I can't believe this actually needs to be said, but a single employer raising its wages is not the same thing as a government raising a legally mandated minimum wage. It's so much not the same thing, that the very fact the article tries to conflate them by comparing Ford's decision with the proposal from the Obama administration makes me doubt the voracity of the entire piece.
For one thing, Ford's logic is quite sound precisely because he's the only one raising wages. If his aim is to remain competitive and retain workers, that only works if he's the only one doing it -- competition, by definition, is relative.
Furthermore, the idea that people become richer because the number on the bottom of their check goes up, rather than the buying power of that number, is easily debunked by looking at the entire history of inflation. I'm easily making more money, in nominal dollars, than an average CEO in 1919, but I'm not running wild in Saint-Tropez every summer either.
The one thing the article does get right is Ford's attempt to fight the stock market crash in 1929 by raising wages further backfiring. The reason is because his higher wages were not the actual reason why Detroit was richer -- the opposite was true: he was able to pay higher wages because Detroit was richer; or, more precisely, because he made the best cars in the world and capital flowed into his company and his city at high rates. But when the economy contracted, Detroit was going to feel the pinch, also.
Nothing in this article makes a case for raising a federally mandated minimum wage, and actually undermines the argument quite a bit.
> Furthermore, the idea that people become richer because the number on the bottom of their check goes up, rather than the buying power of that number, is easily debunked by looking at the entire history of inflation. I'm easily making more money, in nominal dollars, than an average CEO in 1919, but I'm not running wild in Saint-Tropez every summer either.
This argument makes no sense. Raising the minimum wage doesn't affect everyone equally like inflation does. It affects only those with the lowest income, with maybe a trickle-up effect to those making somewhat more.
I think you are mistaken. Raising the minimum wage is exactly like inflation. Raising the minimum wage temporarily gives an advantage to those with the least power to set a price for their labor. This will increase demand for goods and services. In response to that increased demand, providers of goods and services will raise prices. Those with more bargaining power will set a higher price for their labor, and unskilled workers (i.e., those earning minimum wage) will find themselves back where they were.
Minimum wage is not the only variable which determines the value of money. You're forgetting the source of inflation itself: the federal reserve rate.
Think: how could an increase in minimum wage cause inflation? For that to happen – for all goods and services across the board to increase in value – the amount of money in circulation would have to increase, or the economy would have to shrink. But increasing the minimum wage does not cause money to enter circulation! So if an increase in minimum wage were to cause inflation, it would only be because the economy is simultaneously shrinking. (Which could possibly be caused by too great an increase in minimum wage, but that's a separate discussion. Is this what you are arguing?)
I'm not sure that I understand your point. I'm not arguing that increasing minimum wage is the only cause of inflation. I was saying that like inflation, increasing minimum wage affects everyone in the economy eventually.
Don't you agree that if you arbitrarily increase wages for a significant segment of the population, that segment will now want more of the goods and services they could not previously afford? Increased demand will drive up prices for those goods and services unless supply increases at the same time. If prices do go up, those with more bargaining power will seek higher returns for their labor. The net effect will be that almost everyone will see their income rise to some extent, but the supply of goods and services they are chasing is going to remain essentially the same. So almost all of us will be paying more for the same stuff. The only way that won't happen is if supply could magically increase at no extra cost – but that can't happen because we've raised the wages of all the people that supply those goods and services.
To reiterate: the scenario you lay out (taken to the conclusion that eventually all earners experience the same relative change) is not possible, because increasing minimum wage does not increase monetary supply. This is the key way it differs from true inflation. Ultimately, those extra wages – both higher minimum wages and, as you point out, higher wages of those with more bargaining power – have to come from somewhere. Ideally, that somewhere is the extremely high earners who have disproportionately gained income and wealth since the 1970s, thus reducing the relative gap in purchasing power between low and high-income earners.
I don't disagree that the effects you describe happen; my point is that, because of controls on monetary supply, they cannot happen equally to everyone. Nor can a minimum wage hike cause inflation on its own. (Of course, one could coordinate a change in monetary policy to effect inflation which negates the change in minimum wage in exactly the way you describe. The assumption is that the government is not so stupid as to enact two self-defeating polices.)
Of course, whether a minimum wage hike is an appropriate way to achieve the goal of reducing income and wealth inequality is debatable, but it does have a (non-transient) economic effect, because the value of money is anchored by other, more influential, aspects of monetary policy than the minimum wage (namely, the federal reserve rate).
It affects everyone equally who would get minimum wage. If when Ford increased their minimum, every other company Ford competed for workers against also raised their minimum, then it wouldn't have the same retention effect.
