it kept to the behaviour, ethos and virtue of that order. In essence this reflects, partly at least, the view that it is wisdom, knowledge, justice, piety and virtue which we should respect and which, to paraphrase St.Augustine and many others, give the right of command. As the elites of capitalism do not necessarily or usually have these attributes in abudance, indeed they rarely have some in any special measure and the system itself makes sure of this, then we do not owe them any special respect. Indeed it would be wrong for us to respect them especially.
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You may or may not be right about some of structural dangers of the minimum wage. I for one think that corporate-capitalism is too complex for the minimum wage to necessarily have the effects you are talking of; for instance by raising purchasing power it might actually increase demand and hence not lead to any widespread laying off of low-wage workers in favour of machines. However it is illegitimate to attack it and certain aspects of possible social policy, from the traditional Christian perspective at least, either because they conflict with the ‘self-made’ man/American dream/work ethic ethos or because they may cause a lack of respect for the capitalist system and its elites(which is also covered by a lot of the etiquette defence you mentioned.).
Wessexman, in character as usual, you spend a pamphlet-sized rebuttal on the portion of my argument that is least central to my point. The third paragraph, as stated (“notworthy second order effect”) was not central to my argument. I predicted your response (though I knew not who it would come from) and I have no interest in debating the hierarchy of virtue or in what way you have (via a brief paragraph) come to view mine as jumbled.
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Bill, in a society of competitive business, wages tend to pay justly. The problem arises from collaborative business and monopolistic practices. Unions have existed as a counterbalance to such practices, although the proper counter is an active Congress who takes their role seriously as arbiter of unethical business practices. Your citing of China is a bit astounding, as it should go without saying that China’s business practices are anything but freely competitive. I am aware that this stance sounds Austrian, but as Belloc said of Capitalism and of Socialism: they get some things right, they just never overlap and miss everything in the middle. Well, so do the Austrians when they suggest that wage laws in a competitive market, where contracts are enforced, tend to pay justly (because businesses must compete for workers).
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Mr. Storck, I respect your opinion. As I said, we won’t convince each other (nor will I convince anyone else here, we’re all old dogs I think). At least we can agree that the current system is unnatural and any measures taken with regards to wage laws would be called for because of the unnatural system in which we find ourselves. Better to disagree on that than to disagree that Distributism trumps it all.
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Good day; this will be my final post on the matter.
Sometimes we do not perceive what is most important in our thinking and our way of looking at the world.
Your second paragraph in your latest post would seem to suggest that you need to very much reconsider your view of economics.
Based on your argument, it sounds like the US should set one minimum wage for workers who have to support a family with two kids and a separate minimum wage for teenagers?
“Based on your argument, it sounds like the US should set one minimum wage for workers who have to support a family with two kids and a separate minimum wage for teenagers?”
This has been proposed before, and if we could figure out a way to prevent teenagers from taking jobs away from adults, then I think it may well be a good idea.
It seems to me that Adoremus and Mr Storck are on the same page, but are on different paragraphs.
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Adoremus is saying our modern economic scheme is built around a man-made concept of “job” that really is nothing more than a system by which corporations can operate – until automated technology can take over and make the “job” obsolete. This 40 hours per week “job” is a thus not a natural or even necessarily just concept of ‘labor’. So to advocate for the ‘minimum wage’ is thus playing according to the rules of a game that is inherently biased towards the so called free-market.
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That makes sense, and I believe Mr Stork and any informed Catholic would wholeheartedly agree. The biggest proof of this is that none of us have ever sought to equate “Just Wage” with “Minimum Wage” – for if we did we would indeed conflate the two and end up not having a Just Wage (i.e. based on natural and divine law) at all but rather one based upon “[not-so] blind economic forces”.
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That bigger problem Adoremus mentions is outside the scope of this article, but is still very important and relevant. The sole purpose of this article was to get people thinking, which it does a fantastic job of doing. At the very least, it shows that attempts to elimiate “minimum wage” spells an even faster economic disaster for the family than the slow train we are already on. It’s always ideal to minimize the risk and damage while you still can. The idea that we should let things go to the toilet because we cannot have it perfectly is easy to fall into, but I’ve come to learn is not Catholic at all (since we live in a fallen world and true progress is often slow).
But why did Andromedus start talking about all this ‘work ethic’, ‘getting ahead’ sort of stuff, which could have come from Sean Hannity or a Republican presidential candidate, if he wanted to seriously critique capitalist ideas of work? Surely any real discussion of jobs, the work ethic and even wages should start with the nature of the work being done.
Just found a fantastic website for the distributist.
http://livingeconomiesforum.org
In what follows, I am not criticising the Distributist concept or the many things that are sound in this article. However, some things are unsound: fudged arguments in support of sound positions, trying to “prove too much”, or simply wrong, so I am bringing those out.
