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What Happened When One Company Set A Minimum Wage Of $70,000
Submitted by Jonathan Newman via The Mises Institute,
Dan Price, the CEO of Gravity Payments, took a $930,000 pay cut to raise the minimum salary of his employees to $70,000. The plan was announced in April 2015, and set to be completed over the course of three years. Both his employees (especially the ones with a larger pay increase) and proponents of income equality celebrated the move. It garnered considerable publicity and rippled through social media, with mostly positive but some negative reactions.
In the New York Times piece that reported on people’s initial reactions in April, they quoted Rush Limbaugh calling it “pure, unadulterated socialism,” and an economist from the American Enterprise Institute saying “A lot of people have the sense that this may work for this one firm, but it is nothing we should take general lessons from.” Another economist from the Stanford University Hoover Institution took a different stance and predicted, “This is going to be great for his business.”
As usual, most of the praise and uproar from the respective proponents and critics are either wrong or right for the wrong reasons (if there’s not already a name for this phenomenon, there should be). But we can say this even without the benefit of hindsight, which has shown that the CEO’s actions have had some negative consequences he did not anticipate.
The Strategy Backfires
The New York Times published another piece about three and half months later, reporting turmoil and struggles for the Seattle-based firm, directly and indirectly related to the new pay structure.
Some clients of Gravity Payments left because they viewed the action as a political move or because they expected fee increases as a result. But the number of new clients has more than offset those that sought payment processing services elsewhere, meaning Gravity Payments had to hire more employees, which now come in at a minimum of $70,000 a head.
The firm’s real problems are internal, though. According to the New York Times article, “Two of Mr. Price’s most valued employees quit, spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises.”
Also, Dan Price’s brother, Lucas Price, has sued over violations of his rights and benefits as minority shareholder of Gravity Payments. Lucas also accused Dan of having excessive CEO pay (beyond the stipulations of their contract), which was $1 million before Dan’s voluntary pay decrease. So one major reason for the charitable restructuring of pay may have been to get public opinion on Dan’s side — quite the ignoble scheme for a seemingly noble move.
How Does Economic Theory Tie In?
It’s tempting to pull in arguments against minimum wage legislation for this case, but the ostensibly applicable claims from economic theory actually don’t apply here. Dan Price voluntarily increased his employees’ pay. All of his employees are still earning no more than their expected discounted marginal revenue product. It’s just that some of their “product” may be non-monetary or “psychic” for the CEO, in the form of a good feeling Mr. Price gets from charitable donations, or the reputation Mr. Price wants as a CEO. The benefit he would get by having public opinion on his side and against his brother in their dispute would also qualify as psychic profit.
Entrepreneurs hire laborers on the margin, meaning they make decisions about hiring an additional laborer based on what that additional laborer would be paid and how much that additional laborer would help produce output and therefore generate revenue from the sale of output. Because of this, a laborer’s discounted marginal revenue product is the maximum any entrepreneur is willing to pay for a given laborer (“discounted” because there is a time difference between the laborer’s pay and the sale of output).
The situation with Gravity Payments requires that we expand our thinking of what counts as revenue or benefit for the entrepreneur. Suppose Dan Price hires a laborer at $70,000/year, but the laborer only brings in $50,000/year of increased revenue for the firm. This means that, for Mr. Price, it’s worth $20,000 for that worker to have $20,000 more per year, whether it’s in the name of income equality, or a happy-workers-are-productive-workers philosophy, or just plain charity.
The situation is the same with any sort of charitable gift. If A donates $100 to B, it means A prefers that B have the $100 (and not A) to A having the $100 (and not B). Charity isn’t “socialism” (per Rush Limbaugh), it’s people doing what they want to do with their own money, i.e., capitalism.
This, then, is the extent of the economics of the situation. It starts and ends with the coordinated preferences and expectations of the entrepreneur and the workers. On the other hand, there’s much to be said about Mr. Price’s business strategy and the social, psychological, and organizational implications.
Fairness and Equal Pay
Workers prefer to be treated fairly, which doesn’t necessarily mean they all want the same pay. Maisey McMaster, former financial planner for Gravity Payments argued against the move and ended up leaving her job because of it. In her words, “He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.”
Mr. Price also lost Grant Moran, a talented web developer, who felt like the new pay structure wasn’t fair: “Now the people who were just clocking in and out were making the same as me.” He also said, “It shackles high performers to less motivated team members.”
Many of the employees didn’t like their pay information being open to the public eye, especially with all of the politically motivated attention. Other employees stated they didn’t feel like they deserved their new higher pay. One even admitted, “I didn’t earn it.”
So it seems that even the workers of a progressive and trendy (it is Seattle-based, and many of its clients are a part of the ultra-hip Pike Place Market) firm don’t equate “fairness” with “equal pay” — in fact, it has spawned envy, guilt, and ill feelings for their boss and coworkers. But this isn’t some inexorable law of human behavior. We could easily imagine a situation where workers do demand equal pay and collectively bargain for such a result. The economics of this type of situation would be different than the one at Gravity Payments, though (see Man, Economy, and State, chap. 10).