Disagree. The alternative is people leaving the company, industry, or workforce as laborers entirely. If all companies offered $.02 per hour, with little change in purchasing power, basically everyone would elect not to work and instead steal from and destroy businesses. And you can't look at economics in a vacuum; economics are intimately related to politics. An angry, poor population is a violent population, and fear of reprisal can only contain them for so long.
Our minimum wage being so low puts great strain on our social services (and if they didn't exist, the situation would be even worse - it would just be a reversion to what we saw before and during the great depression). Noone should be fully employed and still require food stamps and public housing vouchers, but that's the reality of today.
> If all companies offered $.02 per hour, with little change in purchasing power, basically everyone would elect not to work
Yes, this seems obvious.
> And you can't look at economics in a vacuum
Agreed, as long as we acknowledge that we shouldn't use this truism as an excuse to sweep away every argument about economics.
Overall, I don't see how you've contradicted my point, which was that when Ford increased bottom wages, it worked as long as other competitors for its labor market did not increase their bottom wage in kind. It seems like you're just making a case against low minimum wage in general.
You responded to his first point about people electing to not work at all if the wage is too low. That's the contradiction to your point.
If everyone getting minimum wage had their wage increased it would decrease the number of people who left the workforce entirely. The same effect would happen in for a case if all his competitors increased their wage too
> You responded to his first point about people electing to not work at all if the wage is too low. That's the contradiction to your point.
It only works as a contradiction in this case if Ford employees quit and stopped working altogether. If they tended to seek employment elsewhere, which I believe to be the case, then that makes my point.
Factory work was repetitive and monotonous. The Ford workers preferred to take work elsewhere, until Ford doubled wages. Had those other companies doubled wages as well, then why would they come back to Ford?
> If everyone getting minimum wage had their wage increased it would decrease the number of people who left the workforce entirely. The same effect would happen in for a case if all his competitors increased their wage too
This doesn't make sense to me. If employers didn't have enough staff, they would increase bottom wages in order to fill those positions rather than forgo potential profit and business health. If there is unemployment and bottom wages are low, then that says something about the labor market, not minimum wage. It means there is low demand for staff. Increasing minimum wage doesn't magically increase the number of open positions in the labor market.
>If they tended to seek employment elsewhere, which I believe to be the case, then that makes my point.
That is ignoring the point you actively quoted. Once wages decrease enough workers exit the workforce. There is no reason for them to continue working when the costs of living outstrip their wages. This is not even a hypothetical, you can look at modern families that decide to have a parent stay at home because daycare costs outstrip their salary to see this in effect today. You can imagine this happening of wages got so low that a person would be able to spend time growing their own food and getting more free time than if they worked and traded their paltry wages for food.
Having all competitors increased wages would have pulled more workers into the workforce from the pool of people who had decided that they got better value out of doing their own thing rather than working for a company, so everyone would win.
>This doesn't make sense to me. If employers didn't have enough staff, they would increase bottom wages in order to fill those positions rather than forgo potential profit and business health. If there is unemployment and bottom wages are low, then that says something about the labor market, not minimum wage
You are mixing two concepts here. You see correct that if unemployment is high and bittom wages are low then the market is not valuing that labor. The government is mandating a minimum wage would still bring more workers out of the "not looking for work" section of society into the workforce by increasing the benefit of working for those workers.
I feel as though you are suggesting that companies should only pay what workers are worth to them and the government should stay completely out of it. That is a logically consistent viewpoint if you are ok with people who don't currently have a valuable skill dieing in the streets from poverty. Our society,in most western European derived societies, has decided that this is not acceptable and has put in social safety nets to prevent this.
When an employer pays too little to live and the government has to step in to provide enough extra for the employees, that means every taxpayer, including you and me, are now subsidising that employer. If the government wasn't there then the workforce for the employer would either leave them or die off and the employer would naturally be forced to increase wages or go out of business.
As it stands I see three options for society, and only 2 ethical ones.
Option 1, the government taxes everyone enough to provide ubi and employers no longer have any limitation on them concerning minimum wage or other compensation. If they want to offer 1 penny per century and someone agrees, that's fine.
Option 2, minimum compensation is encoded into law and increased to the point where the government no longer has to provide any welfare
Option 3, which I personally find immoral but would be logically consistent, is that we go completely laissez faire so employers can offer what they want, the government doesn't tke taxes to provide welfare, and of a citizen doesn't have a valuable skill they either learn a valuable skill or die from lack of medicine or food
No, but everyone at the bottom of the income ladder would indeed be relatively richer compared with those with higher incomes, in contradiction with the claim I quoted.
