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The Failed Moral Argument For A "Living Wage"
Submitted by Ryan McMaken via The Mises Institute,
With Labor Day upon us, newspapers across the US will be printing op-eds calling for a mandated “living wage” and higher wages in general. In many cases, advocates for a living wage argue for outright mandates on wages; that is, a minimum wage set as an arbitrary level determined by policymakers to be at a level that makes housing, food, and health care “affordable.”
Behind this effort is a philosophical claim that employers are morally obligated to pay “a living wage” to employees, so they can afford necessities (however ambiguously defined) on a single wage, working forty hours per week. This moral argument singles out employers as the morally responsible party in the living wage equation, even though the variables that determine a living wage go far beyond the wage earned.
For example, as I discussed here, the living wage is a function not simply of the wage, but of the cost of housing, food, health care, transportation, and a myriad of other factors. Where housing costs are low, for example, the living wage will be lower than it would be in a place where housing costs are high.
So, what matters is not the nominal wage paid by the employer, but the real wage as determined by the cost of everything that a wage is used to purchase.
Why Is Only the Employer Responsible?
So, if it’s the real wage that matters, why is there a fixation on the nominal wage itself? After all, wages, in real terms, could be increased greatly by forcing down food costs and rents. So, why is there not a constant drum beat for grocers to lower their prices to make necessities affordable? Why are activists not picketing outside grocery stores for their high prices? Why are they not outside KB Homes headquarters for KB’s apparently inhumane efforts at selling homes at the highest prices that the market will bear? Why are people not picketing used car dealers for not lowering their prices to make transportation affordable for working families? And why are gas stations strangely exempted from protests over the high cost of gasoline? Certainly, all of these merchants are just as instrumental in determining real wages as any employer. Grocers, landlords, home sellers, and the owner of the corner gas station can put a huge dent in the family budget when they allow their “greed” to impel them to charge the highest prices they can get away with in the market place.
And yes, it’s true that plenty of activists regularly denounce landlords as “slumlords” or greedy capitalists for charging the highest rents the market will bear. And there are still plenty of activists who argue for price controls on rents and food. But they’re in a small minority nowadays. The vast majority of voters and policymakers recognize that government-dictated prices on food and housing lead to shortages. Setting a price ceiling on rents or home prices simply means that fewer housing units will be built, while setting a price ceiling on eggs, or milk or bread will simply mean that fewer of those staples will be brought to market.
Such assertions are barely even debated anymore, as can be seen in the near-extinction of new rent-control efforts in the political sphere. You won’t see many op-eds this Labor Day arguing for price controls on fruit, gasoline, and apartments. You won’t see any articles denouncing homeowners for selling their homes at the highest price they can get, when they really should be slashing prices to make homeownership more affordable for first-time homebuyers.
So, for whatever reason, homeowners, grocers, and others are exempt from the wrath of the activists for not keeping real wages low. The employers, on the other hand — those who pay the nominal wage — remain well within the sights of the activists since, for some arbitrary reason, the full moral obligation of providing a living wage falls on the employer.
Were food prices to go up by 10 percent in the neighborhood of Employer X, who is responsible? “Why, the employer, of course,” the living-wage activists will contend. After all, in their minds, it is only the employer who is morally obligated to bring up real wages to match or exceed an increase in the cost of living.
So while price controls on food, housing, and gasoline are generally recognized as a dead end, price controls on wages remain popular. The problem, of course, as explained here, here, here, and here, is that by setting the wage above the value offered by a low-skill worker, employers will simply elect to not hire low-skill workers.
A Low Wage Is Unacceptable, but a Zero Wage Is Fine
And this leads to the fact that when faced with high wages, employers will seek to replace employers with non-human replacements — such as these automated cashiers at McDonalds — or other labor-saving devices.
But this phenomenon is simply ignored by the living-wage advocates. Thus, the argument that employers are morally obligated to not pay low wages becomes strangely silent in the face of workers earning no wage at all.
Indeed, we see few attempts at passing laws mandating that employers hire human beings instead of machines. While it’s no doubt true that some neo-Luddites would love to see this happen, virtually no one argues that employers not be allowed to employ labor-saving devices. Certainly, anyone making such an argument is likely to be laughed out of the room since most everyone immediately recognizes that it would be absurd to pass laws mandating that a road builder, for example, hire people with shovels instead of using bulldozers and paving machines.