Economic theory pertaining to minimum wage legislation, unions, or socialism can’t be applied here directly. We can, however, branch outside the scope of economics and take the social, psychological, and organizational implications of an entrepreneur’s voluntarily chosen minimum salary (like with Gravity Payments) and reasonably apply them to government-mandated minimum wage and equal pay schemes. Imagine millions of people thinking the same things as Maisey McMaster and Grant Moran, who felt unfairly treated with the new pay structure. Or even more people saying, “I don’t earn my wage.”
If these sorts of negative consequences arise from a voluntary equal pay scheme, I don’t think we could expect anything better from an involuntary one on a national level.
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I've been watching this unfold and I think we're getting to the good part......
"Employees produce more value per hour than they are paid per hour. That surplus amount of value, once converted from commodity to money (through the sale), is profit, and goes to the capitalist. The same goes for services.
Thus, quite literally, the entire history of capitalism is built on the concept of the capitalist getting more than what he pays for."
That's been true since the beginning. Only a fool pays for labor if they don't get more from the labor than they put into paying for it. This is why people who are in the "labor force" never get rich, and never will. People are not going to pay you to do something for them what it would cost them to do it, or else they would do it themselves. It's just a basic mathematical truth.
Moral of the story... if you want to get wealthy you have two options... Work for yourself and hire other people to do things for you, or gamble in the "market".
Wage slaves are exactly that, slaves. Always will be, and they'll never be wealthier than those who pay them.
Crime is a third option, but probably been covered since the best crime bosses hire others to do the dirty work.
Crime pays well, eg: DC politicians.
As I read the article I now see the flaw in his plan. It was voluntary on his part. He should have petitioned government to force him to do it. Then everyone would be happy.
You are exactly right, which is why we need basic income for all citizens.
Agreed. People who say you can't madate prosperity have clearly never tried hard enough.
Thus, quite literally, the entire history of capitalism is built on the concept of the capitalist getting more than what he pays for."
Those who own the means of production which can include anything from a pizza shop to a giant factory provide workers with the means to produce at a level they could not achieve without that capital equipment. The worker earns more money working for those who own the means of production than he could if he worked by himself with his own capital equipment. So it is not only the owners and managers who get more out of the system than they put into it, the workers also get more out of it than they put into it. That's the beauty of capitalism and voluntary association. Those who interact in this fashion do so because it is the best available means of profit for each participant and it makes more goods more widely available thus creating a varied and vibrant market in which those profits can be exchanged.
One Q: What are, "people who have the least skills and are the least equipped to do the job doing," in a private sector job? They usually wind up in gubmint.
Those with collectivist mentalities are free to create voluntary collectives. I don't understand why those who want to give half of their income to and take orders from one politician or another don't simply buy some property and set up their own Clintontopia, Bushtopia or Trumptopia. Instead they spend all their efforts trying to make everyone live according to their rules.
So, live and let live is the solution. The bureaucrats can simply find themselves a bureau and derive whatever satisfaction from that that they can.
Because while some of us are not as bright as some others, most all understand the concept of something for nothing. In order for my life to improve while expending LESS energy, it becomes necessary for others to contribute more. This is the basic concept for Hillarycare. Anyone who looks at insurance with a glance instantly understands that the problem is one of a lack of revenues, and the easiest means of access to that revenue is by FORCING others to participate in your collective. Basically make the healthy and secure pay to make the unhealthy and insecure, healthy and secure as well. Of course you fuck the hell out of the idea that anyone should actually pursue their own health and security as they have hired a government thug to do it for them, what cost that enforcement incurs is irrelevant as they aren't paying for any of it anyway. And those paying for it see their self sufficiency motivation evaporate as well.
If we look at all collective systems, they see 100% participation as the only sustainable model. This is much of what drove communists to engage in world domination or complete isolation. There was no way they could induce their people to sacrifice while working in the shadow of a new Cadillac.
As you suggest voluntary collectives are perfectly fine, The problem always comes down to a ever shrinking supply facing a limitless demand, driving them outward like any other cancer who MUST feed on a host for survival. AS we see with cancer, very few hosts survive without dramatic action. Surgery (sacrifice a portion of your body), toxic drugs that poison you, or a complete change of lifestyle and diet (which seems to always be the last choice, as we would rather give up a limb or organ than stop eating/smoking/living crap). Regardless, this cancer will advance and ultimately kill its host unless action is taken. Unfortunately this is more akin to brain cancer and the host is completely clueless except it has increasing bizarre cravings.
People have a real problem with the idea of voluntary actions anyway. Many see such things as a threat, people acting in their own interest rather than that as prescribed by the collective. Also, people struggling to maintain a broken theme are typically sensitive to competing ideas, and it is amazing how many would rather perish than ever accept their failures or wrong thinking. So it is not surprising that these same insecure minds would seek to force others into compliance, if for no other reason than to not suffer the competition of other views. Ultimately insecurity drives this whole madhouse...those trying to get away from the madness, others trying to empower it for what they believe is in their own interests and others who see their only security as being king of it all.
