Minimum Wage, Maximum Suffering

We pastors often tell the parable of the laborers in the vineyard. A landowner needs workers, so he offers them terms to pick for the day. The moral is intriguing and fascinating, and it concerns ownership, contract, jealousy, and other matters.

But the moral is not what concerns me here. Let's imagine the story if there had been a bureau to monitor the setting of all wages, ensuring that none fell below a set minimum.

What would the vineyard owner do? If the minimum was very low, it might not make any difference. If it was high, the response would be obvious: he would hire fewer workers. The moral of the story might have turned out differently!

But today, we think nothing of putting government in charge of decisions that, in the past, were made by owners and workers. This has had huge implications that affect us in big and small ways.

The minimum wage is going up, but in real terms — that is, adjusted for inflation – it has generally fallen since its height in 1968, at which point it exceeded $9 in today's dollars. The unemployment rate was at 6 percent and it would go higher and higher through the 1970s.

Today the legally mandated minimum wage is very low by postwar standards. Indeed, we have just completed the longest period when the minimum has not be raised. And what is happening to the unemployment rate? It is rock bottom and nearing 4 percent (which many economists would consider full employment).

Do you see a connection? With few dictates, more people work. That's the bottom line. What the minimum wage does is no more or less than make it illegal for employees to contract for employment at less than a set price floor.

Thus does it take away choice and eliminate a range of options, particularly for those who are least able to market their wares at high prices. Whether you favor or oppose a higher price floor, there is no denying this essential reality.

 But this big picture can be a bit distorting. Let's think of this problem from the point of view of a parent of a disabled child who struggles in school and has few options for the future. When the girl turns 16, she has the opportunity to work — which is a wonderful source of life and vitality for a young person. She can contribute to society and learn so much in the process. She senses that she is valued by others.

Now, it is not the case that her labor contribution will be equal to her wages, at least not initially. But there is an employer out there who wants to help this girl. She is hired at $5.85, a wage that puts pressure on the business but it's bearable. What happens when the legal minimum is raised to $6 and $7? At some point, the wage becomes unviable. The boss's charity can only extend so far. She will probably be fired as a direct result of Congress's attempt to do good.

Now, before you say that the answer is simple (just force the employer to fork over), remember that nothing in this world is truly free of resource costs. What is subsidized in one area is cut from another area. So the requirement that employers pay more comes at others' expense. That increases anger and breeds discontent. It could come at the expense of inventory, which hurts business, and is in no one's long term interest.

Am I just making this case up? No. It is a real case of which I have personal knowledge but it is hardly the only one. Whenever the minimum wage is raised, there are victims and those victims are the people who are the most marginal members of society, the people without work experience, the young, those who are likely to be discriminated against.

Now, it's true that there are empirical studies that downplay the cause and effect relationship between increased minimum wages and unemployment. And it is true that the data do not always bear out this relationship, and the reason is that macroeconomic data is not always so clean and clear. What we need to do is use logic and use our heads to think through this issue.

Whenever a price floor is raised, the tendency is to create a surplus of goods beyond that which otherwise might have been. Whenever a wage floor is raised, it creates a surplus of workers who otherwise might have had jobs. Sometimes the effect can be small, as it will undoubtedly be this time, since it has been so mercifully long since the minimum wage has been raised. But let there be no mistake: at the microeconomic level, the effects are real and tragic.

Why would anyone support such a policy? There is plenty of economic ignorance out there, and surely that is one explanation. But another explanation is uglier. Labor unions don't like competition, particularly from low-wage, inexperienced employees. They believe that they drive down their own wages. So they prefer higher minimum wages as a means of blocking certain people from getting a foothold in the workplace. If you doubt this, consider that labor unions are the main lobbyists for the minimum wage. No union member works for anywhere near the minimum wage. Do you have a better explanation?

The beauty of non-coercive means of negotiating wages is that they rely on human consent, cooperation, and voluntary assent. This is the humanitarian way to raise wages. Introducing the force of government into the exchange causes friction, exclusion, and unforeseen problems such as the exclusion of some of society's most vulnerable people.

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  • Guest

    That is a very logical and thought-provoking article. Thank you! Mary S.

