WinLoseorDraw’s Commentary on Minimum Wages

On Linking the Minimum Wage to Inflation

WinLoseorDraw’s commentary

I will attempt to discuss wage policy here and not welfare. An over-arching discussion of Social Welfare will have to wait for another post on another day.

Debates about wage laws are not new nor are they indigenous to the United States. After the Great Plague laborers in Europe were in short supply, so they could command much higher wages. The King in England in 1349 instituted a wage ceiling law which was implemented to keep wages down. Eventually, however, the initial concept has reversed direction. More often now wage laws are used to establish a “living wage” or wage floor.

Many of the American Founding Fathers were at least sympathetic to the idea. Thomas Paine, for instance, favored private enterprise, but also called for social welfare in the form of a minimum wage in the second part of “The Rights of Man”. He wanted an inheritance tax on landed estates to pay for it.

In 1909 Winston Churchill called for a wage floor in England.

As mentioned in the Mark Levin commentary on this topic, minimum wage laws were largely struck down by the United States Supreme Court prior to the New Deal. They have been largely upheld since although there is much heated debate on this issue with research and statistics used to bolster a laundry list of pros and cons on both sides. Various groups have great ideological, political, financial, and emotional investments in the issues surrounding minimum wage laws. In general, minimum wage laws receive less support from economists than from the general public.

You are probably familiar with a phrase popularized by John F. Kennedy in the 1960’s, “A rising tide lifts all boats”. This aphorism correctly implies that a booming economy benefits everyone. However, people are deeply split as to whether a minimum wage provides the impetus towards a boom or a bust in the economy. So the aphorism, as originally stated, does not apply. Picture instead an ocean. The larger ships off shore are always floating freely, but some of the smaller boats, nearer to shore, are scraping along the bottom or they may have run aground. Now picture a government project designed to divert the deeper waters up into the shallows.

I believe the government should protect our precious economic resources, but it should not be involved in moving them around or picking winners and losers like a crooked dealer in a Las Vegas casino.

The government should not be in the business of floating our boats. We should all be responsible for our own boats. We are all in the same pond.

The current system of minimum wages is disproportionate and unequal. It causes huge ideological arguments that are counter-productive.

Some alternatives have been proposed. Some of the alternatives promise to alleviate poverty while not causing any unemployment. The impact would be distributed more broadly instead of unfairly impacting employers with high labor costs.

What then are the alternatives?

  1. A basic income has been proposed. This approach would shift some of our wealth to the lower echelons of society, broadening the impact so that all elements of society would bear the burden equally. It is said that people starting out in life could then afford to turn down low paying jobs and could spend more time studying and preparing for higher paying jobs.
  2. Another approach would be a guaranteed minimum income. The difference between this idea and the previous one is that the benefit would only be paid to low income workers who are actually working. It is often proposed that recipients could qualify by doing community service.
  3. A refundable income tax to bring the tax burden for low income workers to zero, or even below zero, has also been proposed. The government already gives tax credits to people with children and a multitude of other tax credits. Proponents of these measures advocate additional tax credits for the working poor. Earned income tax credits (EITC or EIC) have been expanded by Jimmy Carter, Ronald Reagan, George H.W. Bush, and Bill Clinton.
  4. Some suggest that we could eliminate the need for government mandated subsidies to the poor altogether by simply freeing up the rights of individuals in a group to engage in Collective Bargaining.

I don’t like the minimum wage because it is inherently unfair to employers and particularly to employers who would otherwise employ a lot of people.

I don’t like alternatives 1, 2, or 3 above because they all require a massive government redistribution of wealth; and, as I said, I want government to protect our money but not arbitrarily move it around.

I don’t like alternative 4 either. Unions are, of course, another divisive aspect of the American landscape. When allowed to do so in recent decades, employees have abrogated their collective bargaining responsibilities to a bunch of elected union officials. These union officials often put their own interests ahead of the interests of the employees. The creation of unions only manages to insert an additional level of hierarchy between labor and management. It’s usually counter-productive.

People only get ahead in this world when they effectively band together with others who share their interests. Little would have changed for African Americans by now if African Americans had not gotten together in opposition to slavery. Whites, up to and including Abraham Lincoln, have played a role but not, I would argue, the decisive role. Women would almost certainly not have the vote without the advocacy and activism of the Suffragettes. Gays will not win broader public acceptance without better organization and increased community involvement. “The helping hand,” as my wife’s grandmother Della Ann used to say, “is at the end of your wrist.”

I propose a modified and evolved version of alternative 4. The innovation I am advocating is based on the idea that groups of people with similar jobs should band together in Communities of Practice. The purpose of employees banding together would be to increase productivity; and when productivity consequently does increase, those employee groups could and should reap the financial benefits.

The movement towards Communities of Practice has already begun. We just need to facilitate and nurture them. In Tech companies, for instance, Communities of Practice have become an integral part of the organization structure. These communities take over the company’s burden of innovation and research. There is a great deal of interest within organizations to encourage, support, and sponsor Communities of Practice in order to benefit from shared knowledge that inevitably will lead to higher productivity. Communities of practice are now being seen by many in the business world as a means to increasing productivity.

What I am suggesting is that all labor groups should be encouraged to form these communities with the incentive of financial gain. A mechanism by which groups could document the increase in productivity would have to be used, and the businesses would have to be legally required to remit the financial benefits back to the groups.

I suggest that we leave the minimum wage as is until Communities of Practice can be established and until they start to flourish.

WinLoseorDraw

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