All true. I do understand why the collectivists don't set up voluntary collectives but I suppose that my obliquely presented point was that collectivist politicians always sell their plans as being functional, efficient and fair. They con folks in regard to the actual workings and results of the collective. If collectivism really worked then it would make no sense to spend time rallying political support for a universal collective rather than to simply start one with the current supporter base and let the good times roll.
Communism works great! (Provided yer an Ant, Bee or Termite!)
Great comment and insight Oldwood.
When I saw Mises institute I was afraid I would be reading a hopelessly dogmatic spiel like Tyler's jealous gravity rant last week, which would both suck and blow as I have a lot of respect for the Mises institute. This was a well written piece free of hyperbole which unlike Tyler's piece does not assume that the plan has already failed.
To the tyler and cronycap fanboys: capitalism is about innovation. Dan Price is being an innovative entrepreneur, his detractors- while being woefully premature in their schadenfreude, are screaming dogmatically for him to do the same as everyone else has done and cheering on a ransoming financier. Some capitalists.
Capitalism is not about innovation.
It is about deployment of capital and the risks and rewards associated with it.
Dan Price is free to do what he pleases.
However people can have opinions and voice these opinions.
Just because he got lucky with a business idea that venture capitalist were willing to invest in, does not make him a genius or his other ideas good.
The company that he runs might be able to support that level of pay for all his employees. It certainly is not extravagant for tech workers. However it is a bit silly for a receptionist.
You miss the point.
Equality demands that we all are not encumbered by concepts of productivity, skill or God forbid, competency. This is a new world where Facebook and those who imbibe in it are the future. Where we sustain ourselves by showing pictures of our meals and pets to people we have never met, where we can discuss how we FEEL, which after all, is all that is important.
Your delta tau name is Bubbles.
"Let's go do those crimes!" ~ Repo Man
Duke: The lights are growing dim Otto. I know a life of crime has led me to this sorry fate, and yet, I blame society. Society made me what I am.
Otto: That's bullshit. You're a white suburban punk just like me.
Duke: Yeah, but it still hurts.
"....I don't want no commies in my car. No Christians either."
What do you mean by "crime"?
Debbi: Duke, let's go do some crimes.
Duke: Yeah. Let's go get sushi and not pay.
“It shackles high performers to less motivated team members.”
Summing up why Unions kill productivity and industries as a whole
Slave labor got the highest productivity, by definitely the productivity is infinite.
I recommend you for slavery.
Untrue. Slaves had to be fed, clothed, housed, given medical attention and all the other things we give the "poor" today.
There is certainly costs associated with buying and mainting a slave workforce.
That same cynical and heartless assessment was made by today's corporate leaders.
Hence, the advent of automation across all sorts of blue-collar and even white-collar jobs.
Hey, you wanted more...for less. You got it. Its just that the more is less than you hoped it would be, and the less is nonexistent.
Whiney little man, go pay someone to build you a hand made computer (no, and none of those microchips made through automation neither)
Slave labor got the highest productivity,
Can you provide documentation for that? Likely not. Reality tells us that slave labor is far less productive than the labor contributed by skilled and motivated workers in a mature capitalist system. Here's documentation to that effect.
The Low Productivity of Southern Slave Labor: Causes and Effects
http://muse.jhu.edu/journals/cwh/summary/v009/9.4.genovese.html
If slave labor created high productivity the the Confederacy would have had the productive capacity to overwhelm the Union and not the other way around.
To broaden the example, it would have been the communist nations which excelled and the nominally capitalist nations which collapsed rather than the opposite.
You are mistaken -- slave labor built this country. Furthermore, the Union had more heavy industry than the south, which was primarily agricultural at that time.
the Union had more heavy industry than the south, which was primarily agricultural at that time.
And the skilled industrial workers with access to capital equipment were more productive than slaves who could do little more than tend produce just as I said. The productive ability of the North overcame that of the South and the North prevailed. That makes me correct in my assessment and not mistaken.
If you believe what you said then quit your job and grow turnips in an empty lot. Your productivity will increase and you will bcome a rich man. Let me know how that works out.
Our productivity is determined by the market. I can be incredibly efficient at building things, but if no one wants it, it wasn't so damned productive. Slavery was failing in the South for exactly as you say, it was inefficient in the market place competing against technology. Technology is driven by wages. The more we demand to be paid relative to our willingness to spend, the more technological innovations will be innovated. It's a vicious circle in that we are constantly demanding more for less, and the less is coming at the cost of our own jobs, either to tech, to imports or to illegal immigrants. We can see it happening. Government adding overhead to our costs which increase demand for cheaper still production, and business and banks have advanced us credit to continue to buy these incredible bargains, ultimately all credit sourced from our governments as the CREATOR of money. Increasingly, business is finding their biggest expenditures are in credit and marketing and less and less to actual design and production. Ultimately, if they have no labor they have much lower costs. If most people are unemployed, then cost HAVE to be low, driving even more employment reductions. The key is to make us want whatever it is they're selling and to make credit available to buy it, credit backstopped by government.