  • Guest

    Father, I understand your observations on this complex problem and have read similar articles in agreement with your view. My question,  how many businesses were forced to close because of minimum wage? Any good business plan would include the going wage in their market. I don't buy into the argument of viewing minimum wage increases as a surprise to unprepared business owners. Maybe you can do an article on the obscene salaries of corporate managers.

  • Guest

    What is truly the problem is the fact that Christian employers do not act as Christian employers.  Or we need MORE Christian employers that are not limited by the law, but exercise generosity as Our Lord does.  When we rely on government to enforce generosity, the grace is lost.  We need to be leaven in society more.  We need to pray more.  We need to exercise generosity more in our own surroundings and have that filtrate society.  When this happens, the wrongful marginalization AND the obscene salaries of corporate managers will diminish.  Government cannot legislate virtue.

  • Guest

    all very intresting.

    Perhase someone can answer me a few simple question to which I have yet to be given any satisfactory answer by anyone.

     

    Why was minimum wage put into place?

    If there was a good reason in the first place then what makes anyone thing that that removing the minimum wage won't cause an immidate return of the situation the law was designed to help correct?

     

    If there was no good reason why did the law have such popular support amongst all the american people including most catholics when it was past?

     

     

  • Guest

    this also has some intresting reasearch in it:

    http://en.wikipedia.org/wiki/Minimum_wage

     

     

  • Guest

    Father, In all due respect, as a priest with an undergrad in Accounting,  an MBA, and experience in the financial sector, I couldn't disagree more with your all too familiar justification for what is a horribly unjust salary and wage "system" largely in play in this country. A few "quick points" and "amens" to some previous comments by other readers.  First of all, Unions are, sadly but very really, a necessary "evil" as is, unfortunately, government intervention (min wage and other laws that try to keep corp' exec's in check).  The "CEO" left unto himself, wounded as we all are, will clearly and empirically not provide a just wage for the working class (think Upton Sinclair, "The Jungle" and hedge fund managers salaries over the past decade).  Without a doubt, imperfect as they obviously are, both Unions and "big brother" are necessary.  Imagine if we left supposedly "free market" forces play themselves out unchecked!!  Talk about crimes that would cry out to heaven!  The unspeakably obscene salary, wage & benefit package discrepencies between the top "20 percent" of largely senior management and the other 80% working class of the typical major corporation is troubling, to be kind.   It is an overall complex matter, surely, yet it needs to begin, as most things do, with personal conversion of life.  We, as priests, really need to "call out" and challenge our Catholic Businessmen using both faith and reason. +++          

  • Guest

    In order to post a thoughtful post to this essay, I googled, "If men were angels there would be no need of government."

    Well, what did I find, but a CE essay from July.  http://www.catholicexchange.com/node/63702

    The posts there seem to fit for this discussion too.

    I also wonder if both priests may be correct. (the author and francis123).

    Laws of economics aren't suspended just because the "good" is labor and the "price" is wage.  Therefore, negative effects on the market will occur.  However, perhaps that is a cost we must be willing to pay because of the fallen nature of humans. (Capitalism isn't a path to heaven in its pure form.)

    I also think there's a false premise at work.  Nobody can support themselves on the minimum wage anyway.  Therefore, who will starve if it's not in place?  Minimum wage jobs are for entry level positions and young unskilled workers.  Is government protection for their wage constitutionally protected?

    Further, if one is disgusted by obscene salaries for CEOs,  athletes, pharmacy sales reps, personal injury lawyers, etc…let your senator know (did I mention senators in my list?).  Wait!  Maybe you'll be next on the list.

    As Winston Churchill said,

     "Capitalism is the unequal distribution of wealth:  Socialism is the equal distribution of poverty."

    Thanks for the opportunity to think about these issues.

  • Guest

    Keep in mind that the American economic system, replete with human faults, has built the most prosperous national economy that ever existed anywhere, at any time, on the face of this earth.  In doing so it has made the American worker the envy of the world, and produced a level of individual prosperity that is second to none.  We have more "workers" that have applied for legal entry into the USA than all of the countries of Europe combined, and you can toss in China and Japan as well. I need not mention the illegal workers that are trying to get into this "horribly unjust salary and wage system".  Baloney.  There is nothing intrinsically "evil" in disparate wages or earnings, particularly if they can be justified in comparison to the relative value produced by the contributor. In our free enterprise, capatialistic system that is left to the supply and demand of the labor offered, and not to the arbitrary definition of what some politician calls a "just wage".  I personally find a great deal more "evil" in the first Chapter of Das Capital wherein Marx defines "the just value" of labor.  Compared to Marx, Upton Sinclair doesn't look that bad.

