I just ran across a comment below an article where someone was making the argument that minimum wage laws should be outlawed. Not a brand new concept, I know, but reading it reminded me that I've been stewing over a blog post about economic policies in general so I decided to bounce on over here and write it out.
The point of this person's comment was they every person should get to decide for themselves what they are willing to pay to get a job done, and every person should also be able to decide for themselves what they are willing to accept as payment for doing that job. Pure free market ideology as it applies to wages basically. Do away with the minimum wage, things like industry standards and union bargaining and let each potential employer duke it out individually with each potential employee. As this person took the time to point out, if someone is willing to work for $5 an hour they should be able to do so- oh how empowered the wage earning group would be in that scenario.
It's shocking to me that people aren't able to see the fatal flaw in this ideology, but apparently they really don't because I see the same old tired argument over and over again. I suspect that the people who envision this "perfect system" are either retired/independently wealthy, or they are oblivious to the sheer number of people around them who are just as capable of doing the jobs they now have so they don't have a clue what type of impact this kind of change would have on their own ability to earn.
Even if you ignore every other policy that somehow ties in with employment, there is still one major stumbling block when considering the adoption of this type of policy for determining how wages are decided upon. The number one resource that any area has, almost anywhere on the planet today, is PEOPLE. The vast majority of those people are capable of performing at least one task that has value beyond simply sustaining themselves and securing the means for their own survival. Every single one of those people is a potential employee for someone else. This is where the laws of supply and demand truly come into play, because there is truth to the theory that overabundance of a resource or commodity decreases it's value when it comes time to sell it. This is the reality that has allowed the minimum wage we do have to stay as low as it has in relation to what it actually costs the employees earning it to participate in our economy and pay the costs associated with meeting their basic needs.
What happens when there is a glut of labor, and wages are set based upon what employees are willing to accept, is that all of the available jobs get filled by people who have their priorities straight. By this, I mean that the person getting hired is the one who is willing to do the job in exchange for just enough to cover the cost of what they absolutely HAVE to have- food, water, shelter, clothing, just enough transportation to get to and from work and get around to procure the other necessities. This guy- Mr. I'll do it for $5- has his priorities straight because it's all about focusing on need for both sides, he needs $200 a week to stay alive, his employer needs the cheapest warm body available to stand here and do that for 40 hours each week in order to turn out a product that he can sell to people who can be swayed to believe that having that product is a necessity for them. The employer doesn't care whether his employee has enough money left over to also become his customer, there's a glut of suckers out there he can market to in order to build a customer base just like there was a glut of people for him to consider hiring.
Granted, the pool of potential employees grows smaller the more skill the employer needs them to have in order to get the job done, but it never grows so small that there aren't more applicants than there are positions. In the rare instance that it does, wait a few months or years, and someone will come along who has gained the experience or knowledge that they lacked the first time around and they'll be ready to try and convince an employer to fire the guy that's doing the skilled job and give it to them instead. True, these more highly skilled workers may not be willing to work for rock bottom wages, but that's only because in addition to the needs Mr. I'll do it for $5 has, they also have to earn enough to pay off the costs of learning how to do a harder job. They aren't charging a premium for having to work harder, or think more, or deal with more stress- those ideas are bullshit because when all the low paying, mid paying, and high paying jobs have already been filled by the lowest bidders anyone can be motivated to take whatever it is they need just to pay for the musts.
That's the rub right there. Our entire economy revolves around people working to build or provide stuff and services, and all of those goods and services fall into two distinct categories- needs and wants. Often confused, the lines between the two get a whole lot sharper when scarcity becomes a factor. Take away things like unions, minimum wage laws, and policies that protect workers from being fired for no reason other than someone being willing to do their job for less and what results is a scarcity of JOBS. Never mind wages, we already don't have enough jobs to match with all the people we've got available to fill them. Sure, employers complain about not being able to fill positions, but that's because they are either hoping to fill them with cheaper imported laborers who are just grateful to be here, or they are offering wages that the people qualified to work in those positions would lose money by taking when they factor in the costs of losing their welfare benefits and paying for things they don't need (like childcare and reliable transportation) in order to stay at home unemployed.
With the scarcity of jobs that would ultimately result from creating a free for all market on employee compensation, every potential employee's priorities are going to get reset very quickly. The line between needs and wants would become really clear, and everyone who faces competition for the job they have or hope to get is going to stop spending as much of their earnings on wants. It wouldn't take very long at all before everyone who works for wages, rather than pays them, began apportioning their paychecks to cover food, shelter, water, transportation, savings, and nothing else. We'd have to because there is absolutely no job in this country that there aren't at least two qualified people to fill, so the risk of the other person being willing to do the job for less would be omnipresent. In a generation or less our economy would be in a death spiral due to the fact that the sales of unnecessary goods and services would plummet, leading to more job losses, and more people desperate to take one of the few remaining jobs away from the people who are still employed by offering to do it for less.
Nobody who is in the position of paying someone in exchange for something else wants to pay more than the absolute lowest price out there, whether that price is wages or the cost of a tomato. Things like quality or convenience can sway someone to pay a premium when there is plenty of money to pay out of, but it doesn't go far enough to convince someone to pay $20 an hour to an excellent employee when there is an adequate employee willing to get the job done for $5 an hour. Paying four times the price to get a slightly better version of anything isn't transacting business, it's doling out charity. The reality is that there is always someone who could adequately do the job who also happens to be willing to do it for $5 an hour.
The best we could hope for in a scenario where there were no such things as a minimum wage or laws designed to promote and protect employees being hired and retained at wages higher than those demanded by Mr. I'll do it for $5 is a dual economy- one that exists and is participated in by wage earners and a separate one that revolves around meeting the needs and wants of those lucky enough to be above having to work for a paycheck. Truth be told we're at least halfway there already, because there are huge swaths of our population who spend their money on nothing but the cheapest food, housing, and other necessities our economy has available for sale. These people are not buying the products advertised on television, they aren't buying anything at all other than the things that they absolutely cannot live without, and if we were to take away all of the safety net programs, charitable organizations, and socialized services that we do have this segment of the population would be indistinguishable from the population of a third world country. The bulk of our economy revolves around providing an enormous list of (a few) needs and a whole lot of wants to people whose earnings, savings, and inherited wealth or profits allow them the luxury of buying in all their various shapes and sizes. $5 an hour for people with no other means of support will pay for at the most three hots and cot, water to drink and clean themselves with, and enough mobility and health care to keep them on their feet so that they can keep showing up at work. Anything beyond that will be produced exclusively for purchase and use by people whose income cannot be threatened by someone willing to work for $5 an hour, which would eventually be about 1% of our population. Everyone else would be fighting for the privilege to produce as much as the 1% was able and willing to consume in exchange for $5 an hour and living off the charity they were willing to dole out when all the jobs were filled.
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