Maybe slavery works at FoxConn. I love FoxConn.
Before the government stepped in incentivized industrial workers got the highest per capita GDP, and invented all sorts of labor saving devices. Meritocracy or dirty tricks 'til death.
"its a profit deal!"
https://www.youtube.com/watch?v=fKBRtdp2e98
You do know that some companies allow the employees to participate in the profits too, right?
Still getting more than what they paid for.
Are you're telling us that you are morally superior because when you work you lose ground by having less at the end of the day than you started with?
It would seem that the poor would be better served by adhering to those who know how to end up with more wealth through labor rather than with less wealth through labor.
Seriously, dude. Go to the unemployment office and make an announcement to the effect that you will provide work to all comers who are willing to lose money on the deal. Then you'll find out the real strength of your constituency.
Let's just say that the degree to which capitalism is exploitative is purely a function how many people can also do the same work.
Capitalism simply means that by saving some of today's profits and investing them in skills and equipment one can be more productive tomorrow. There's nothing exploitative about it.
Ignoring or condemning the obvious and simple fact that economy and intelligent planning yields rewards does not help poor individuals, it can only hurt them.
Your theory only works when people start on a level playing field; in practice, they don't.
I educated myself in computers, started a business and made more money than I ever had at a regular job. So it does work. The fact that other more wealthy individuals also live on the planet did not cause my efforts to go up in smoke. In fact, IBM and Microsoft, which are run by wealthy individuals made my computer business possible.
The unevenness of the playing field is one of the strengths of capitalism. It means that some of the groundwork has been laid and new participants can piggy back on past achievement. The uneven playing field also creates an incentive for individuals to increase their productivity which not only makes them more wealthy but also increase the goods and services available to everyone else and at a lower cost.
Anecdotes are neat.
I have one too. I was born to rich parents, bought an apartment block, now I play xbox all day collecting rent from people whose parents weren't rich.
NOT EXPLOITATIVE
So have I, but that doesn't mean "it works" that means "it isn't impossible for every individual" and you have proven Publicus' point by stating that you weren't earning as an employee and only managed to earn enough when you became the capitalist.
Employees are capitalists too. They make their labor available to those with capital equipment and thereby earn more for themselves than if they stayed home and expended their labor growing turnips.
Surely you don't believe that employees work so that they will be worse off at the end of the day. Employees work so that they will be better off, they plan to do this consciously in an effort to obtain a greater return on their labor investment. It's pure capitalism and it works.
There's a world of difference between "more than if they grew turnips" and "a greater return on their labor investment", especially when their options for negotiating the price of said labor are slim to none.
Employees use the capitalist technique of educating themselves today so that they can command higher wages tomorrow. A record of good performance and reliability also increases the value of the employee to the employer.
But if your point is that everybody should get paid regardless of what they can produce may I request that you pay me $15 an hour for working on your car? I have no skills in that area, I'd likely destroy your vehicle but paying me to do so would only be "fair."
But if your point is that everybody should get paid regardless of what they can produce...
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That was not his point what a ridiculous conclusion, one that does not cloak the fact you stupidly proved his actual point- that capitalism is somewhat exploitative.
If you think capitalism isn't exploitative in most instances, perhaps you need to get out a little mor and visit some factories in the developing world.
Lots of folks are exploited but not by capitalism. How can the obvious fact that one can catch more fish with a net (capital equipment) than one can catch by hand exploit anybody?
You have misdefined the word capitalism and the result is that you can only become poorer. That's fine for you but despite your self righteous tone why would anyone else want to follow in your footsteps?
There's nothing exploitative about it.
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Billy you are being intellectually strangled by dogma again. I advocate economic anarchy, so I am certainly not against capitalism, but to say there is nothing exploitative about it is ridiculous. Your earlier comment:
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Those who own the means of production which can include anything from a pizza shop to a giant factory provide workers with the means to produce at a level they could not achieve without that capital equipment.
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This gives some insight into your fallacious logic. You contend that a worker can produce more using means of production he does not own, though you fail to understand that capitalist wages are not commensurate to output. The owner of the means of production pays them less than they are worth out of necessity, yet you believe capitalism is not exploitative? Could trump accrue 9billion as a bellboy with only the capital from his bellboy job? The answer is an obvious no, capitalism IS exploitative, if you aren't capitalized to begin with.
Again, I'm a huge fan of capitalism as one of the better and more decentralized forms of economic association- but I believe capitalism is best advocated by those not mired in dogma who are willing to except it has its flaws, that no system is perfect.
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That's the beauty of capitalism and voluntary association.