  • Guest

    Fr. Sirico gives us Economics 101, that's how it works in the Adam Smith model. Our economy is not run that way, we operate on the Keyensean modal of fiscal, economic and monetary policies all tweaking the effect that the gov't wants to achieve. This system has indeed produced unparalleled wealth as danny correctly points out. In that case we could certainly afford to pay more to those on the bottom rung. Then there's the convenient exclusion for farm workers not to mention the illegals. No, the minnimum wage is there for the purpose of manipulation and shameless politics. Do any of you think that Kennedy or Dodd (just add your favorite to the list) pay their gardners $20./hr with health benefits and 401K? Market forces like democratic gov't work well for a moral people. We are now progressing from wealth that is second to none to greed that is second to none.

  • Guest

    Hello all,

    As a foreigner (I'm from Finland), I have to say, that even though I'm not an economist in any sense, I really think your kind of system there in America is bad for the people. Let's take for instance the health insurance. In Europe, it is so, that everybody has a health insurance (they will get treatment in any public hospital -at least here all the hospitals as far as I know treating for example cancer etc are public hospitals. In order to get a treatment, you don't need money. This applies also for pregnancy. We have a system, that you can have a baby and you don't need really expencive insurances. One family I know moved here just because of that. The wife is finnish, though.)
    i doubt this would be possible without high taxes and yes, some pretty much government policy in issues like wages. Anyway, I'm willing to pay high taxes in order that everybody gets treated and that my children will have a safe and good kindergarten and school, which they do -thanks the European model! I wouldn't change with you. 
    Anyway,  I wish you God's blessings and mercy!
    precibus, P 
  • Guest

    Many thoughtful comments & insights, indeed.  Appreciated the Churchill quote and the complexities of the issues involved:  Politics, politicians, special interests, self-interest, vice, the "tinder of sin," patriotism, economics, to name just a few…. I still think, however, a system that enables a billion dollar annual salary for a hedge fund manager and 5 bucks/hour for the maid at the local 5-star hotel is in need of some tweeking and personal and collective conversion.  (relative value compensation, in all its integrity & fairness, notwithstanding, of course).   ;o)     

  • Guest

    Plisto, if we get national healthcare in the US we're Finnish (sorry). Thanks for chiming in, it's nice to get someone's opinion looking from outside the forest.

  • Guest

    "still think, however, a system that enables a billion dollar annual salary for a hedge fund manager and 5 bucks/hour for the maid at the local 5-star hotel is in need of some tweeking and personal and collective conversion. "

     

    The article on the other hand would argue against it and the if fact advocate letting the maid be paid 2 dollars an hours.

     

     

  • Guest

    " national healthcare " is a somewhat seperate issue from minimum wage. I agree that universal access to healthcare should be guaranteed.However,  I would rather see it never come to pass in this country if it means using tax dollars to pay for either contraception or abortion. It was the debate over abortion that destroyed the last attempt to bring about some form of national health care in the country the last time it was attempted.  Many of our hospitals are associated with or run by the catholic church and would have to be shut down if required to spend money to provide abortions to either their patients or employees. 

     Plisto, does your labor go to pay for murder sponsored by your government? If national health care paid for by the government was passed in my country and it included universal access to abortion I would very seriously have to consider tax evasion as a proper moral action.

     

    One of the major problems with government intervention is that governemnts are not inherently good. Less government is better.  Personal responsibility is better.  The purpose of the goverment is to impinge upon man's desire to sin.As such the minimum wage seems a well concieved law.  Weather or not it is effect I am undecided on. 

  • Guest

    Finland is a country of 5 million very couragous people with a GDP that is 1/66th of the USA GDP.  In 2006 Finland had a total of 3,900 immigrants. That is about the number of Mexicans that slip over the border during lunch hour every day.  As with almost all European countries, the Finnish Death Rate is higher than the Finnish Birth Rate, and they have a population that is in decline. Using US dollars, A Finn making $US 75,000 would pay taxes of $US 30,000. (about 40%), but there are "Municipal Taxes" that seem to run another 16% (not sure that applies to everyone).  They pay an additional 10% on interest and dividends payments.  I honestly don't know how good their health system is, but at those prices it should be very, very good.  I can't imagine Americans tolerating that kind of cost for a health care system. 

