Those promoting a higher minimum wage wrap themselves in a cloak of moral superiority, claiming they’re fighting for the poor. Yet they are trapping the poor into poverty. For the very same reason that you wouldn’t say, “Sorry young lady, you can go to school” we shouldn’t allow them to say “Sorry, you can’t work in an entry-level job.” Such a statement is not the moral high-ground, it’s in the moral gutter.
At a gut level, most people realize there’s something wrong with the logic that every job should be a living wage job. That is simply not true. Jobs are a form of education for better jobs. When we tell someone they can’t work for less than a particular wage, it’s the same as telling them they can’t go to school.
Not all jobs are for earning a living, many are for earning credibility for a better job—earning an education.
One can easily judge how well Socialism has worked at producing wealth—everywhere it’s tried it fails. So why do we keep falling for the same tired rhetoric? It’s because the proponents of Socialism market it as more socially just than a system based on the drab realities of economic principles which actually work. In other words, they appeal to emotion rather than reason. They fill their speeches with outrage and passion about dominance in society by the wealthy and the plight of the poor working person who spent 20 years in a low-wage job. But missing is the simple logic the person chose to remain in that job, rather than to use it as a stepping stone to a better one. They also appeal to the baser emotions of jealousy and contempt—jealousy for the wealth that others have and contempt for what they perceive as unearned privilege. It is easier for them to sell the poor on the idea that someone is holding them down, than the truth that they are responsible for producing success in their own lives. It is an easier pill to swallow that you are a victim, not a failure. In doing so, they also promote the uncharitable assumption that the wealthy are all greedy and oppressors. An assumption which is simply not true.
In Seattle—perhaps especially in Seattle—the bulk of small business owners pride themselves on kindness, love, and charity toward others. Many owners work along side of their employees, oftentimes paying employees more than they take home themselves. These big-hearted entrepreneurs are job-creators and benefactors; anything but oppressors.
In a recent article (Political slogans crowd out reason on minimum wage) the author observes that catchy slogans can overwhelm reason. While this observation is correct, even this author makes the mistake of allowing the rhetoric to advance bad ideas through compromise. The article implies that “black and white thinking” is part of the problem and suggests that a job loss of 100,000 is better than a loss of 500,000, and somehow that’s more reasonable. But why accept a job loss of 100,000 as a concession to the slogan throwers? How is that a victory for reason?
So here’s an argument based on both reason and emotion. This is what will be lost if Seattle adopts a high minimum wage. If small businesses are driven out, who will replace them? In the vacuum left behind larger businesses will step in—big businesses who buy in quantity, with specialized administration staff, major distribution channels, and distant or even offshore production facilities where wages are much less. These larger companies can afford to pay a higher local wage, because other costs are kept much lower. Small business simply can’t compete with the economies of scale available to larger businesses. Gone will be the local charm and home-town atmosphere of the endless small businesses in Seattle. Gone will be the family-like atmosphere of small business owners working along-side their employees. In their place will be national chains, with owners living elsewhere. Is this really the vision we want for Seattle? No, we should work toward keeping Seattle businesses under local ownership. KEEP SEATTLE LOCAL!
Why do people work in a job? Not surprisingly, people have different answers to that simple question. That’s because a job is not only a place to earn an income, but also a place to earn credibility for a better job. Until a person retires each job can be a stepping-stone to the next. Indeed, interns work for little or no compensation in exchange for the education they receive. The stepping stone nature of internships is obvious, so why do so many people focus only on the wages?
The current radical protests for high minimum wages—that all jobs should be living wage jobs—ignores the fact that people take jobs for different reasons and thus are jeopardizing the ability of the poor and unskilled to accept entry-level jobs as stepping-stones to better ones. High minimum wages disqualify those people whose skills don’t match that wage. A common analogy is the ladder of success and that each job is another rung on the ladder. High minimum wages remove the bottom rungs from the ladder.
SeaTac has already sawn-off the bottom few rungs of the ladder to success, by pricing entry-level jobs out of the market. And now Seattle is considering this also. It will be especially harmful to the poor and unskilled.