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Not exactly voluntary if you will stave to death should you choose not to associate.
You're neglecting that the worker is usually paid before the product of their labor is sold. The capitalist isn't necessarily getting something for free since the capitalist is assuming the risk, which -if successful- deserves a return on investment.
The capital is printed out of thin air (or inherited), and nowadays the capitalist get's bailed out by the employees when he fails. Not to mention it is the employee that spends the money to buy the capitalist's shits.
Privatize the profits, socialize the losses.
Sounds like corporatism and not capitalism. You should learn the difference.
There is no difference in practice.
You don't achieve a whole lot throwing marxist cliches around, and your critique of free market capitalism would hold more weight if you were not dogmatically inclined to assert that today's 'capitalism' is free market capitalism.
Dare I suggest it, you might even try offering solutions or alternatives to the current quagmire. Let's say capitalism; freemarket, crony etc. 100% objectively does not work. Okay then, acknowledged, now what?
I have one very powerful alternative, it entails a move toward a freer market capitalism, and a move away from leftist central planning, which would evoke a massive shift to a fairer more egalitarian system.
The idea is to allow interest rates, the price of money, to be determined by the market, rather than a private central bank. This would rapidly correct the massive transfer of wealth from the middle and working classes to the investor class suffered under the more socialist policies of the last few administrations. This is not a new idea to be sure, I'm parroting many free marketeers suggesting it, but this idea is a practical solution.
I don't know of any practical ideas coming from the anti-cap camp, just misplaced criticism, but please correct me with a substantive and practical leftist/socialist solution that would evoke real change. If you can't think of an idea anywhere near as practical and feasible as natural interest rates, think about that.
Privatized gains, socialized losses- fix the latter not the former.
This is the same tired schtick you always throw out there. Not as funny as MDB's schtick.
The capitalist risks his money, supplies, assets, etc. by starting the business. He hires people to work for him. If he can't have a surplus after paying for supplies, goods, rent, labor, etc. he goes out of business. He is risking more, he should get more of a reward, hence the desired profit motive. How would it be "fair" for the people hired to make the same as the person who put their own money at risk by starting the business? If I work for someone else, I expect to make less than them; if I work for myself, I expect to make more while knowing I have more at risk.
Most of the largest companies no longer have much risk, they were either started long ago, or they are protected by the government. There is a big difference between small business and giant, powerful corporations.
"Employees produce more value per hour than they are paid per hour. That surplus amount of value, once converted from commodity to money (through the sale), is profit, and goes to the capitalist. The same goes for services.
Thus, quite literally, the entire history of capitalism is built on the concept of the capitalist getting more than what he pays for."
Nice to see at least one other ZH reader who's studied Marx. He really identified the fatal flaws of capitalism.
Of course, totalitarian communism is not the only alternative. We can build local, small-scale communities based on collaboration and sharing. By many measures, those are vastly superior to systems based on competition and exploitation. If we hope to survive, we'll set about building those communities, rather than thinking in the terms of the dying capitalist order.
I call absolute bullshit on this blog posting!
His brother sued him before his restructured his employees' pay positively, and has nothing to do with it!
The two employees leaving?
OK, they threw a hissy fit, believing themselves to be the most valuable people in the firm.
This firm will be around for awhile, especially with this type of incentive now in place.
Nothing wrong about it, and major props to Mr. Price.
From time to time we get sterling pieces from TD and 0Hedge, but this is pure bullcrap!
Who is John Galt?
A fictional character.
Unfortunately, fiction is our new reality...in more ways than one.
This reads like the start of the downfall of the 20th Century Motor Company.
You can throw all the Negs you want at me, it doesn't change how similar this is.
The 20th Century Motor company did damn well until they began resting on their laurels, and other companies overtook them.
Deal with reality, dood!
I believe he's the one dood that Shayna Steinger turned down for a visa in Sauda Arabia prior to 9/11/01?
Eventually all salaries will rise to accomodate this new entry level wage and they will go out of business.
Sucks to be earning $75k at the time of this proclamation.
pods
My wife once put it in this remarkably profound way:
Me: "So, there's some people saying that the minimum wage should be $20."
Wife: "If that happens, the price of everything will rise until $20 is only worth today's $6, and we'll be right back where we are now."
She's right. And now you understand why the only inflation the Fed ever really gave a crap about is wage inflation. They need the costs of things to go up while wages stagnate if they're going to extract every drop of blood from us. They've already contacted the printer to have the "Mission Accomplished" banner printed up for that day.
She is not right. It's entirely possible that as you raise the minimum wage for one set of workers, you reduce wages for another set of workers. Thus, actual total domestic income doesn't change, demand doesn't change, there is no inflation and we're not "right back where we are now." This is how monetary economics explains inflation (or lack of same.) Inflation only happens if the supply of money increases. See Friedman, Milton.
Simple explanations, while appealing to simpletons, are rarely correct.
Yeah, and that's not happening at all now is it. GTFOH.
