Minimum Wage, Economic Models, and Reality.

Edit: So this one should really have been an eight part series, or maybe at least four parts, but I did it as a single post. I apologize. I'm not going back and fixing it. You can feel free to read it in sections.

Minimum wage is kind of a big topic. There are a ton of variables that have to be taken into consideration when you look at changing something like the minimum wage. It's going to have a ripple effect, and if you haven't examined where those ripples go, you're bound to make things worse.

The first and easiest idea to eliminate from the playing field is that of eliminating the minimum wage entirely, and allowing a free market to set wages where they would fall naturally. Worst. Idea. Ever. Seriously, we tried that before, it was horrible. Not having a minimum wage is what led to having a minimum wage. What most people don't realize is that the abolition of slavery didn't mean you had to start paying people a minimum wage. A minimum wage wasn't established until 1938, prior to that employers paid whatever they wanted to. The wage was set by the market.

The problem is if there is a surplus of workers and a deficit of jobs, the market gets a little screwy. With so many workers and so few jobs if a potential employer offered you a wage that you didn't like, you had no negotiation leverage. They make an offer, you make a counter offer, they say thank you for your time, and they move on to someone else. Because even if the wage they're offering is really horrible, someone will take it. Why?

Well, because it's impossible to negotiate effectively when starvation, homelessness, and death are the alternatives. People need jobs. They need them for food, for shelter, for clothing. They need them to ensure they have the necessities. So when you're unemployed, and there's a surplus of workers, and the guy interviewing you offers you a ridiculously low wage, you take what you can get. Even if it isn't enough to provide for all your needs, you take it.

That was the situation in 1938, and there was no minimum wage, which meant they could offer you any stupid amount of money, and you'd take it. Some companies didn't even offer you money. After all, with no minimum wage, they didn't have to. It wasn't entirely unheard of for a company to pay you nothing more than food and shelter. Some companies would go a step further, and actually pay with food, shelter, and credits in the company store, a little shop that sold a few minor things like toiletries. Now, some companies used the credits in addition to cash pay, and some used the credits as a loan system to be paid back once you had your cash pay.

Regardless, the lack of any minimum wage forced workers into a place where they had to attempt to negotiate from a stance that left them little to no leverage, and led to the exploitation of many American workers.

So instead look at our current situation. We have a minimum wage, what would be the effects of raising or lowering the minimum wage? Since minimum wages across the country differ, lets work with a nice easy round number. Let's call the current minimum wage $10/H (which, for a lot of people would be a dream come true).

Now let us give look at a business. We'll call it Joey Burger. Joey Burger is a small business, only one little restaurant. Joey runs it with himself and one employee. Now, Joey Burger does a brisk business, but between the bills and paying his one employee $10/H and making sure he has money for himself, Joey can't hire another employee. The business is busy enough that having another employee would improve customer service, improve food quality, and possibly increase sales. Joey could go out on a limb cut some expenses at home a bit, and maybe find a way to cut expenses in the business to bring in a second employee, maybe part time, but that is a huge risk. If it doesn't lead to the increased sales, Joey's screwed himself over.

Economic Theory says this: Cut the minimum wage.
If the minimum wage were to drop to $5/H Joey would be able to easily afford a second employee. You've just reduced unemployment, and improved Joey's business, and driven up sales, and because you've got another person working and paying taxes you've boosted the economy! Look at that, we've fixed everything, that easily.

Except the world doesn't work like Economic Theory.
If the minimum wage were to drop to $5/H Joey would be able to easily afford a second employee. However, most of the time they won't bother. If one person making $10/H can do the job, and 2 people making $5/H can do the job better, the solution is simple. Pay one person $5/H to do the job, then tell him that he needs to work harder, work faster, and do better, or you'll give his job to someone who will do it better and faster for $5/H.

Greed is, for most businesses, the driving force. I mean, they're in business to make money, not to give a shit about their employees. Now, there are exceptions. There are businesses that go that extra mile to pay their employees a living wage. There are those that provide healthcare above and beyond what they have to. There are businesses that give paid vacation, paid sick leave, holiday pay, heck there are some businesses that even go so far as to close on holidays, so their employees can enjoy holidays as well.

That is not the vast majority of businesses. And I feel like I should apologize to Joey's Burgers, because while most businesses allow greed to be their driving force, you find that small businesses tend to skew the numbers a bit because small businesses who can least afford to treat their employees fairly do a better job of it than most large corporations.

There are however some major problems with rearranging the minimum wage. First off, what happens to Joey Burger? If he had one employee at $10/H and he couldn't afford a second, what makes you think his business will survive a jump to a $15/H minimum wage? What about inflation?

There are more problems than just those, but those are a good place to start. What about inflation? Well, inflation is simple. I mean, several countries have already found the solution. Tie your minimum wage directly to your cost of living. You start by bringing the wage up to something livable, after that you set it so that every time your cost of living goes up, so does your minimum wage.

Here in the U.S. some people have proposed a $15 minimum wage. So we start there. Cost of living goes up 1% over the next 6 months, minimum wage goes up $0.15. If it goes the way other countries went that'll happen several times, then balance out.

Alright, but what about people like nurses? They went to school and worked hard to get a job that, with a minimum wage of $15/H would leave them making only a little bit more than a fast food worker! On the surface that's true, but a high tide lifts all boats. Employers aren't stupid. They've managed to take advantage of the system for as long as they have because they're smart. If suddenly fast food employees are making almost as much as a nurse, or a lab tech, people are going to stop becoming nurses and lab techs, and competition for the coveted Fry Cook position is going to get intense. So hospitals are going to start offering more to their nurses, their lab techs, and everyone else who is right at the edge of minimum wage. When you've got nurses quitting their jobs to go work at a fast food joint, when employers are having to actually compete to get employees, that's when things change.