So where did the irrational idea originate that all jobs should provide a living wage? It is rooted in Socialist and Communist fallacies that the value of a good can be determined by the amount of labor expended toward its production. This is called the Labor Theory of Value. To resolve the initial exchange of labor for goods Karl Marx suggested using labour vouchers based on hours worked. It didn’t matter whether the labor involved was mental or physical, skilled or unskilled, it was all equal and based on labor time. All jobs were equal.
In fact, the reasons why people take jobs are even more varied than explained above. Some people will take a job for the social interaction it provides, and would do so with or without compensation. Some highly skilled people choose non-profit work, even though they could command higher salaries elsewhere, because they value giving back to their community. Still others work for a period of time in different jobs to gain perspective, or as part of a research project. There are potentially thousands of different reasons why people accept jobs, besides earning a living wage.
Please see this article by the Manufacturing Industrial Council of Seattle (MIC)—Reality Checks & Minimum Wage. It details the recent results of a survey of “a cross section of Seattle industrial firms with more than 1,100 employees engaged in seafood processing, metal fabricating, machining, and logistics.”
The article includes this passage: “Two of the companies that participated [in the survey] expanded their Seattle production facilities in the past 12 months. Representatives say their companies probably would not have expanded here if they knew the minimum wage might be raised to $15 for entry-level workers. Their reasoning has nothing to do with rhetoric and everything to do with costs. Seattle is already an expensive location for industrial firms, and far cheaper alternatives are available in nearby suburbs.”
This survey shows that entry-level jobs are truly a first step toward higher-paid jobs later. And failing to recognize the importance of preserving entry-level jobs jeopardizes not only the availability of such jobs to those who need them, but also the viability of local economies. Companies will simply locate where costs are feasible. This is in fact a lesson-learned from minimum wage laws—they have no effect on regulations outside of their own jurisdiction and thus do harm to the very people they are intended to help, while also harming their own local economy.
Where high-minimum wage jobs are difficult to relocate, many are replaced by automation. See this short video by the Employment Policies Institute:
When recent minimum wage increases were imposed on American Samoa the impact to their economy was severe. Yet, this didn’t harm the economy of competing labor markets, such as Georgia in the United States, where they constructed an automated tuna canning plant, or Thailand where labor costs in fish canneries are only 75 cents/hour. Minimum wage laws either eliminate entry-level jobs through automation, of displace those jobs to places where labor costs are lower. The rules of economics can’t be repealed by the good wishes of social reformers.
We executed another HELP “Buycott” event on Thursday February 20th, 2014. Working Washington had called for a protest at several fast food restaurants and requested their people to boycott all McDonald’s, Wendy’s, and Burger King locations in Seattle on that day.
We widely distributed another HELP Flyer and hundreds of our people quietly walked into these restaurants and bought more, not less. Meanwhile, in the streets outside protesters pandered to the press–waving signs and shouting and trying to make everyone believe these were workers demanding higher wages. They were not workers, but union agitators. In fact, they should probably be called performers, since they were mainly putting on a show for the cameras. They don’t even bother calling these “strikes” any longer, because it’s obvious that employees are not involved. The workers were inside serving customers and the restaurant managers reported that daily sales were not really impacted by the boycott.
Sincere thanks to everyone who participated. While this was a success it’s only the beginning. If you’d like to participate in future HELP Buycotts please contact firstname.lastname@example.org.
Please see the Foundation for Economic Education (FEE) web site—The Truth About the Minimum Wage. It contains a link to this video:
Why do unions promote increases in minimum wages? There are numerous articles explaining the reasons; such as the Wall Street Journal, the Mises Institute, and the Heritage Foundation. Also, several of our earlier posts have additional information. However, it’s fair to say that union members versus union leaders may very well have different motivations.
Union members are often hard-working folks, just struggling to make ends meet. They experience on a first-hand basis what it’s like to make hard choices between financial needs and wants. Most of them would not be comfortable knowing that their actions are harmful to other working people. So when they promote minimum wage laws, they believe they are helping ease the plight of low-wage workers. Yet they are not privy to all the motivations known to union bosses. Members typically trust their leaders, but they are being used.