Raising the minimum wage can increase prices, because input costs are made artificially higher. Raising the minimum wages has a tendency to higher prices and reduced supply. It can reduce supply by reducing cheap labor. Obviously if you want to increase productivity, you need more employees, but the barrier to the amount of employees you can have is the price of those employees. Minimum wage reduces productivity by reducing the amount of labor to be used. Higher minimum wage can mean higher prices at reduced productivity and higher prices mean that consumers have a higher incentive to not buy your goods, but rather spend it somewhere else. It's a opportunity lost. If my chocolate bar is too expensive, consumers rather spend their money on something else. All goods and services compete for consumer funds. If McDonald's cost as much as Apple Bees, I rather spend my dollars on a higher quality burger than fast food quality burger.
Consumer's real wages are improved by increased supply and efficient ways of production. This is how consumers can consume more goods without having to spend more money. That's how economy grows, not by prices increasing. If prices increase, consumers actually buy less with more spending. Rising prices is not how a economy grows, but rather that productivity is failing to meet societal aggregate demand and/or inflation is making prices more expensive, because the growth of money exceeds that of production.
Raising the minimum wage can and does raise prices, but don't confuse it with inflation. Inflation in old days was simply a increase in money supply and rising prices were "one" of the symptoms of inflation.
Thanks for the feedback, and I think it again points to the absurdity of the minimum wage law.
To your point, you are right that if there is no increase in the whole system, there isn't enough money for *everyone* to get a salary increase. So, people start losing their jobs because the boss finds an alternative or chooses to shut the business down. Note the recent articles about teen summer jobs at record lows, and the ongoing low labor force participation rate.
With the raising prices part, one example I like to give is to imagine a car auction, and in auction A the bidders have at most $5,000 each, and at auction B, the bidders have at most $15,000. Obviously, with more money to bid the prices can go higher. I see the same thing with wages; if there is some scheme to raise wages without any corresponding productivity, then there is an 'effective' money supply that has been increased, with the source either being reduced savings, wealth redistribution, or old-school inflation.
Also, since you characterized it as a 'simple explanation,' I should give a little more context. At the time I was watching some OccupyWallStreet videos, and a guy was calling for a guaranteed living income for everyone. So in addition, even people who were unemployed should be getting paid something 'livable.' Obviously there is not enough money to make that happen without printing it. And of course, for the higher wages it would involve 90% tax rates, government job programs, forcing salary caps on business owners, etc.
The minimum wage was connected to productivity levels nationally, until a clown named George H.W. Bush as president disconnected them.
It should be $27 per hour today, so go tell your wife to . . .
Evidently, none of the douchetards commenting today ever heard of Say's Law?
But they have heard of looney tunes, Milty Friedman?
Since I have heard of the principle but not the exact law, I'll post it here:
DEFINITION of 'Say's Law Of Markets' An economic rule that says that production is the source of demand. According to Say's Law, when an individual produces a product or service, he or she gets paid for that work, and is then able to use that pay to demand other goods and services.
The problem with this is the assumption that 'he or she gets paid for that work.' I'm currently phasing out one software product I have put (by my estimation) $50k of work into, and my actual return after 3 years has been $5k. I have other projects that have much better return, so why keep doing it? This is one of millions of examples that you do not get paid for your labor if it's not valuable to others.
While "supply creates its own demand" has some merit, it is true only if the thing supplied is valued by the person demanding it. As always the real situation is not simple and straightforward.
What raising the minimum wage does is many things. For the most part, yes raising the minimum wage does increase prices if the employers chooses that route, but what inevidently happens if that prices rise anyway, because with more expensive cheap labor, comes reduced supply of goods produced. So not only do you have less goods for the consumers, it means higher prices, because the marginal productivity is reduced. Look at US Samoa and it's minimum wage hike that effected it's tuna canning industry, that damaged the economy. You have fewer workers, higher prices, and less canned tuna for consumers to consume. Contrary to the belief that higher minimum wage contributes to more spending, in Samoa, there is on net less payrolls, so there is less consumers, not more. Not to mention as I said before, on top of that you get higher prices, and less supply of goods. US Samoa best exemplifies how making cheap labor more expensive can actually have a reversing effect of a economy producing more, creating more wages, and cheaper goods. What about the value of canned tuna? It also dropped.
Minimum wage has not improved the workers in US Samoa, sure some workers got the benefit, while others got fired. On a economical scale, nothing is improved. Did US. Samoa, or consumers in general benefit from Congress hiking their minimum wage? None whatsoever. All negatives. I guess to a minimum wage advocate, the workers who kept their jobs having a higher wage offsets all the negatives...
So what you saying is Commieism don't work.
What this article really does is make an argument for no minimum wage ... ever. If there is a minimum wage, there will always be those who compare themselves to others and will be unhappy (IMO, they should be less concerned about others and deal with themselves). I am sure that the company is better off with those who left and will have a very good selection of talented people to replace them.