    In 1983 I flew into Helsinki and was driven north to a place called Rovaniemi. I was there for what seemed to be four months (actually it was four days). As I recall we were near the Artic Circle. I don't think the wind was below 100 MPH during the entire four days. It literally howled all night. I did not go outside for one minute during the entire time.  If you live in Finland, you better have good health care - don't quibble about the cost. 

  • Guest

    RE: Fr.Sirico's minimum wage conundrum. Are we to assume that all small businessmen/women are saints? That they will provide honestly and well for their workers? Is it just for a man to open a small business on the backs of his laborers? A man wants to open his own business, to have that privilege and the only way he can do it is to offer another man less fortunate person starvation wages? This is a very poor excuse for profiting from another's misfortune: being desperate enough to have to accept starvation wages. Let the man or woman who wants to own his own business hire his own family members at the same wage he/she would have offered another laborer. Or else pay a fair wage.  If you cannot do both, pay a fair wage and own your own business, then don't own your own business.

  • Guest

    So let's see.  Someone starts a business.  At some point he realizes that he could use some assistance.  Let's say the assistance he needs is an IT technician.  If he needs that to maintain and grow his business he will contract with the technician for upwards of $40/hour. In other words he will pay what technicians charge.  What if he cannot afford to pay that?  Then he will wait until he grows his business enough to make enough money so that he can, even if he could grow his business more quickly if he could have gotten that service more cheaply and sooner.

    Suppose what he needs is a good mechanic. He will pay from $18-25/hour.

    Let's say what he needs is a delivery driver and in his area the going rate for someone with a CDL is $14/hour — guess what he will pay? But what if he does not enough profit to afford that?  Then he will wait and it may mean that he cannot grow his business as quickly as he could if he could get a delivery driver more cheaply.

    Now, what if all he needs is someone to answer the phone all day and fill out paperwork?  Well in that case he will pay around $9-10/hour.

    What if all he needs is someone to sweep the floor, take out the trash, clean toilets and squeegee windows? He will offer what he thinks that is worth – say he thinks it is worth $5/hour and somebody is willing to sell him that labor for $5/hour.  Can he make that contract with that person? No he has to pay minimum wage. So what he will do is wait.  He will spend time he could spend growing his business in doing his own janitorial work until he makes enough profit to be able to pay this other person. Meanwhile the guy who wants to work for $5/hour has no job. The businessman cannot say, come on with me and clean at $5/hour for a couple of months so I can put some more time into growing my business and in a couple of months I will give you $6/hour.  Suppose there is someone willing to sell his labor for $5/hour? Is that person free to sell his time for that amount? No.

    How is it that all the other people are being paid fairly when they freely contract to sell their labor for those amounts, but the last guy is a slave i.e. the business is "being built on his back" – that is a crock; he is not a slave.  The business is no more being built on his back than on the back of the IT technician or the truck driver. If he wants to make $10/hour, he can learn the skills that command that.  Or he can go get a CDL and make $14/hour.  Or he can spend a year in technical school and become a mechanic and earn $20/hour. Or he can spend 2-4 years in college and then make over $40/hour as an IT technician.

  • Guest

    mary,

    for some reason your post made me laugh!  But it is true!

    My husband owns his own law firm.  He pays his paralegals very well.  And they get great–regular–bonuses as the tide rises.  He is just and knows who helps the water rise! 

    However, guess who takes out the trash!  He does!  And who shreds documents?  We do! 

    He has made the business decision to pay certain employees at a particular level  and forgo the services of other workers who he feels charge more than he wants to or can afford to pay.  That's his choice!

  • Guest

    I own my own business and if I were to hire Samwise as a consultant I would have to go below the minnimum wage.

  • Guest

    God loves you .

    Mary’s (and Father Sirico’s) basic argument – ‘choice’.

    Choice not to improve one’s marketability should not come at others’ expense. Minimum wage fits that expense issue.