Union leaders, have a different perspective. They are not only concerned about helping union members, but also about strengthening their own grip on the reigns of power. In fact, this motivation typically overrides all others. In order to strengthen the union, while securing their own position, they must foster an atmosphere of distrust and drive a wedge between employers and employees. Only in this way can they control what the union members hear and believe. The union members are only useful as troops if they can be controlled, and this requires controlling the message. So the union leaders don’t tell their members that promoting minimum wage laws harms other people. Instead they tell them that by helping the low-wage workers get higher pay, their own salaries will increase also. So they think they are helping both classes of workers, but they haven’t been told the whole story.
What’s hidden is the consequences of eliminating entry-level jobs and why it is so devastating for the poor. The difference between gaining credibility for work through education or experience is described elsewhere. The crucial point to understand is education of any type comes at a price and the price for gaining the education needed for career advancement is ALWAYS working for a period of time at a lower wage. So when unions campaign for higher minimum wages, they are really eliminating some entry-level jobs and forbidding some people from gaining the education needed for getting out of poverty. If the union workers truly understood this many of them would not participate in campaigning for higher minimum wages. That’s precisely why union bosses don’t tell them the full story.
Why are we called Market Wage Action Alliance? Our primary focus is the market should dictate wages, not artificial government diktats. Only competitive forces in a free-market can accurately reflect the value of a given skill. Hence, all minimum wage and living wage efforts have unintended consequences, which are too often ignored. The most verifiable consequence of all such wage laws is unemployment of anyone whose skills are below the statutory minimum.
In a Seattle Times editorial (Lessons from Dick’s Drive-In on minimum wage, employee benefits) Jim Spady, the Vice President of iconic Seattle fast-food restaurant Dick’s Drive-in, said the following.
“The way to improve the wages of the poorest people is to encourage them to upgrade their skills, not to pass a law that requires we pay X dollars an hour,” … “Governments can pass laws, but they can never repeal the law of supply and demand. So if you force law abiding businesses to pay more, they will — or they will automate their processes so they use way less labor. Or both. And the people they do hire will be the people who are best in that group. So what these high minimum wage laws do is they help a few people get better wages, but a lot of current people will lose their jobs.”
Another recent article describes Applebees “Waiter Terminator” which will replace workers with automation. Many other restaurants are also considering this business model. This article closes with this observation. “In other words, a funny thing happened as fast food workers were striking across the land – they were all just made obsolete courtesy of iPads.”
Some jobs simply go away when the minimum wage increases. For example movie ushers, elevator operators, and gas station attendants. Those services are not worth the cost of minimum wages, yet entry-level jobs like these provide a foot-in-the-door for beginning workers. You can’t make a given set of skills worth more by making it illegal to pay less. Every time the minimum wage goes up, more low-skilled jobs wither away.
So we proudly emphasize the importance of “Warket Wages” in our name because it is a reminder of economic supremacy of the market. Protestors who demand higher wages—wages greater than their skills justify—ignore market reality at their own peril.
The evidence is growing, there was no real strike on August 29th, only a flailing protest by unions trying to become relevant again.
The fact that minimum wage laws create unemployment has been well-known to economists for decades, but it is akin to political suicide for politicians to publicize that fact, because they risk disfavor by the unions. In fact, for more than half a century it has been a truly anti-competitive practice by unions to limit low-paid competition for jobs by using government to impose minimum wages. Those most severely impacted are those who have limited resources for higher education.
Prior to about the 1940′s the path to a career for the poor was traditionally entry-level jobs, instead of higher education. But when minimum wage laws were enacted, the poor were trapped in their poverty. They couldn’t afford education and they couldn’t get their “foot in the door” with a low-paid job. If they went on government assistance, they were further trapped in poverty, because the motivation to work was no longer the wage, but the difference between the wage and what they were already getting from government relief.
Here’s a good audio recording of Professor Hans-Hermann Hoppe, lecturing at New York Polytechnic University in 1986. He explains in detail the relationship between minimum wage rates and unemployment, especially black unemployment. He explains that minimum wage rates were intentionally designed to keep “blacks, women, and teenagers” out of the job market to reduce competition for union jobs. He said that unions will “only make the minimum wage high enough to disemploy the people they don’t really care about, but never push it so high that they start to disemploy union workers with seniority.” He mentioned evidence of the unemployment/minimum wage relationship even 20 years earlier, however at that time statistics had a shorter history. But by 1986, the trends were undeniable. (His discussion of minimum wages begins at about 22 minutes into this recording.)