But back to the question about Joey Burger. How is Joey going to keep his doors open? Here's where it gets a little convoluted. You have to separate your employers into two categories. Those with more than 500 employees, and those with less. Those with more than 500 employees are expected to make the transition to a higher minimum wage faster than those with fewer than 500 employees.

The way it works is this. You've got Big Jim's Department Store. Maybe we should just call it JimMart. Yeah, I like JimMart better. JimMart brings in billions of dollars a year. JimMart actually makes enough money to give all of its hourly employees a 50% raise, and still be making billions a year in profits. So when the new minimum wage laws are passed, Joey Burger has some time before he has to comply with them, and between now and then JimMart's employees are making a bunch more than they have been. They don't jump straight from their current minimum wage (7.25 in a lot of states) to the new $15/H all at once. It's a stepping process which begins with a jump to $10/H. That's still a lot of money. And in the hands of 1.4million people? That's a staggering amount of money.

Here's the best part, low wage workers are known for spending their money. Suddenly infused with all this extra money, JimMart's employees are going to go out and spend it. They're going to buy new clothes (something they've been wishing they had the money to do for a while), they're going to get the latest electronics (instead of just being envious of the middle class), more of them might finally buy cars (not so great for the environment or public transportation) and they're going to eat out more. And the ones living in the same city as Joey Burger might even try going to Joey burger.

So when the time comes for Joey Burger to start paying the new minimum wage... he can. He's had increased revenues because of the increased revenue at the level of the wage workers. This is called trickle up, or fountain, economics. Trickle down and Trickle up economics are two sides of the same coin. They're both based on the idea that if you give someone money, they're going to spend that money, and that is going to create jobs. In Trickle Down economics you let the wealthy keep more of their money (through tax cuts and tax breaks) and they create jobs, and those jobs boost the economy. the problem with that is like we saw earlier with Joey Burger. He didn't hire more people, he just told his employee to work harder, and kept the money for himself. Now, eventually, with enough breaks, Joey might open a second Joey Burger, at which point he'd be forced to hire a second employee, after all his one employee can't be in two places at once. However, it'll be another minimum wage job, where that person is having to live off of government subsidies, and where everything that person pays in taxes he's getting back (because he doesn't make enough for the government to keep his money). In the end, that second job is costing people money.

Trickle up is based on something much more simple. Poor people spend their money. They spend it on necessities, they spend it on things they've wanted, they spend it frugally and frivolously. Heck, if poor people were better at saving their money they'd be rich people. In some cases they don't save their money because they don't have enough to save, but in many cases... They spend money because, well there's stuff they don't have that they want. They're going to spend it, it's going to filter into the businesses, the businesses are going to have increased revenue, and it's going to create the same cycle that trickle down would, if only the people at the top would spend money.

So this almost looks like a no brainer. The poor get more stuff, have an easier time surviving, and become less of a drain on society. Joey Burger stays open and even thrives.The middle class find themselves getting more money, and over the long term the lower and middle classes are spending enough money that even the wealthy have more. Inflation is nullified by keeping the wages indexed to the cost of living. This is a pretty good deal. There are some hitches though. The first being one that people don't immediately recognize. Franchises.

So we've had Joey Burger, and we've had JimMart. Maybe now we'll examine MickBurger. (I know, this has gotten incredibly long, but it's also an incredibly large topic). MickBurger is a national chain of fast food restaurants. Now, while there are a few corporate owned restaurants, the majority of their restaurants are actually franchisees. If you were to take all the MickBurger franchisees and count them together, they'd have well over the 500 employees needed to put them in the category of adhering to the new minimum wage laws immediately. You can't count them all together though, can you? I mean, they're all separate companies working separately whose profits are separate, right? And MickBurger corporate, they're not responsible for the pay or the income of their franchisees, right?

Weeeeeell, here's the thing. MickBurger determines the prices that they sell their franchisees supplies at. They also determine what prices their franchisees charge. They maintain control over so many things that in the end the franchisee is only an "independent operator" in name. If MickBurger were to cut how much they charge each franchisee for supplies, would MickBurger still make a profit? Definitely. Would franchisees find themselves able to afford to pay wages on a scale closer to that of JimMart? Yes. Would franchisees find themselves able to be included in the "500 employees or more" category and still compete? Yes. However, you can't simply tell MickBurger that they have to start selling their supplies at a more reasonable price. So what do you do?

You count the franchisees as part of the "500 or more" club, and here's why. When MickBurger is in danger of losing a couple of franchises they don't care. It's not going to really hurt them one way or the other. A couple makes no difference. However, start looking on the national scale, having half their franchises close their doors, and suddenly you're going to be putting a real hurt on their wallet. At that point it behooves them to analyse what they're doing with their franchises and see how they can help them keep from closing, while giving them the ability to adhere to the new wage laws. They'd become more reasonable in their policies because while being reasonable might cost them some not being reasonable will cost them all.

In the end the minimum wage is a huge topic. Even with everything I covered here, there are still tons of things to be said, to be asked, to be discussed and debated. However, there are a few simple truths.

A person who goes out and attempts to earn a living shouldn't be forced to work so many hours that his life consists of nothing but work.

A person who goes to work and earns a living should have a decent home to retire to at the end of the day.

A person who goes to work and earns a living should be able to provide food, shelter, clothing for themselves.

A person who goes to work and earns a living should have a reasonable expectation of being able to expand their creature comforts.

A person who goes to work and earns a living should not be forced to live off of government subsidies.

You should not be forced to pay for government programs to help support workers simply because their employer refuses to pay them a living wage. Your tax dollars should not be making up the difference between what people are paid, and what they need to live. Employers should be paying for their employees to live.