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Sunday, June 22, 2014

Raises to Zero

Noted on Jerry Pournelle's Chaos Manor:
  1. Seattle has mandated a $15/hr minimum wage.
  2. Momentum Machines is creating a hamburger-making machine that churns out made-to-order burgers at industrial speeds.
TOF's Faithful Reader is invited to speculate what will happen to many minimum wage jobs. Will low-skill entry-level kids get a raise from $9.35 to $15.00? Or will they get a raise from $9.35 to no job at all?

16 comments:

  1. Either minimum wage laws create the additional money they intend to be paid out to wage earners, or they don't. If they do, set the minimum wage at $100/hr and be done with it. Everybody's in the 1%! Whoopee!

    If it doesn't, then the money to be redirected to minimum wage earners comes from somewhere. Wages are the biggest single component of business expenses, dwarfing profits in virtually all industries, and certainly in all industries that hire any significant numbers of low-wage workers.

    Therefore, all other things being equal, increases in minimum wages will come predominantly from - wages. which is a long-winded way of saying what your example illustrates.

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    1. I believe the simpler way of expressing it is "price controls create shortages", in labor as in anything else.

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  2. But will the machine give me the authentic experience of a fast food restaurant by screwing up my order, spitting in my food and having a surly, acne-riddled interface that communicates in barely intelligable English?

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    1. I'm sure they can make an app for that.

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  3. Could the difference be made up by executive pay, which has increased extravagantly over the last 30 years, unrelated to company growth or performance or share prices?

    http://en.wikipedia.org/wiki/Executive_compensation_in_the_United_States

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    1. Alas, the companies with the extravagant executive pay are seldom the ones with the minimum wage workforce: Oracle Corp., Tesla Motors, Gamco Investors, Activision Blizzard, Transdigm Group, CBS Corp., Cheniere Energy, Liberty Media, Credit Acceptance, McKesson, Liberty Interactive, Helen of Troy Ltd., Level 3 Communications, Exxon Mobil, Viacom, Yahoo,... Your local burger flipper is usually being paid by a skin-of-the-teeth franchiser who himself may be barely holding on. At Exxon Mobil, to take one example, the median salary is $96,900/yr with a salary range from $41,838 to $289,500. The low salary works out to around $20/hr, well above the Seattle minimum wage and robot employment ordinance. R. W. Tillerson, the CEO of Exxon Mobil pulled down $40,266,501 in 2012. If he split his entire compensation among the 83,600 employees he manages, each would get another 23 cents per hour.

      The price of anything is affected by supply and demand, so one may ask: 1) how many folks are out there with the chops to run a big corporation; and 2) how many big corporations are demanding the aforesaid chopsters. We also need to ask how many of the executives are paying themselves with their own money (i.e., entrepreneurial corporations); and how much of the compensation represents things like stock options, which do not exist as actual money until their potential is actuated by selling the stock.

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    2. Hi TOF, love your work, hate to disagree with you on anything but...

      R W Tillerson isn't the only executive in Exxon Mobil, and their combined bonuses would make a huge difference if spread amongst those employees on minimum wage. I'm not saying this should actually happen, but that it is manifestly unfair and immoral for a tiny few at the top level to be as rich as Croesus (but never quite rich enough!) while tens of thousands down below struggle to live at subsistence level.

      Regarding burger-flippers, whether or not the business model of corporations like McDonalds involves franchises or a.n.other system of competing business units, McDonald's executives and shareholders must still be ultimately responsible for the remuneration of staff working under their patronage and umbrella. Their burger-flippers certainly think so - there have recently been global protests against their pay and conditions e.g. http://www.usatoday.com/story/money/business/2014/05/21/mcdonalds-protests-arrests-fast-food-restaurants/9382753/

      I accept it takes some specific skills and personality types to run big corporations, but do they really deserve to be paid hundreds of times as much as, say, your proverbial brain surgeon or rocket scientist? Given the extraordinary inflation of executive and banker's pay - way WAY above inflation and entirely divorced from performance and results - what is this extra ingredient being supplied these days that wasn't available thirty years ago? And why, if these geniuses are so extraordinarily potent, has the world economy been close to collapse these last five years or so?

