The Minimum Wage – What Are We Thinking
“Can we stop pretending that it’s possible to live on minimum wage.”
We’ve all seen or heard this this line before.
The truth is it is impossible to live, what many people have as an expectation of the lifestyle they want to live, on a minimum wage; but, it is possible to live.
Yes, you will have to live with roommates and you most likely won’t have much spending capital, also, if you do it your whole life you will not be able to retire – but, you wont die. You can live on a minimum wage.
So, lets be honest in our question then.
We aren’t really asking if people can live on minimum wage, we are asking if people can live comfortably on minimum wage.
We are asking if people can live up to what is perceived to be a desired standard of living (subjective as that may be).
For the sake of this article however, lets assume that when someone says “live” they mean that a person is able to rent (or own) a decent home, have a car and some modern conveniences (TV, computer, cell phone, etc.), is able to buy fairly decent clothes (if not the latest fashion trend, at least somewhat recent), and possibly take a vacation for two weeks out of their year.
Anyone who thinks that it is possible to do any of this on a minimum wage is one of three things – an idiot, intellectually dishonest, or has no idea what a minimum wage is. But on the other side of the coin, anyone who thinks they should be able to do any of this while working for minimum wage is the same.
The reality is, there is no one who thinks a person can live that kind of lifestyle on minimum wage.
Those paying minimum wage are not expecting people to be able to support themselves or their families solely on that minimum wage.
But what a lot of the “raise the minimum wage” crowd don’t understand is that their assumption of the reason why companies pay low wages (one where the monopoly man is bathing in his money made off the backs of the hundreds or thousands of people who can barely feed a families) is not the case either.
There is a certain amount of money that allows a person or a family to live above the poverty line, to live in a position where emergencies no longer completely throw your finances for a loop, where you can afford some luxuries and aren’t worried about if you will be able to pay your bills for the month.
That point is nowhere near the minimum wage – but that does not mean that a (currently) minimum wage worker won’t be able to get to that point in their life.
The minimum wage
Wages have stagnated for decades (compared with inflation) but to a person who believes that “society” should ensure that every person has a job that pays a wage where they can buy anything they feel they need (a house, a car, food on the table, clothes, and luxuries like phones, TVs etc.) this kind of stagnation is unacceptable.
There is an argument that says higher wages allow people to spend more thus boosting the local economy. This is true, and when a family has a household income that allows them to cover their basic bills and still have money for savings or spending (going out to eat, getting new products, or going on a vacation) not only is their happiness level increased, but this does have a positive effect on the overall economy.
There is a baseline under which life is very difficult, as families struggle to just meet basic needs like food, clothing and shelter. With this struggle comes high stress, and lower levels of both mental and physical health.
So there is a valid concern about the results of children growing up on such environments and there are some interesting proposals in the ideas of basic income or some type of low income tax credit that are worth investigating for their validity (I am not making a claim one way or the other however until I’ve researched further).
Having said that, when it comes to finding a livable wage, or raising the minimum wage, there are certain economic and social factors (as well as personal choices) that must be understood before we can have an honest conversation about poverty, wages, and income “inequality”.
The value a person brings, their skill sets, and finding what others will pay for
One of the first things to understand when it comes to this discussion is that government, businesses, and corporations are not just arbitrary entities that exist to provide employment, it may sound like a “no duh” statement, but its surprising how many people don’t realize this.
When you hear someone say “no one owes you a job” they are not saying it to be an asshole; the fact of the matter is that a society works best when people use their skills to provide value to others.
This might be through providing their bodily (physical) labor, or through providing knowledge to others, or through providing a good or service that someone else needs and is willing to pay for.
this is the basis of what’s known as the economy, which is (again) not just an arbitrary concept; rather it’s a living, changing “organism” made up of the billions of people and intersectionality of their labors.
The first point that has to be discussed in any conversation on wages, the economy, or jobs, is one of value.
What value does a person bring, and how does that effect their wages.
Why do you buy anything? What is it that causes you to spend the money you’ve made in exchange for some product or some service?