No, actually, this argument does not presuppose that. It only presupposes that there is some optimal staffing level, firm by firm. The theory behind the free market does not require that firms and customers to bargain with precise knowledge they obtain by calculation, but that through experience and the “higgling of the market” they will tend towards those optimal levels on average – even though, at any stage, some will be striking points on either side of those. The same applies here: employers will have some idea of what staffing levels they want at which wage levels, will use those working approximations to be going on with, and will adjust them from time to time in the light of their own experiences and their observations of others.
Is there such a level? Yes. Space does not permit a full description of the proof, but essentially it comes from seeing that there are levels that are absurdly high, e.g. 100% employment when they offer wages in the millions, and similarly that there are levels that are absurdly low, and then applying continuity arguments. (If you want more, look up optimising unimodal curves using dynamic programming – googling for the “golden ratio” will help.)
Again, no. That would be the case if that were all that was going on, but here it is actually offsetting another market imperfection that pushes the other way, the socialised and spread costs of having the unemployed around – here in Australia, the costs to the taxpayer of funding unemployment benefits, and in some countries “Vagrancy Costs” which show up as the raised costs of policing etc. in the face of increased levels of crimes of necessity. So subsidies of this sort are “Pigovian”, which means that (at the right levels) they actually reduce the spread and externalised costs overall, even though their own funding directly raises their own particular spread costs.
In fact, the same approach can be taken further and used to offset the very problems of minimum wages pricing people out of work, simply by providing tax breaks to encourage hiring at certain wages. This was addressed by the work of Professor Kim Swales of the University of Strathclyde and his colleagues (in the UK – see http://www.faxfn.org/feedback/03_jobs/jobs_tax.htm#23feb98a), and of Nobel winner Professor Edmund S. Phelps, McVickar Professor of Political Economy at Columbia University (in the USA – see http://www.columbia.edu/~esp2/taxcomm.pdf, or his book Rewarding Work). I myself have done a game theoretic analysis of aspects of these proposals, which I dumbed down a bit and had published in the (near Distributist) National Civic Council’s magazine News Weekly (in Australia – see http://users.beagle.com.au/peterl/publicns.html#NWKART1, and also http://users.beagle.com.au/peterl/publicns.html#LIBRESLN and following, or my Henry Tax Review submission at http://alsblog.wordpress.com/2009/05/05/pml-on-tax-reform).
That is not in fact the case, unless the “and so forth” includes the very underlying resources (e.g. land) that the early Distributist thinkers were at pains to include. To see that, we need only look at the miseries V.S.Naipaul recorded among those released by the end of the indentured labour (“coolie”) system in the West Indies; unlike those freed from slavery there earlier, they were not set up for personal independence. A cobbler with tools, among a host of others, has to price himself down as much as the lowest of his competitors will; if just one has an allotment and only needs a top up wage rather than a living wage, the going rate simply will not support any of them who don’t have independent resources like that, even if they have the tools to do a good job. Of course, there still being some people with some remaining subsistence resources is just precisely what sets prevailing wage levels in many developing countries, which flows through to affect conditions in developed countries’ labour markets via globalised trade.
This is only the case in certain circumstances. For instance, the Mongols under Genghis Khan and his successors gave serious consideration to wiping out Chinese agriculture to make pasture (as nomads, they only needed sheep and not farmers who could support a rebellion – as they later did), and similarly the early Turks effectively did that to Byzantine lands they overran. Even the Venetians banned agriculture around their safe havens in Crete, as they valued eliminating attacks by irregulars more than the convenience of not having to import food from elsewhere.
Bluntly, yes, it does, if it is implemented that way with a mandate rather than with tax breaks (see above), and if it is set at meaningful levels in non-Distributist economies like ours in which people don’t have independent personal subsistence resources.
Two points I wish to make:
1: A minimum wage might be less of an issue if inflation was tempered by gold and silver currency, thus making the money worth more, and the need to have a floor for wages less necessary. A wage of of $5 an hour, in gold value, or taken another way as it would have been worth in 1910, would be the equivelant to $500 an hour today. So if a worker worked at a mere $.25 an hour IN GOLD value, he would actually have a buying value of today’s $25. So 2 weeks wages would be only $20, but the buying power would be $2,000. Big difference. Now obviously the value would not be exact, this being only an example, but inflation-free currency would certainly remove much of the volatility of the modern family budget. Falling currency values generally render a minimum wage worthless. 2: Combine this with a guild-based system, whereby part of the privilege of belonging to a guild is to pay a certain wage(say, $.25 an hour) and there would be far greater stability in the wage market. Remember, a free market is merely a market unregulated by government. Private regulation, even by Rothbard’s definition, is still a free market. This would give the worker both a wage stable in quantity (minimum wage) and quality (no loss of value). Win-win. And, unlike the current system, the entrepeneur gets tit for tat. In return for the benefits and wages he pays his employees (and to the guild), he gets market cooperation, greater market and capital access, and fellowship and interaction with other entrepenuers. In the current system, he merely gets the legally required costs, with no return benefit. No suprise, therefore, that they fight it. There is no reason why increased distibutism and guild cooperation cannot also mean a more free market.