      As I understand it there's nothing to stop them cashing in their stocks-in-lieu-of-pay very quickly, or trading them for other investment opportunities. Some of the biggest corporations use this method to evade tax anyway e.g. Walmart:
      http://thinkprogress.org/economy/2014/06/05/3445221/walmart-executive-pay-taxpayers/

      Over and over again we're told that if these superexecs aren't paid the going rate then they'll move elsewhere and 'you've got to have the top people for the job'. Yet these monster pay packets clearly aren't related to pay - see http://www.neweconomics.org/page/-/fig3.png. And where will it end - how much money do they people need? Of course it's not the amount, it's the need to earn more than the other guy: to have the bigger yachet, the more luxurious private jet or palatial mansion.

      The truth is that neo-liberal economics and Randian objectivism have created a top-heavy and unstable world driven by amoral greed and narcisstic acquisition that benefits a tiny minority while the rest of us suffer. Does the wealth trickle down? No - it's all in offshore tax havens. It's not even a free market: the last five years have seen an unending series of scandalalous exposes of fraud, corruption, insider dealing and corruption of democratic processes on a simply collosal scale.

      The Pope thinks so too :-)

      http://www.huffingtonpost.com/2014/05/09/pope-francis-redistribution-wealth-_n_5294629.html

      http://www.washingtonpost.com/business/economy/pope-francis-denounces-trickle-down-economic-theories-in-critique-of-inequality/2013/11/26/e17ffe4e-56b6-11e3-8304-caf30787c0a9_story.html

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    3. The United States, let alone the world at large, is hardly a haven of 'neo-liberal' economics. (I take it you use 'liberal' in the European sense. Here, we would say 'libertarian.') Rather, business decisions are hemmed in by a forest of rules and regulations, for the most part issued by the Executive branch. These distort the market and force sub-optimal decisions in pursuit of political goals. A good example is the collapse of the mortgage market a few years back, which centered in Fannie Mae, a 'quasi-governmental entity' set up to purchase mortgages and package them for re-sale, using the proceeds to back even more mortgages. Naturally, housing prices skyrocketed because prices of Xs always rise to absorb the money chasing them. Starting a while back, mortgage companies were required by HUD to issue a specified % of their mortgages to people whose income was below a certain threshold. This percentage was raised year after year until an inordinate amount of mortgages were issued to people without the means of paying them back. Hence, Fannie Mae and others had to figure out how to package these loans so that Saudi princes and other purchasers would still buy them. The solution was to form packages consisting of "pieces" of the toxic loans mingled with normal mortgage loans. This worked for a while but "when something cannot go on forever, it will stop," and that's what happened. The collapse was designed in by the good intentions of people wanting to make mortgages available to the poor so that they too would reap the benefits of home ownership. It never occurs to these intelligent design (of socio-economic systems) advocates that the so-called benefits of home ownership were causes, not effects.

      Alas, only the CEO salaries were easily found on-line. Hence, only the CEO of Exxon Mobil was mentioned. CFO, COO, and other top executives make less, I would suppose, and redistributing their wages would add progressively less than the 23 cents to the average wage of their employees -- the lowest paid of whom earns $20/hr ($41,838/yr).

      I agree that the boards of directors often pay too much to their executive employees, but we mustn't make the quantitative error of supposing that seizing their wealth would make any difference. Based on other programs, one would be tempted to say that most of it would never reach the supposed beneficiaries, even for the time that their employers might stay in business.

      What I would like to see is some of the advocates purchase a franchise and run it the way it should be run. Facts are more convincing than theories.

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    4. I see that neoliberalism isn't commonly used in the states. Wikipedia defines it as "Neoliberalism is a form of economic liberalism, which advocates support for great economic liberalization, privatization, free trade, open markets, deregulation, and reductions in government spending in order to enhance the role of the private sector in the economy."

      You give one possible example of political interference detrimental to business and finance, but surely the main thrust of political change since Thatcher and Reagan in the early *has* been financial deregulation - the dismantling of the rules put in place since the Great Depression? The whole point was a faith in a kind of cut-and-thrust Darwinian dynamo - the capitalist macguffin - that would re-energise the economy and bring prosperity to all. That hasn't happened though - quite the opposite: the dynamic and self-supporting free markets gambled away all their money and more, and the public purse had to bail them out, like parents paying off the debts of a wastrel son. I see no reason to believe that beyond the current mess there's a purer form of yet more unfettered capitalism that will somehow redeem the current state. Capitalism like any other human activity is subject to original sin, and it should be no surprise that, just as with criminal or civil law, corporate execs and investment bankers when left unregulated fall prey to the same vices, follies and glamours that beset the rest of us.

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  4. I live in Seattle, and I am (was?) opposed to the $15 minimum wage. However, I understand the motivations behind it.