Meanwhile, successes by living-wage advocates in other industries — where automation is not as immediately practical — have only been driving up prices for consumer goods. Yes, living wages in food, energy, and housing sectors will squeeze profits and bring higher wages for those who luckily keep their jobs, but the mandates will also tend to raise prices for consumers. This in turn means that real wages in the overall economy have actually gone down, thanks to a rising cost of living.
All in all, it’s quite a bizarre strategy the living-wage advocates have settled on. It consists of raising the prices of consumer goods via increasing labor costs. Real wages then go down, and, at the same time, many workers lose their jobs to automation as capital is made relatively less expensive by a rising cost of labor. While the goal of raising the standard of living for workers and their families is laudable, it’s apparent that living wage advocates haven’t exactly thought things through.
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Why all the complaining? I thought all you gold-stashing mofos wanted inflation -- you can't have inflation without wage inflation too. Just sayin..
They just want the price/value of their gold to go on increasing forever.
Nobody told them when worldwide SHTF, their gold won't be worth much. Only hard goods, manufacturing and production, and services will be worth anything. It becomes a buyers market, not a sellers market (those trying to sell gold)
The living wage arguement is complete bullshit. It's just another fallacy spread by the collectivists. They do this with every subject that they touch, bullshit, bullshit, bullshit. But the low-info voters fall for it every time.
"is that by setting the wage above the value offered by a low-skill worker, employers will simply elect to not hire low-skill workers."
I wonder how much fiat we are worth, and who sets that value? After all, for the most part we are these employees being discussed on a value basis...
Henry Ford gave huge raises to his employees knowing they would turn around and buy the product. Other employers of the time did the same a a consumer driven economy took off like a rocket.
So, what if he instead used robots and other machines to replace human employees? Anyone think the consumer driven economy would have occurred?
So, what is it that makes humans value machines more than themselves?
We really are a piece of work...
1) Higher wages are the SIMPLEST way to affect widespread disparity between workers' wages and the cost of living. Rather than trying to dictate literally millions of prices, you set a wage that is calculate to cover minimum living standards.
2) Employers can then compensate as they see fit, and adjustments will occur as an ongoing process. ALL economies are ongoing processes. There is no fixed steady-state.
3) Replacement of humans with machines has a long and sordid history, but despite relatively high wages throughout the medieval era, the adoption of mechanization depended on the availability of CHEAP fossil fuel. Fossil fuel is no longer cheap and with the recognition and capture of former externalities, gets more expensive yearly. Without stored energy to effectively shortcut the Laws of Thermodynamics, a system cannot produce more product than the energy required to fuel workers, whether those are human, animal, or plant.
4) In fact, at this time replacement of humans with machines in one field generally requires the addition of MORE humans, and more highly-compensated ones, to maintain the machines. For every three clerks removed by computerization, firms must hire an IS specialist at three times the salary of one clerk. Automated cash registers must be overseen by live humans due to their constant errors, they must be built, they must be installed, and they must be continuously updated.
5) The drive to require employers to pay more is based in equity, on the fact that as the system is currently constituted, it is employers which are extracting the majority of benefit/energy out of the economy in the form of profits. Those profits are unsustainable due to the social externalities imposed by their extraction. Therefore, it is the makers of those profits who must be taxed, by providing higher wages, to reset the balance and restore the social ecology.
I hope this isn't too complicated for a Misian mind to comprehend. Or for that matter, for economists in general, as they are well-known for their preference to ASSUME simplistic rationalizations without understanding of the complexity inherent in either human society or the living world ecosystem. Had they any understanding of the latter, they would never have even invented the term "externality", as NOTHING created on this planet has ever truly become "external" except for a few pathetic chunks of rocket debris.
You use the atmosphere as a toxic sewer dump, you get to breath toxic sewer gases. You starve all the peasants, YOU get to bury them, because there ain't none left to do your dirty work for you. That's if you don't die first from one of the epidemics started among those peasants while their immune systems were compromised by starvation. And you can only get so many free lunches by robbing your neighbors, before your neighbors get together and come back with big sticks in their hands to rob YOU.
