Against Fight for Fifteen

Explanations exist; they have existed for all time; there is always a well-known solution to every human problem — neat, plausible, and wrong. — H. L. Mencken

First, let us distinguish ends from means. The ends of improving the odds that people can sustain their families and themselves through stable, meaningful work should be a non-controversial goal of a people bound by citizenship. One step we take in this direction is abiding by an admittedly imperfect application of the rule of law. So, no argument about the ends. What's wrong with the means, with a $15 minimum wage? A bunch, IMO.

Although I'm not a professional economist, I have been in and around both sides of the wage equation for a bunch of years in the real world. I'm not talking theory, but what I've seen and experienced. Wages are not set by profits; they are enabled by profits. That is, firms can only afford to pay people if they are making money. If they are making more money than expenses, that's a good thing, because it means that they can keep on paying their employees. Despite ravings by certain lefty ideologues, the vast majority of employers dread the prospect of not being able to make payroll and being forced to let good employees go. The flip side of this, though, is that employers generally don't want to pay more than they have to for anything, and this includes employee compensation. This isn't evil, it's rational.

How wages get set is messy and opaque, but outside of perverse governmental, mercantile, and collectively-bargained contexts, it's generally market driven and it's influenced in great part to supply and demand. Outside of certain manufacturing contexts, it's often hard to estimate what someone's "productivity" is going to be or evaluate what it actually is once their employed. This is especially tricky in software development, the area I know best. The best developers can do things that lesser folks are simply incapable of doing. Moreover, they often do much more work of dramatically higher quality. Many high-end firms aggressively recruit these elite developers -- there is an almost unlimited appetite for such workers -- and thus wages, benefits, and working environments are very attractive. The mere mortal developers benefit from this as well because they don't have to compete with the elite developers in less glamorous software development jobs but still benefit from a relative scarcity of competitors. Offshoring and H1B visas are primarily about costs, but writ large the bang for buck is much less than you might imagine. They are less of a boon and more of a crutch that lets you limp along. Of course, there are some, but in my experience rare, stellar H1B folks and offshoring firms and personnel. Anyway, ascribing some "productivity score" to someone and the dollar value of that productivity is actually very hard to do for a wide variety of jobs. What's an office manager, janitor, receptionist, mail room runner worth to the firm in terms of increased productivity? Regardless, the firm will have to pay whatever they can agree someone to take to do the job, and this is set, in part, by supply and demand.

Would a firm ever "overpay" someone? That is, offer someone more than the amount they could pay them to do the same job? Sure, it happens. Most successful firms interested in long term viability want to have productive employees, and happy and grateful employees are better than sullen or resentful ones. At least, that's been my experience. And there are entire sectors where a variety of mechanisms deployed to maintain wages above what they would be if the wage was dominated by supply and demand. One of these mechanisms is a minimum wage.

There two things at issue: the minimum wage in general, and the Fight for Fifteen in particular. I cannot say that there might not be some situation where a minimum wage might make sense, but if there was I would think it would be sector-specific and local. I don't know if there is a Laffer Curve for the minimum wage, but it's easy to think that if the minimum wage for any sort of job at all was 100 bucks an hour, there would be a lot fewer employees out there. People push back on this line of reasoning saying that it's currently too low regardless and any grief caused to some by raising it would be outweighed by the benefits, and $15 is in the ballpark for a happy medium. I say this is too ham-fisted.

First, it ignores the reality of low-skill and entry-level work. It may just not be worth the cost to firms to employ people at the higher rate. And this would affect the people most in need of jobs, perhaps rendering them permanently unemployable. It may also remove the opportunity for parents to teach their kids the value of work and develop a habit of responsibility and industry by eliminating sources of part time work.

A higher minimum wage can also put low margin businesses at risk. That is, if a business is only scraping by today, it may not be viable if it needs to substantially increase its payroll. Some say, rather savagely in my opinion, that such business shouldn't exist in the first place. This is wrong -- it's not the business that's the problem, it's the artificial hoops that have been erected through which it must jump.

A specific problem with the 15 dollars an hour of the Fight for Fifteen is that it's completely oblivious to how very different local economies are. If there is such a thing a "good" minimum wage, Palo Alto's will certainly be different from, say, St Louis'. This hypothetical good minimum wage would certainly need to vary from place to place, and you can bet your bottom dollar that whoever charged with setting it will get it wrong.

I don't doubt that many who support Fight for Fifteen have good intentions. But that's what the road to hell is paved with. The economy would survive a $15 minimum wage, but there would be winners and losers, and I think there would be a lot more losers and loss than some people think. I can's say with certainty exactly what would happen, but neither can anyone else, LOL. So, if fiddling with the minimum wage isn't the answer, what is?

Well, I don't think that minimum wages can be dismissed out of hand as a tool for making people's lives better, even though a single, global one can be dismissed with extreme confidence. That is, as I said, there maybe certain sector-specific instances where a local minimum wage might make sense. For instance, what about a program to clean up blighted areas that uses? Either the government could provide jobs directly or allow firms to bid on contracts that require employees be paid some minimum wage. Another option would be to allow employers to refund some fraction of payroll taxes to the employee. Given that option, what employer wouldn't refund their employee's payroll taxes? I can't think of any reason they would. Yes, it's a form of a tax cut, but it's a tax cut that goes directly to working people and has absolutely no negative effect on a firm or its viability. In fact, it makes it easier for firms to employ people on the margin, which I think everyone would agree is a good thing.

Being against Fight for Fifteen is not necessarily to be against working people. In fact, people who want everyone to have a shot at the American Dream should look at a universal $15 minimum wage with extreme skepticism.