How does one actually measure utility?
Financial managers never add any utility to anything and yet they are some of the highest paid people. IMO, that is because money means less in the financial world, where money is created out of thin air, than it does in the world of productive, value adding, work. The solution of this is to have two currencies, one for productive, value adding people and one for those who earn their money through financial means. The staples of life could only be purchased with the money earned by the people who produce. Luxuries could be purchased with either currency.
The problem is that the same money created out of thin air (then lent) is accepted as legal tender everywhere.
And please don't give the government the charge of using two different bankers' currencies. The fuckup wont be simply additive, it will be exponential. They like exponents. Or at least they are stuck with them.
Finnancial managers are needed, as are accountants, due to two things. Inflation and taxes. Take away that shit, and the whole vulture industry disappears.
pods
Mondragon Corp and other "B-companies" have also been garnering attention. I think companies could be run a bit more democratically with great benefit to the share holders, consumers and employees.
Although none of this really addresses "unequal bargaining" -Whereas a worker does not have the capital to not work and those with capital can hold out, putting pressure on the worker.
Does money motivate?
I've read up on Mondragon... Remember that it started out under a pastor and a semi-theological message he had. IOW, Mondragon works because it's a community of people who are ideologically committed to making it work. If you take it out of that context and try to make it apply in situations where society is much more diverse, and more than a few people are looking to do the minimum while getting maximum benefit, then it is not as successful.
I've learned this the hard way as I continue trying to start my own business; competition is fierce, customers expect a lot, and some people will try to leech off you. However, whenever I stumble upon the rare worker who will actually do honest work, I do my damnedest to find more work for him, at better rates, because he's helping me succeed.
Companies run democratically? You mean like countries?? God help us.
I've always laughed at people who believe they deserve a raise merely for not having quit over long enough a time period.
Negotiate your starting salary like it will be your last.
What happened? I'll tell you what happened! What happened was the same that has always happens when when
You institute collectivist policies with no incentive to work harder or better. Productivity drops, morale crashes, you get more takers than givers and you always go bankrupt.
That is unless you can print your own money and force them to participate. But as Greece and every other country including amurica, that can last only so long.
I dont know about you but i think i smell a sweaty fat lady warming up to do drunk karaoke.
I see nowhere in the article where it says that productivity has dropped and morale has crashed. Can you point it out to me?
There is only the case of a couple of people who think they are better than others (and there is no confirmation that they are in fact better people or more productive than others) and they have exercised their right to leave. The company exercised its right to not pay them more to stop them from leaving, so all is good.
The article didn't say you were an ass either.
Dup
You asked and ye shall receive.
"She helped calculate whether the firm could afford to gradually raise everyone’s salary to $70,000 over a three-year period, and was initially swept up in the excitement. But the more she thought about it, the more the details gnawed at her.
“He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump,” she said. To her, a fairer proposal would have been to give smaller increases with the opportunity to earn a future raise with more experience.
A couple of days after the announcement, she decided to talk to Mr. Price.
“He treated me as if I was being selfish and only thinking about myself,” she said. “That really hurt me. I was talking about not only me, but about everyone in my position.”
Already approaching burnout from the relentless pace, she decided to quit.
The new pay scale also helped push Grant Moran, 29, Gravity’s web developer, to leave. “I had a lot of mixed emotions,” he said. His own salary was bumped up to $50,000 from $41,000 (the first stage of the raise), but the policy was nevertheless disconcerting. “Now the people who were just clocking in and out were making the same as me,” he complained. “It shackles high performers to less motivated team members.”
http://mobile.nytimes.com/2015/08/02/business/a-company-copes-with-backl...
I fail to understand how another worker getting paid more does anything to hurt these workers that are compaining/leaving. The only person getting "hurt" is the boss who gave up a huge chunk of his salary. And if he's paying everyone $70k a year, I'm sure he'll have NO trouble finding good help, people will be lined up to get a job there.
You've not owned a business with employees then I take it?
he will have no trouble finding slackers who interview well and begin to fuck off after being hired.
Oh wow, so somewhere there is this Fantasy Island where people who do the most work receive the most pay!
If only we could find it . . .
Compensation is a touchy subject. Ms. Bones left her executive position at her last organization in part because of poor raise decisions by her uppers. Poor quality workers were given raises before their responsibilities were lessened and others were encouraged to 'seek other employment.'. All told they lost quite a bit of experience (3 or 4 senior staff out of ~50 total employees) with a small number of awful decisions.
Charity is selective.
Socialism (in theory) isn't.
Did Mr. Price select ANYONE to get the higher salary, or did he specify who?
It is a truism that 20% of the people do 80% of the work.
What happens when that 20% not only don't get, but CANNOT get extra rewards that match their effort? What happens when they are working late one night, suffering for free, whilst their co-workers attend an office party, or some other enjoyable activity?
SEE SOVIET RUSSIA (Mat), MAO's CHINA, or current VENUZUELA FOR AN ANSWER.
