Recently, two University economics professors debated the minimum wage.
As expected, they shared some views but differed on others.
The audience was also split in their opinions and viewpoints.
Of the many points that emerged, two seemed both acceptable, yet contradictory. First, everyone should be able to care for themselves and their family and save a portion of their earnings. Second, no employer can afford to hire a worker whose cost exceeds his or her contribution to the firm’s profit.
A logical solution to this dilemma would be to raise prices, but this tactic is fraught with problems. First, it could trigger inflation. Second, competitive pressures could prevent firms from raising prices to cover the proposed increase in the minimum wage to $10.10 per hour. No customer will pay $14 for a Subway sandwich.
In the past, the solution lay with improved productivity. Robots, IT, and technology in general have replaced many unskilled workers. One only has to look at old film clips of Model T manufacturing and compare it with auto production today to notice the absence of people.
This rise in productivity calls for a new kind of worker: one who is skilled and adaptable. The days of being content in the same job for 30 years with the same company until retirement have disappeared.
A voluntary increase of workers’ wages occurred in 1914. Henry Ford doubled his workers’ wages to the then-unheard amount of $5 per day. It wasn’t altruism that motivated Ford. He was trying to reduce worker turnover.
Ford was not mandated by governmental edict, union agreements or competitive pressures. Ford despised unions; most of his competitors thought him either insane or a socialist. Ford considered it a sharing of profits,
This is a good example of the so-called “invisible hand” of economics, a concept lately fallen into disrepute. The actions of one person produce benefits for all, even though unintended. Ford intended only his own gain, yet he created a middle class and a customer base for his products.
When considering the minimum wage, questions arise. How many minimum wage workers belong to households where their wages are not a critical part of household income? What portion of minimum wage workers will be in that position for very long? The notion of the minimum wage as a “living wage” has a certain amount of emotional appeal, but public policy should not be grounded in warm fuzzy feelings.
As an instrument of social policy, the minimum wage is poorly crafted. Only time will tell if the increase, if enacted, will produce salutary effects. If it doesn’t, then what?
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