Wednesday, June 4, 2014
Many in Seattle are celebrating the approval of a new minimum wage of $15.
The NY Times reported a woman saying that this move will allow her to improve her lifestyle; she will be able to buy shoes and go to the dentist, she claimed.
The approval and subsequent raise was the product of the work of socialists like Ms. Kshama Sawant who was elected to the Council last year.
Ms. Sawant admits the fight is not over and concludes that “$15 in Seattle is just a beginning. We have an entire world to win.”
Other big cities like San Francisco and San Diego are set to follow the north-western city and impose a similar minimum wage.
So, with the minimum wage going up here in the UK this year, maybe it is time to ask ourselves sincerely: how true is it that the lifestyle of the most disadvantaged will be improved by this measures?
It can be observed that forcing businesses to pay higher wages will have unpredictable effects and will not magically make the poorer “better off”.
A simple way of putting it would be: “Having more money does not make you richer” specially if everything gets more expensive!
To understand how wages should be decided we have to take a look at how businesses work; here is a simple exemplification:
Any business that does well and generates good profit will be imitated and concurrence will try to appropriate itself with a share of its market.
For example, If only one bar existed in a small town and this bar makes a considerable profit, then others will start imitating the bar owner and open bars in that town.
In order to bring costumers to the new bars, the new bar owners will have to make a better offer and sell their equivalent beverages at a lower price (or offer something more for the same or a lower price), this will force the original bar owner to lower his prices in order to retain some of his clientele.
If we stick to this logic, then the bar that offers beer at the lowest prices will make less profit per beer but sell more and therefore make an overall larger profit in the long run.
As a bar sells more and cheaper beer, it develops its business and will need to hire extra people to help with the tasks behind the counter.
The prospective employees will also compete for the job and try to offer the best prices for their services in order to get it. The individual that can work for less or perform better will get the position.
Naturally, an individual gets a job and works in order to earn enough to live, so working to get less than what one requires makes little sense.
Therefore, when a bar owner wants to hire people he will have to “sell” the position too. He will have to offer enough money to someone who can complete the tasks his business requires.
The bar owner and his future employee will both negotiate and come to an agreement on a salary that will satisfy both parties.
From then onwards the bar owner and his assistant/s, or bar staff, will become a team and understand that if they make the bar work, both will be benefited and might be able to have a job for a longer period of time or make more money or both.
However, when the minimum wage is imposed, then no negotiation takes place (that iss why they are called minimum wage jobs, by the way!). The bar owner has to regularly pay a specific amount just as he does when he need to buy beer glasses to replace the broken ones.
Furthermore, the employee will get used to be payed the same money regardless of his efforts and will soon start to do the minimum required effort in order to earn the stale, meaningless MINIMUM wage.
This highly inefficient, demotivating measure is what dissociates the bar owner from his staff and makes him consider them maybe as easy to replace as a beer pump (sorry, replacing a beer pump is, in fact, harder than finding new bar staff). He may think: at the end of the day, they just cost the same and all do the same job and he would not be wrong to think that way.
Now the promised part: The minimum wage is comparable to slavery in the sense that an individual working for these kind of positions will be treated as a piece of equipment that can be replaced at any time for the same amount of money. Also, the employee will be bound to work for a limited wage that will not be different whether he is the best or worst at his job.
The only people paid lower wages are people working illegally, but they do not pay taxes either, so minimum wage is pretty much as rewarding as illegal work and maybe even less profitable.
Not less important is the fact that, if the minimum wage is too high to even consider having two employees, then one person will have to do the effort equivalent to two or more people, which is why minimum wage jobs are so extenuating, psychologically demanding and frustrating, just like slavery.
To finish, I will chose, from the long list, one more of the harmful effects caused by the equalitarian idealists' “victory”: Inflation.
If everyone who is on minimum wage is supposed to earn more all of a sudden, where will the money come from? Businesses will have to pass the costs onto the consumer through raising the prices of their products. Consumers will in turn get less for their money and will therefore need to earn more to purchase the things they use to before the minimum wage was risen.
This traduces into: More dollars will be required to finance the exact same work and purchase the exact same products, before the new minimum wage raise. Not a lot of progress, if you ask me.
Maybe in five years time the poor will find themselves poorer but with more dollars to count and will be prone to ask for a newer higher minimum wage whilst new socialists keep on “fighting” for more spoliation and things they do not fully understand.
This makes Seattle's $15 not a victory, but just a fool's consolation.