Whether socialism or not...it produces a Socialist Utopia, in the form actually experienced (rather than counter-factually expected).
Sounds like 20th Century Motors.
Or Tesla.
But all this free advertisement has made him millions.
Fuck economic theory and look at the reality of Wall Street.
GS can pay its secretaries 70k a year, but in order to keep to revenue earners (and litigation/lobbying specialists) happy they have to pay them hefty multiples of the base.
When you don't have a both an internal pay hierarchy and packages that are competitive with the competition, you hemorrhage talent.
What's amazing is that none of the Wall Street Analcysts had the brainz and ballz to apply what they already know and speak up.
I want to thank this new age dumbass for illustrating the fallacy of raisng salaries artificially.
Apparently the results of the pay raises are: (a) gaining new business faster today than it was 5 months ago (b) "in part" contributing to 2 out of 120 employees quitting i.e., an annual turnover of around 5%.
Most companies wish they had "problems" like that.
But when has ZH ever let actual results get in the way of an ideological rant?
I'm calling bullshit
Man, oh man!
Grant, the robots commenting here today will despise you for all time!
Dude, you are not suppose to insert logic and honesty into the discussion, fer crissakes.
(I always use "dude" out of respect, I only use "dood" as a contraction of the derogatory term, "doo-doo head"!)
And you forgot...
The boss now living out of a box.
The devil is in the details.
:)
Squid
Yeah baby, long "fairness" and "fair shares" of everything!
Such a tragedy of the commons.
At least they got rid of the living, walking breathing human trolls with a stranglehold on the company before they put it out of business.
Bullcrap. Remember Henry Ford? he paid his workers more than the going rate so they could afford to buy the cars they made? The IMF and the Fed create money out of thin air. Numbers out of context are meaningless. Let's see how much money is sitting in the Cayman Islands, then we'll have a context for the "middle class" and "minimum wage."
Excellent points, Heroic Couplet!
I believe Schumer, that faux crat piece of trash in the Senate, has proposed the opposite of what President Kennedy was proposing just before he got murdered --- that corporations not be taxed on monies sheltered offshore (Schumer), while JFK was proposing that offshore profits and monies be taxed.
And people wonder why the offed his noble spirit!
I'm missing any look forward in the article:
For example what will Dan Price run into if for any reason -voluntary or involuntary- he needs to lower salaries across the board.
This article also misses the part where Dan Price has since disclosed he is renting out his house now to make ends meet...
In accounting labor is a liability. The fact that there would be no profit without the labor is not considered. This won't last. The best workers have to work proportionally more for less to pay for the least best workers... Goodbye, Starnesville.
It is labor that creates value.
By your logic anything emerging from a fully-automated manufacturing facility has no value.
Negative, sonny, or Sturm und Drang, dood!
The people who created that automation contributed the labor, just as the miners who mined the substances used in its creation contributed their labor --- and probably both groups were greatly underpaid!
I took a job last year for $8.00/hour.
I took the job to learn something about the food service biz.
You got crap if you worked over 6 hours (you did it too many times and you got "written up" by corporate) w/o taking a break.
I asked questions anytime I had one; I offered suggestions anytime I had one.
But it is not only about money.
It's also about opportunity.
The corporate career drones think you're disloyal for moving on,
but that's the deal unless you offer opportunity.
Same co-worker sentiment from Walmart raising their starting wage. Walmart workers who worked for longer years feel cheated that new workers get a higher pay raise without doing the time earning it. There is veteran Walmart workers upset over the Walmart starting pay.
Who is John Galt?
Mrs and Mr Galt's boy.
Oh and those that love this guys idea here's how this chap is doing.
Just three months after raising the minimum wage for his employees to $70,000, Dan Price has revealed he is having to rent out his home to “make ends meet”.
http://www.independent.co.uk/news/world/americas/dan-price-ceo-who-incre...
Guy goes from making a cool mill to making ends meet. He could've cut his salary in half and made compete for the other profits by incentive for performance or sales or what have you. Hell he could've taken a 250k salary and The others compete for the Other 750k.
If he was so smart and altruistic he couldve at least seen That people are competitive like he is and they would produce the best service an product for his customers.
But nooooo! He had to go all commie lib socialist on his employees to knly find out that now he is suffering.
How's that working out for you clever guy? Right tyler?!?!?!
You already have a massive precentage of Socialism period.
Authorized Sellers from the US Mint
Export import bank
Corporate Bailouts
Military Procruments ie Lockheed Martin, Boeing..
and so on the list goes. These are facts that aren't refutable
The only question remains now is this? Who will get this share of the goodies?
The guy who gave up his pay isn't having a problem with business. They got more then they can handle. The issue he created was standardization, and people who work more demand more. Hence its a matter of opinion that will be adjusted, and work itself out. With all the more press, soon he will have enough to give those guys who work more, a bit of a raise to lets say 90K. Then pay himself again 1million if the articles keep up, and he manages this right.