Is it because you in anyway owe that company your money? Do you owe them a certain number of purchases per year? No, of course not! Rather, you see value in whatever it is you’ve decided to purchase and it fills a need, or a desire, that you have.
Why go on vacation, why buy a car or a house, why buy food? The reasons for each of these decisions might be slightly different but the underlying reasoning is not. You see the value that these products will bring to your life, keeping you alive (in the case of food) making your commute quicker and more comfortable (in the case of a car) etc.
When it comes to providing jobs, the reasoning is exactly the same: the only reason anyone provides a job to another is because it fills a need (that the company has) or provides some value to the company.
Why would a limo service hire more drivers? Because having more limo’s increases the company’s revenue, or because it allows the person who started the business to stop driving a limo, or any mixture of increased value to the company or owner.
Why does MacDonald’s hire someone? Because if the owner were the only person there, service would be slow, if possible at all.
By hiring a dozen or more sets of hands, the restaurant can cook, prepare, take orders, and serve them with incredible efficiency – providing value to the millions of customers they serve, who spend their money at MacDonald’s because of the value it brings to them.
Why does a company hire an HR manager, or sales person, a CFO, or a CEO?
They do it for the same reasons.
The collection of unique skills and abilities each person brings increases the ability (and therefore the value) of the company as a whole and allows for greater profits, while also providing jobs to dozens (if not hundreds or thousands) of people.
These companies are not in business to provide jobs, they provide jobs to stay in business. They need people to fill certain roles as much as the people need the jobs to provide them with income.
But why can’t everyone in those companies be paid the same?
Why should managers make more than the cooking staff? Why should CEO’s or CFO’s make more than the sales team or the mail room staff?
What’s interesting about economics is that everything has value based not on what it took to create it, or the hours, effort, or materials involved, rather the value of a product (or in this case value of the services exchanged for a paycheck) is based on what people are willing to pay for it.
Supply and demand
Why is a Mercedes worth so much more than a Fiat? Or an iPhone worth so much more than another brand? Because somehow people have been convinced that having an iPhone (and the perceived status it brings) is worth the price tag.
If Apple’s marketing had been a flop, no one in their right mind would consider paying several hundred to over a thousand dollars for a phone. But there are certain distinctions in both the iPhone and the Mercedes (not least of which is the perception of you that owning one creates) that distinguish users from the rest of the pack.
To many people, that distinction is a value that’s worth the added costs.
While that is not an all-encompassing example, it is comparable to the value put on certain skills and abilities.
Why would you spend $20,000 on a car, but not on a pack of gum?
because the value the gum has is so much less than the value a car brings.
For this exact same reason, a company might pay someone who can lead a team of people much more than they’d pay the individual team members. This has nothing to do with their humanity, their family size or how great of a person they are, it has everything to do with the value they bring the company and the market value of that particular role.
If gum is perceived by society to be worth $2 a pack, would you buy it for $1000? Of course not!
But if all gum manufacturers were to disappear tomorrow and there were, let’s say, only 1000 pieces left in the world, all of a sudden $1000 dollars would not be such a crazy price to pay.
In the same way, if there are a thousand people, applying for every low wage (low-skill level) job and the going rate is (let’s say) $10 per hour, why should a company pay $15, or $25, or $1000?
However, if for some reason there were less people available for those position and those companies were having a difficult time hiring all of a sudden, they would be forced to either change their practices, or raise their wages, or find some other way to attract people to work at their company.
As a person’s skills increase, their value to society and employers also increases, in the same way that added value in products (real or perceived) carries a higher price tag, the added value a person brings to their field fetches a higher wage.
This is the basic idea of supply and demand.
When you have high supply and low demand, the value of what ever is in high supply drops and people will pay less for those products or in this case the services those looking for the job are willing to provide.
As long as supply of low skilled laborers outpaces demand, then it’s a employers market, as for every job there will be a dozen (or more) applicants – lowering the value of the applicants.
If there were less applicants for each job, companies would have to pay higher wages or would have to find ways of attracting people to work for them.