100% agree. In Ford's case, it was a voluntary decision to attract and keep the best workers. In the case of federally mandated minimum wage, it's a threat of force against business owners who are otherwise acting peacefully and quite literally, minding their own business.
Raising the minimum wage results in:
- A raise in the price of products (hurting the poor the most)
- Firing employees
- Reducing hours
- Going out of business
- Outsourcing
I'm a business owner, and I'm not going to sit here eating up the cost of a higher minimum wage. The central planners don't seem to understand this -- or they do, and they ultimately want more people dependent on them. If that's the case, raising the minimum wage is a great idea.
As you must know being a business owner, labor is only one component of expenses, so prices don't go up x% just because labor went up x%. In McDonald's case, a 100+% rise in wages would represent a 4% rise in price. Obviously most minimum wage increases don't double at once so it would be even less. You don't go on a firing spree and shut down the business when property taxes or materials go up so why would you need to do that if labor went up?
Increasing pay by close to 50%,one would expect that prices would have to increase by closer to 15%, not 4%. Though, given how price sensitive those customers are, it isn't clear how much you can raise the price.
In terms of margin, it looks like McDonalds is doing much better than other chains:
>...In 2012, for example, when McDonald's had a net profit margin of just under 20 percent; Burger King's net margin was less than a third of that and another big chain; Wendy's, had a scary thin 0.3 percent.
But even at McDonalds, I think it is safe to assume that in the longer term, fast food restaurants would look into replacing rising labor costs with machines - that might be replacing cashiers with kiosks or even machines that prepare and cook the food, etc. This would be expected to happen anyway, over time, but mandating huge increases in labor costs will mean it happens quicker and be more disruptive. (One might say "good riddance" as these aren't great jobs, but they are entry level jobs which are disappearing in all industries.)
The production cost of a McBurger may only go up 4%, but the consumer price of goods is also significantly dependant on how much money is in consumer's hands. If you just hand everyone in the country $500/mo, rent is going up everywhere.
Which is what happened when families started having 2 full time high wage earners.
Both rent and house prices shot up. Those who owned houses profited massively from the unearned wealth increase. Those renting suffered.
We're now in a situation where everyone needs 2 full time high wage earners to pay for the same housing and lifestyle that used to be done by 1 full time high wage and perhaps 1 part time low wage
Only <4% of people make the federal minimum wage. Couldn't find stats on state minimum wage earners but it's still probably not so much that rent would be hugely impacted.
Not to mention, rent control is a good idea in addition, or finding ways to make homeownership more in-reach for more people.
> I'm a business owner, and I'm not going to sit here eating up the cost of a higher minimum wage.
Yes you are.(1)
(1) "You" here means the collective cohort. You as an individual business owner might be principled enough to refuse to hire, but I believe the data from other places that have a low but non-zero minimum wage indicates your cohort will usually raise wages, rather than not hire. Bearing in mind minimum wages are still very low wages. If business is so tight that would catastrophically affect profits, you will usually raise prices, and the cost isn't so much eaten as the pressures in the business adjust around the new reality; this is made easier by the fact that your competitors are doing the same.
> or they do, and they ultimately want more people dependent on them.
At least in some countries, raising minimum wage makes people less dependent on the state, not more. Two reasons: People need less top up from the state to plug the gap between low wages and high costs of housing and health, and people are more motivated to take a job because it makes a material difference to their situation, indeed poverty-level wages (far below minimum) often cost more to earn than they provide.
This[1] discussion on the minimum wage (specifically centered on Seattle's recent laws) provides a more nuanced goal than just "helping workers" or "getting them dependent"; essentially he's saying there are two types of minimum wage workers - teenagers looking for summer money, and adults making a living -, and you can help the latter if you don't mind screwing the former.
I think the teenage bit is unnecessary; they’re talking more about anyone trying to find entry-level work. Which happens to often be teenagers, but would presumably also include low-level career transitions, homeless, etc.
The restaurant part is particularly notable: “'We're going to be fine. Our members of this [Washington Restaurant] Association--the minimum wage, it's not going to break them.' And the reason why, he said, is because, 'there are so many strategies that we have to basically reduce our labor.'”
And then it goes on to basically list alternatives to having any entry-level jobs in the first place; buying cut fruits from offsite, self-order machines, etc.
That is, its a bit more dangerous than the simple job-hour reduction; its a more permanent transition to the total removal of low-level full-service work
It'd be very interesting to see the history of who was working minimum wage jobs over time and what kind of jobs were paid minimum wage. Anecdotally it seems more and more people are working a lot of minimum wage jobs that formerly wouldn't be minimum wage like retail or food service (a la fast food places) and there's more people working full time minimum wage.
