I'm sure that I've written this piece before, or at least gotten into the subject in a legitimate depth at one time or another. But I read that in Bernie Sanders's endorsement of Hillary "they weren't classified at the time" Clinton, he made a point that he was in part endorsing her because of her commitment to raise the minimum wage.
So, naturally, I thought about it again. And my feelings and my points are the same.
Every time Bernie or Hillary or someone else without a clue about economics barfs up some commentary about the minimum wage, it is always in the context of whether or not someone can "live on it", or what they "deserve", or some other commentary on the relationship between the minimum wage and the needs of the individual employee who is being paid it.
At that point, I step back and ask "Huh?"
I believe that "Huh?" is a perfectly legitimate question, after all. Labor, when all is considered, is a commodity. Buyer A purchases labor from Seller B, same as if you went to the store to buy a peach. The grower grows the peaches, sells to a distributor, who sells to the grocery, who sells to you. The grocer also buys labor from people like check-out folks.
Ultimately you, the buyer, have all the control. If the grocery asks for two cents a peach, you're almost compelled to buy it, because it is so cheap. If they ask $20 a peach, you're never going to buy one, because there's simply no peach on earth that is worth that kind of money.
Most importantly, what you pay for the peach depends on one thing and one thing only -- whether you believe that the price of that peach is appropriate, given the value you place on eating a peach. By "one thing only", I am saying that you place no value on what it cost the grower to produce the peach, nor the distributor to distribute it, nor the grocery to put it in front of you and sell it. No value. Simply, its value is only on what you, the buyer, thinks that peach is worth.
Labor is no different whatsoever. The grocery selling that peach has a certain number of check-out people needed at a given time of the day based on two things -- how many customers are expected to check out in a given time, and how long a wait time the grocery feels is reasonable before it starts losing customers. That is the demand for labor.
That demand for labor is then bounced against its supply -- the number of competent people who would line up outside if the grocery needed another check-out person -- to determine the value of the labor. The value is the lowest price the grocer can pay for the labor based on being able to attract and retain competent people.
It is no different whatsoever from the value of the peach. As a seller, the grocer will push that price up as high as he can without losing interest from customers in peaches, while as a buyer, the grocer will push the price of labor as low as he can until he can't attract competent staff.
Beyond that point, as far as labor, the grocer will make concessions (pay more) as needed to retain better staff who will minimize turnover and possibly attract regular customers (i.e., add value). He will, as a buyer, pay more and charge more to put better peaches on the shelves (i.e., reflect the value of higher quality). Peaches and check-out people have that in common; their price is determined by value.
This is lost on Hillary Clinton, simply because winning the presidency is the end unto itself (she has no idea how the economy works, and certainly understands none of the preceding paragraphs -- unless she is a complete hypocrite, which, well ...). You know it is lost on her (or her hypocrisy gene is expressing) because, in touting an increased minimum wage, she has completely separated the value component from the pricing component.
Indeed, in the same way that the grocer is not paying X cents a peach to the distributor based on the distributor's needs, nor is the distributor paying the grower Y cents a peach because of his needs, the needs of the labor force are totally irrelevant, or should be, to the price of labor.
The grocer can generate a certain amount of revenue per month based on the community's demand for groceries. He has a cost of rent and cleaning and the like, and out of what is left he has to pay for the products he sells, and then the labor needed to sell it. If the remainder left for labor allows him to pay ten employees what the value of ten adequate employees is to him, then he can afford ten employees and pocket the remainder as profit on his investment.
That's my -- and, hopefully, your -- grounds for thinking that the minimum wage is foolish. Ultimately, the grocer has a fixed amount of money to pay for all labor. If the price of that labor is forced up (by a minimum-wage law) without providing any value for the increased payment, it is pushing down one part of a balloon -- another part will pop up. In this case, a higher labor cost per employee against a fixed labor budget means fewer jobs.
Aside -- the same outcome applies to anything that forces up the cost of labor, including higher medical insurance mandated costs, or benefits like paid family leave, or mandating sick leave. More costs applied against a fixed labor budget means fewer employees -- either by using higher-rate, more skillful employees, or automating. One or the other, or both, are going to happen.
Raising the minimum wage is a benefit, all right, but it is a benefit only to the most industrious, hard-working, well-trained and most competent in the labor force. The more they can take on, the easier it is for the employer to save money by having two do the work of three, or ten do the work of fifteen. Higher rate per employee, sure, but fewer employees needed.
I do not charge my consulting rate based on what I need, but what the market will bear. In fact, I'm a perfect example because my rate is quite low for my profession and my decades of experience. My rate is low, certainly, but I am busy all the time because I'm the two-cent peach, providing good service for a very affordable price.
I have not even gotten into the facts about who actually earns minimum wage, and the effect that raising it (especially to absurd levels like $15) has in killing entry-level jobs. But I will point out that all those unemployed millennials living in their parents' houses, who have a desperate need for entry-level opportunities to learn a work ethic in the first place (and become those "valuable, hard-working employees"), are utterly scrod by an excessive minimum wage.
But Bernie doesn't care, and Hillary is only about votes and winning the office her husband, the former Philanderer-in-Chief, had, so she can show she's much better. The facts, the outcome of proposed solutions, well, they are of no meaning to her at all.
But they do mean things to us.
Copyright 2016 by Robert Sutton
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