In Canada, for example, working at MacDonald’s has such a bad rap that the company was forced to pay better than most equivalent skill level jobs because their demand for employees outweighed their supply of willing applicants.
What you can do yourself
There are ways to increase wages and help people cross that line out of poverty and into a “livable wage.”
You can learn a skill. Yes, I know its not as easy as it might seem, but it’s not supposed to be easy, just possible.
Look around and see what there is a need for, whether its in your city or a larger region, even within your country. Think about what you wouldn’t mind doing, what work you might even enjoy as you get good at it, and see if there is a need, then go where that need is.
Too often this issue of the minimum wage is brought up by people who are trying to get into an already glutted field (think DJ, freelance writer, or model), are currently in a low value industry (think retail, coffee shops, or fast food restaurants), in a city that is overcrowded (Toronto, New York City, LA), who bring very little of value to the table, in places where there are literally a thousand people ready to take their job at a moments notice (who could probably do a better job than them as well).
Have you ever thought about what doing welding in North Dakota for an energy company might bring as far as wages? Or have you thought of doing computer science in Austin rather than Silicon Valley?
My point is, if you want a “livable wage” start learning some skills, yes it will be tough, yes it will take time, and yes you will struggle, but you’ll also make it!
Don’t let yourself be limited by the city you grew up in, or the fact that you don’t have currently valued skills. If you want it bad enough, you will find ways to make a livable wage, maybe even more.
What your country should do for you
This one crosses a little into the idea of protectionism, the merits and drawbacks of which is a conversation for another time.
While the jury is still out on aspects of this idea, there are definite realities that globalization and policies of increased immigration have brought about that are not beneficial to a nation’s low skilled workers.
Mass immigration, for example illegal immigration in the US, or programs like the Temporary Foreign Workers program in Canada or the idea that the answer to the problem of a low skilled population is to import people from other countries, is a huge factor in the stagnation of wages.
Programs like these (while they have their merits in the short term) make it easy for companies and organizations to hire at lower wages (remember supply and demand?).
Is the answer to a skills shortage in Canada or Australia to import skilled laborers? Or is the answer to let companies invest in training skilled laborers from the nations in which they work?
If a MacDonald’s can hire one of the millions (dare I say billions) of people from India, Pakistan, China, or the Philippines, on a temporary status, at a lower price than they’d have to pay the same worker who is a citizen of Canada or the US, why wouldn’t they? Right there is your supply and demand problem.
Do you still think Trump is racist for being against immigration and for protectionism?
The more skilled a country’s populous is, and the lower supply of low skilled workers available, the more those employers will be forced to raise wages or find some other way to incentivize people to work for them.
The counter-intuitive policies of the left
What’s so fascinating is that, often, the very policies that most on the left support (open immigration, globalization, higher minimum wages, more government support, power, and involvement in people’s lives etc.) are intrinsically opposed to their desired goals of a high standard of living for people.
High inflation (from high taxes for government programs), mass immigration (because oppression), and globalization do change the landscape and are the very reasons why wages are stagnant while prices soar.
Where do you think the money comes from for any of these programs or corporate subsidies? All these higher taxes on the “wealthy”?
Those wealthy aren’t the Warren Buffet’s or Bill Gate’s of the world, it’s the store owners, it’s the shoe maker’s, it’s the mid-sized businesses. As they are taxed more, and as the cost of doing business goes up, so does the cost of the goods and services they produce.
As governments pile up debt and raise inflation levels, the money you do make is worth less.
As supply of skilled and unskilled labor increase, your wages start to stagnate. Not to mention the coming effects of automation.
As government promises another protection or handout, remember that there is always the other side, that money comes from somewhere and usually its from your future purchasing power.
There is a balance to be had when it comes to protectionism vs globalization, too far to either direction can cause a lot of unnecessary hardship.But before we start advocating for even more government involvement, for more inflation, and even more of the policies that got us to where we are today, lets stop and take a look at what might not be working and what might actually get companies (pursuing their own self interest) to invest in the people in their communities again.
Instead of raising the minimum wage, lets raise the standard of living, raise our skills and the value we provide to others.