Minimum wages and profits

Posted: 8 July 2016 in Uncategorized
Tags: , , , , , ,


David Howell is right: attempts to raise the federal minimum wage in the United States (from the current $7.25 to, say, $12 or $15 an hour) have been stymied by a no-job-losses rule—the idea (promoted by mainstream economists and employers alike) that the minimum wage should be set so that there are no job losses for anyone anywhere in the country.

Determining a suitable federal minimum wage based solely on a zero job loss rule is a public policy straightjacket that would effectively rule out any significant raise of the wage floor above that which already exists. Yet from a historical perspective, strict adherence to such policymaking criteria would have also made it impossible to ban child labor (job losses!), as well as many critical environmental and occupational health and safety regulations. It would also foreclose any consideration of policies like paid family leave, which exists in every other affluent country.

As Howell correctly explains, the possibility of some job losses—for some workers, in some places—as a result of significantly raising the minimum wage can be countered by a combination of “emergency relief” (like extended unemployment benefits) and creating new jobs (e.g., through expansionary fiscal policy and public works programs).

So, what stands in the way? Howell focuses on methodological problems (“because the identification of the wage at which there is expected to be zero job loss must be evidence-based, there is no way to establish the higher nationwide wage floors necessary for empirical tests”) and misplaced priorities (such as forgetting about “the moral, social, economic, and political benefits of a much higher standard of living from work for tens of millions of workers”).

Both are valid points. But I’d point to a third: profits. The fact is, when employers threaten to let workers go (or not hire additional workers) if the minimum wage is increased (or mainstream economists make the argument for them), they’re attempting to protect their bottom line. If they kept their existing workers, so the argument goes, their profits would fall; and if they wanted to maintain their current level of profits, they’d have to fire some of their workers and replace them with one or another form of automation. It’s all about pumping out the maximum profits from their employees.

Profits also enter the story in a second way. Private employers see the possibility of compensating for minimum-wage-related job losses—by offering workers public relief and by creating new jobs through public programs—as a challenge to their existing control over workers, jobs, and ultimately profits. That’s the second reason they oppose an increase in minimum wage, because they know full well society has the means to make up for their willingness to eliminate jobs. But then their own role in the economy and the profits that come from that role are called into question.

For both those reasons—the threat to fire workers and the threat to their monopoly as employers—profits are the real obstacle to raising the minimum wage.

There’s no getting around it. We have to challenge the sanctity of private profits, presumed and promoted by both employers and mainstream economists, in order to guarantee American workers a decent minimum wage.

  1. Antonio Callari says:

    I don’t even believe there will be job losses in the aggregate; it’s possible there would be job gains ( from the extra spending better paid workers would do). It is a possibility. It needs to be soundly studied, and as far as I know, no one has ” soundly” studied that in as comprehensive a way as would be necessary. So, until then, I wouldn’t even buy the idea that increasing the minimum wage, especially if done somewhat gradually ( but surely) would result in job losses. Workers would need help in transitioning from some jobs to others, but not for unemployment relief perhaps.

  2. David F. Ruccio says:

    You may be right. However, from my reading of the studies and surveys of studies of the effects of raising the minimum wage—some of which show job losses, others no net change in jobs—I’d say there’s some real chance of job losses (as one might expect from the decisions of private employers, even with an increase in demand by minimum-wage workers). But that shouldn’t prevent us from supporting a substantial increase in the minimum wage, given its obvious benefits to workers and the means we have available to compensate for whatever job losses might ensue. I don’t think it helps the Campaign for $15 (or higher) to simply dismiss the possibility of job losses for some workers, in some places.

  3. […] A great way to make the fight for a higher minimum wage immoral. […]

  4. […] I’ve dealt with that argument many times on this blog, including a post I did in July of last year, in which I argued that employers’ profits were the real […]

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