    While I agree that it would be nice if some benevolent leader could direct our economy to get everyone ‘a living wage’, I also am aware that his successor could be Adolph Hitler re-incarnated. Hitler’s solution: kill some ‘useless eaters’ (eugenics) and enslave the rest of those who cannot earn away from government inteference. Government minimized is government effective – and, of course, less part of the expense issue of doing business. And, that expense entails whether businessmen are meant to pay a floor wage, or those who choose not to learn just may end up paying the expense of being enslaved in order to have anything to do.

    And, it would be nice if so mnay businesses didn’t start out operating on shoestrings and prayers. For, every large business started out as small to medium businesses that struggled to get their feet under them. Does Samwise think the average small business owner gets to pocket anything like a million the first year ‘on the backs of his workers’? For most, it is a labor of years to get into any large profits. (Hate to say it, Sam, but most of what you gave us is Marxist tripe.)

    In this country, even more than ‘safety nets’, which we do have in place, we have opportunity through training. As Mary points out, get the training to move up, and keep adding to it to move even further. And, don’t whine if you don’t try.

    Remember, I love you, too

    Reminding that we are all on the same side – His,

    Pristinus Sapienter

    (wljewell @catholicexchange.com or … yahoo.com)

  • Guest

    Somebody asked how the minimum wage got started. Like so many of our bad fiscal policies, it started with Franklin Delano Roosevelt, a man whose ignorance of economics might be described kindly as "appalling." As far as I can tell, the basis for all of FDR's economic policies were, at base, "do something!" and/or "people will like this."

    The lobby for minimum wage increases in the US is nearly always labor unions. Their contracts specify wages indexed on the minimum wage (i.e., "minimum wage +$X per hour"), not a specific hourly wage.  Thus, a minimum wage increase is an automatic wage increase for them.

    Minimum wages also reduce the availability of non-wage compensation, like job training, pensions, and health care.  It has completely replaced apprenticeship (whereby the student exchanges work for training and upkeep) with schools (where the student has to work at a low-value job for money, support himself, AND pay for training), completely eliminating what was a viable economic plan for centuries.

  • Guest

    My high school senior pointed out that FDR et al did not intend for the minimum wage to be permanent.  It was just to get people over the hump of The Depression.

    As with most government programs you can never kill the beast………

  • Guest

    If he needs that to maintain and grow his business he will contract with the technician for upwards of $40/hour. In other words he will pay what technicians charge.

     “ why pay that if you can talk a starving college student into do it for $10 /hour”( I know a lot who have). 

     

     “someone with a CDL is $14/hour” or he can higher someone without a CDL and living illegally in this country for $3/ hour why not do that?  

     

     “Well in that case he will pay around $9-10/hour.”Again a perfect opportunity to employ someone from off the street who doesn’t have a house and doesn’t need such exorbitant salaries.   Sounds like this person isn’t a very good business man.  Why not pay someone on a per call answered basis , if he can get his employees to eliminate overhead, like paying for silly things like doctors and housing he can certainly by $4 or $5 ( I know of people in my area who work full time and are homeless).  

     

    The suggestion that labor supply fixes a price is just near to silly. 

    Supply is near to infinite in all cases unless your required certified personal.  ( I suppose an alternate solution to the problem addressed by minimum wage law would be to require various types of certification for ALL jobs , but that sounds much more complicated then our current solution o the problem).  

     

    Why do you think they still have sweathouses in China? Because they have not yet passed laws in that country to ‘uphold the dignity of the working class’ as they do not necessarily believe in such as we once did in this country.  A belief that is routinely maligned by the republican party.  

    The fact is from the employers perspective (untrained uneducated labor is a commodity)

     So, barring some moral quam ( non-existent in large corporations) , the employer will pay the least amount possible for it.  If you ware willing to live in a cardboard box in china they so you don’t need the wage to pay for silly thing like electricity and health care so much the better. 

     That is exactly why so much of our manufacturing has been outsourced.  The employers don’t care that their factor works are working in conditions American employees would not tolerate and living in situations that in this country would cause you to get your children taken away.  They buy the cheapest labor.  So as far as I can tell removing the minimum wage will allow for a return to exactly that kind of thing here in this country. 

    ( the solution to outsourcing labor is different issue that will also never be successfully addressed by the free market model unless we truly want a society with the same standard of living in this country as workers enjoy in Indonesia and china).     

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