Why do the workers have the lowest negotiating power in these jobs? It's because they are the most easily replaced and the net benefit from employing them is smallest.
[There are some edge cases, where a field is swamped from people doing the job for the love of it... But this is not the typical case.]
> Isn't the whole point of the minimum wage that the federal / state / local governments are the negotiator of last resort?
Yes. And it's a necessary thing to have.
On the other hand... if someone is doing work that returns $15.50/hour on average to the business, and is employed at $10/hour, raising the minimum wage to $15/hour doesn't get that person a raise: it gets them laid off.
The things that IMO really help the fundamentals are:
* Raising the demand for low-skill labor (e.g. economic growth above productivity improvements)
* Raising the average skill level of the workforce, and/or
> On the other hand... if someone is doing work that returns $15.50/hour on average to the business, and is employed at $10/hour, raising the minimum wage to $15/hour doesn't get that person a raise: it gets them laid off.
No, what it does is it causes prices to go up, which are amortized across all of society - between both people who are paid $15/hour, and people who are paid $150/hour.
On average, it is a small wealth transfer from the average person to the working poor.
> No, what it does is it causes prices to go up, which are amortized across all of society - between both people who are paid $15/hour, and people who are paid $150/hour.
Do people who are paid 10x necessarily consume 10x over a person paid minimum wage? If raising the minimum wage causes across the board price increases (aka inflation), then those whose income is lower are affected more since a higher percentage of their income is spent on essential consumption (food, water, shelter).
If the operational concept is "small wealth transfer" to the folks earning the lowest income using inflation as a stealth tax then it is a highly regressive tax.
Using polling data for 31,869 households in thirty-eight countries and allowing for country effects, we show that the poor are more likely than the rich to mention inflation as a top national concern.
> Do people who are paid 10x necessarily consume 10x over a person paid minimum wage?
Even if their consumption was 1x, my point would still stand. Most people aren't earning minimum wage, nor are their salaries affected by minimum wage increases. This means that the cost of most products does not increase as minimum wages increase.
Minimum wage increase money comes from somewhere, and since ~everyone relies on minimum wage workers, that means that ~everyone pays for that wage increase.
If you take a dollar away from 100 people, and split half the resulting money between the 10 poorest in that group, and the other half between the next 20, it's a regressive tax, with a progressive benefit that has a net benefit for the poorest. Minimum wage increases work the same way. The rich lose very little, the middle class lose some, the poor win.
Are there better ways of structuring this sort of thing? Theretically yes, but practically, the rich are really, really good at protecting themselves from wealth redistribution. If you're going to hold the poor hostage to them, you're never going to get anything done.
The stealth taxation of inflation affects the lowest 30 in the 100 the most in order to pay the lowest 10. The change in purchase power is not like taxing everyone $1. Whether it’s like taxing on a sliding scale from low to high income that is $1 to $.5 or $1 to $0, I don’t know, just $1 across the board isn’t right. There are probably second order confounders as well, for example since federal gas ax is not inflation indexed, inflation acts as a tax cut.
“It isn’t the sum you get, it's how much you can buy with it, that's the important thing; and it's that that tells whether your wages are high in fact or only high in name.”
Mark Twain A Connecticut Yankee in King Arthur's Court (1889)[0]
$1 across the board is, indeed, not right. In reality, people higher up on the wealth scale would pay more (as they consume more goods and services - just not 1:1 proportionately more.)
A change in real dollars still affects lower income folks more because a higher percentage of income is devoted towards basics. Inflation reduces purchasing power for all, but some categories of spending cannot be substituted or eliminated.
U.S. households with higher incomes spend more money on food, but the amount spent represents a smaller overall portion of their budgets. In 2020, households in the lowest income quintile spent an average of $4,099 on food (representing 27 percent of income), while households in the highest income quintile spent an average of $12,245 on food (representing 7 percent of income).
So, you're saying that for every dollar taken from the poor (to be redistributed to the working poor), we'd be taking three dollars from the rich (to again, be redistributed to the working poor)?
That seems to support my point that raising the minimum wage disproportionately helps the working poor.
Key word is proportionate. Inflation disproportionately affects those with low income. The affects are not linear—look at the difference in pct income to food in lowest quintile compared to others. A dollar from the lowest quintile is objectively more valuable in purchasing power than three dollars is to the highest.
It’s akin to the company town giving a buck more in wages but charging 2 more in groceries. Sure you make “more,” but since you can buy less of what you need, you are effectively making less.
> No, what it does is it causes prices to go up, which are amortized across all of society
It does both of these things. Some jobs are lost and some prices go up.
Some tasks are better off outsourced, automated, or not even done at all as the floor price on labor increases. Raising minimum wages here hurts. Shortening the work week helps.
The demand for some tasks is inelastic but easily performed by many different people. The price of these tasks increases in proportion to minimum wage. Raising minimum wages here helps the employees, and shortening the work week is a small hurt.
Some tasks already have an equilibrium price well above minimum wage due to a supply limitation of the capable labor. Raising minimum wages here is relatively neutral. Shortening the work week should increase compensation here and increase the motivation for employers to find ways to bring more lower skill people into the field.
Why do the workers have the lowest negotiating power in these jobs? It's because they are the most easily replaced and the net benefit from employing them is smallest.
[There are some edge cases, where a field is swamped from people doing the job for the love of it... But this is not the typical case.]