Don't believe me? Look at the papers. SYRIA.
Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output.
from nmewn
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NO! Please stop confusing people. The average person has enough trouble wading through all the BS that is out there.
There is monetary inflation and there is also cost push.
Cost push is fairly classic. There is a gap between what people can buy. in other words, prices are higher than the total of wages in industrial systems. Waste and usury on money are encoded in price, but wages are not sufficient to buy all the goods and services.
This means that labor agitates for more wages. Prices then go up. Labor then agitates for more in the way of wages. Prices go up again.
So, where is monetary inflation in cost push?
nMwen, please stop confusing the ZH people. Mises people... you are also equally confused.
Hyperinflation in Weimar, WAS A MONETARY PHENEMONEN, brought on by the THEN PRIVATE REICHSBANK
Oh the horror .. a private bank causing hyperinflation.
I am going to keep on giving it to you guys straight, and maybe the truth will make some of you gag, but others will apreciate it.
I agree with much of that. But in the other cause of inflation that you mention "cost push inflation" which you attribute to rises in wages, there is also "cost push inflation" caused by the rising cost of imports which may itself lead to rising wages. Rising import prices can be for many reasons but is especially relevant in the US and UK who both import a large volumes of goods and commodities etc.
Well Fukit then, make your own goddamn sandwich...
From Freedom Guy,
Before you call others economic morons, you should look in the mirror:
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For a fleeting second do you ask yourself how people in countries where they earn a dollar a day are not all dead? How do they eat? Where do they sleep? The reason is because economies always and everywhere rebalance. Everything else they buy is priced proportionately
You economic morons also ignore the price demand curve
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DOLLAR a day economies are usually extraction economies, where labor cannot fashion their earth's minerals into goods and services. Typically, the people of these countries are not capable, or there have been attempts to put them into foreign denominated debts. Russia after Yeltsin years was an attempt to put Russian people into dollar/Euro debts, and then convert country to extraction. Goods and services were to be made elsewhere, and a few Oligarchs who enclosed the land would be the only people able to make money.
An extraction economy is one way to put most labor out of business. The other is to have a non money economy.
Dollar a day economies may not have things priced as money, and instead people do gifting...they trade their output as credits/debts with each other. Gift economies existed before money economies, so pricing and markets are a non factor. Quoting price curves for gift economies is complete bad thought. I notice that a lot from you. I'm going to start calling you FREE DUMB guy. OK. Would you like that? Stop confusing people.... if you don't know things then be quiet.
When Gold was found in Africa, a head tax was put on the natives. This head tax, say priced in RAND, would make the natives have to mine Gold in order to pay the tax.
Oh Wait..... I forgot Gold is money. My bad.
Law is money, and Rand was made money of the realm by law. Those that controlled this law at the time, were people like Oppenheimer (J) and Cecil Rhodes. Yes, both of these guys were nasty pieces of work.
Oligarchs then were able to take African labor and pay them low, to then extract Gold from Earth. This Gold then was supply/demand controlled to extract maximum profit in exchange for other currencies. Those other currencies then bought luxury goods from England and elsewhere. The same mechanism was used for diamonds, and still is today. Diamonds are plentiful.
Raise the wages so more taxes can be collected from those higher wages which is the main reason government supports this. Not the only reason.
From Smacker.
Yes this is true. Thank you. This is a super important mechanism, also relating to hyperinflation. It also points out a weakness in U.S. and Engish economies should they transition away from being financialized.
And why are both the U.S. and England financialized? I've mentioned it before, it is the very same rentiers that fund brainwashing of Mises crowd. The money powers that jumped to England especially by 1694, and then jumped to America and fully parasitized her by 1912.
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I agree with much of that. But in the other cause of inflation that you mention "cost push inflation" which you attribute to rises in wages, there is also "cost push inflation" caused by the rising cost of imports which may itself lead to rising wages. Rising import prices can be for many reasons but is especially relevant in the US and UK who both import a large volumes of goods and commodities etc.
Oh c'mon, we all know that free market argument is complete bovine fecal matter. Because there isn't one but rather a regulated market that serves to cater to the rich.