    Seattle has the 5th highest cost of living of major cities in the U.S. Average 1-bedroom apartments rent for well over $1000/month. Gas and food prices are above the national average. A full-time job at the current state minimum wage, already the highest in the nation, leads to a bare subsistence living within the city limits.

    This is an unjust situation. I don't know why everything is so expensive in Seattle. There are many factors, and I'm only aware of a few of them. I'm neither an economist nor a politician. But I know enough that raising the minimum wage will do little to improve matters if the other factors are not addressed. In fact, it seems most likely that Our Esteemed Host's speculation that many low-wage jobs will be eliminated will come to pass.

    However, it is a matter of justice that a worker is worth his wage, and that wage must be sufficient to support himself at least, and ideally to support his dependents as well. I don't know how this can work best practically, but it is certain that a company that cannot afford to pay its employees a living wage is ipso facto unsustainable and uneconomic. It is a failing business. Or, at least, it only succeeds insofar as it robs from its workers what is justly due to them.

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    1. I don't know why everything is so expensive in Seattle.
      I suspect largely because efforts to centrally plan and manage a chaotic system (cf. "organized complexity") generally leads to such things as shortages (which makes things more expensive). Raising the minimum wage will result in purchasing less minimum-wage labor -- unless there is also a shortage of minimum wage laborers, in which case, those employers that need them will bid up the age in order to attract them.

      Alas, this adds to the cost of the product or service and makes these things in Seattle "more expensive."

      Things are expensive because they are in short supply and/or high demand. Real estate in Seattle, for example, is constrained by geography, much as it is in Manhattan and San Francisco.

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    2. Robert:
      I would also have a question as to whether minimum wage jobs were ever conceived of as the kind of job on which a worker could support himself and his dependents. Was the minimum wage ever intended to be a family wage?? I am not familiar enough with its history to say. My guess is that minimum wage jobs were conceived of as jobs to be held by adolescents, those just starting out in the work force or those looking to supplement a family income. They were not understood to be the primary income of a family. Now, it can be argued that they have become this primary income and things then need to be adjusted accordingly.
      Matthew

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    3. Robert: "However, it is a matter of justice that a worker is worth his wage, and that wage must be sufficient to support himself at least, and ideally to support his dependents as well"

      This is patently not true, see eg Adam Smith's buggy-whip-maker analogy (http://en.wikipedia.org/wiki/Labor_theory_of_value) - as soon as buggy-whips fall out of use, the value of the buggy-whip-maker's labour is zero.

      A worker is worth the value of the goods/services produced to employers and consumers, otherwise i'd be making a comfortable living doing something fun, no matter how bad I was at it.

      Minimum wage exists because we don't like to see people starving and homeless. It's charity. The only alternative is to trade, to offer something others are willing to pay you for.

      Yes, I know where that can lead. Large parts of the UK were devastated when the coal mines were closed (consumption switched to gas and other, cleaner power, and coal could be imported more cheaply). Same thing happens when any large enterprise shifts to a cheaper country/production process, but the only alternative is massive subsidy, which is money we could be spending on other things.

      Better to put your efforts into helping people to avoid getting stuck with redundant skills (an old, hard problem, though getting easier as the internet makes information more available).

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    4. @NielsR: You're entirely correct about where the worker's wage comes from...but Robert said that a worker is worth his wage, not worth his labor. That is, that if one wants another person's labor, one ought to pay him enough to live on—that, arguably, less wage than that ought not to be incentive enough to motivate employment with another. (That decision was a lot easier to make when people were more self-sufficient. 19th century ranch-hands, for example, didn't need much money to live on, since they could make many things for themselves that most of us now usually purchase.)

      Nobody said anything about labor being the source of value (labor's nature as "a thing you wouldn't do if you didn't have to" is the source of the scarcity that means people have to pay for it, but that's not the same thing). Please argue with what is actually said rather than with bad Marxist arguments that are much easier to refute.

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  5. "As the minimum wage goes up, so do the self-service signs."--Joanne Jacobs

    I call it Jacobs's Law. The proliferation of take-and-bake pizza shops is the latest demonstration of the power of Ms. Jacobs's iron law.

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  6. Personally, I'm amazed that so many people seem to think employers wouldn't install the robots to avoid paying the $9.35/hr.

    So far, the raise in minimum seems to have had minimal negative effect on the Seattle economy. Historically, minimum wage raises have never had a significant negative effect.

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