No matter what the goal of raising it I think the fact that it's now a fraction of what it was in real dollars demands we either raise it or completely rethink how it's applied and what kinds of jobs can be min wage. People working full time should be able to live on their wages, anything else is just subsidizing the labor costs for huge profitable companies.
> there are two types of minimum wage workers - teenagers looking for summer money, and adults making a living -, and you can help the latter if you don't mind screwing the former.
when you put it like this, it seems obvious to say that the right move is to screw over the teenagers who are much less likely to be supporting a family or themselves.
I'm not sure this is great in the long run though. imo, having some kind of part time job is very important in highschool. for a lot of teens, it might be the first time they are exposed to an environment that has no inherent reason to make things work for them. until we finally get luxury space communism, this is a really important experience to have early in life.
I don't know about other countries, but in the UK the approach is to set the minimum wage significantly lower for teenagers.
Which sucks if you're an adult making a living who happens to be young, but that's what we do.
There's also a dirty hack: We call some young people "apprentices"(1), which sometimes means the same job as before and not having to pay the minimum wage, with a veneer of marketing. See also "unpaid interns".
(1) I don't want to disparage proper apprenticeships, which from reports can be excellent, e.g. at engineering firms like Rolls-Royce.
the obvious problem here is that if you have a different minimum wage for teenagers, they will be preferred over adult candidates.
by the way, we do have special rules in the US for what kind of work you are allowed to give to interns. in general you are not allowed to give work to interns that would otherwise be performed by a full employee. this is intended to prevent adult employees being put out of a job by low pay interns. unfortunately, I don't think most minimum wage employers are interested in dealing with these complicated rules for interns.
> I'm easily making more money, in nominal dollars, than an average CEO in 1919, but I'm not running wild in Saint-Tropez every summer either.
Not arguing with your general point. But on this count, I think you're vastly better off than the average CEO in 1919. You have luxury they couldn't have even imagined.
- quality of medical care
- entertainment
- air travel
- cars
- food regardless of season
- etc
This is actually a really interesting point. In some ways even moderatly poor people in a Western country are better of than the Caesars of Ancient Rome, especially the availability of medical care is something I would never want to trade. In other ways even the richest and most powerful people today will never be able to have comparable power, in terms of political and cultural influence.
It would be an interesting excercise to come up with a definition of wealth that somehow accounts for this.
A paradox of modern society is how a greater equality in material well-being has led to a greater feeling of inequality as people have more and more reference points.
That's a good point, and also speaks to the futility of trying to define wealth in dollar terms, even when adjusting for inflation. An inflation-adjusted dollar in 2019 buys more than an inflation-adjusted dollar in 2000, even (iPhones alone!)
> For one thing, Ford's logic is quite sound precisely because he's the only one raising wages.
Except that the rest of the industry followed suit as well, which, by your logic, should have nullified any advantage.
But it didn't.
There are other points to the article that naysayers completely miss (because it disagrees with their set-in-stone world view, it seems). Well paid workers, even if common across the entire industry, have multiple benefits. They are more motivated, more productive, and at a larger economic scale they have more buying power to actually purchase things being produced.
> was it just the automotive industry, or the entire market that did so?
Ford basically started the trend that would create the middle class in the US at large (somewhat arguable, but commonly attributed to him and this decision).
Baffling really. One of the most obnoxiously well differentiated and profitable enterprises in history raising their minimum pay can’t possible be an analogue for the entire business world
The frame of the article is that Ford, a dashing socialist in disguise, woke up and decided one day that all would be well and good in the world if workers were paid $5/hr.
That isn't going to be what happened. He would have thought about it carefully and moved deliberately because he thought it would benefit his business.
I'll draw an analogue with, say, Google and their 20% time back in the day. It might be quirky and costly to the company (losing 20% of your workers productivity!!) - but it isn't happening because the bosses are just lovely people. It happens because the boss thinks that there might be a payoff. It is circumstance-specific whether such bold plays work out.
I'll reiterate what some others are saying; capitalism is all about allowing selfish motivations to power great outcomes. The moral people tend to be the wizened monks sitting on mountains rather than the egos that power the machinery of society. Something external to the Ford company would have driven the rise in wages, and that something was likely to be competition or economic opportunity.
Right. And today, instead, churn is accepted. "Leadership" blames staff for being unmotivated, etc.
Put another way, Ford understood that to get what he wanted he'd have to consider the fate and faith of his employees. Do you think that's how Bezos thinks?
Bezos has to mitigate the cost of turnover somehow. You can mitigate it by reducing it (as Ford did), or you can mitigate by having faster training so new hires are productive faster. Both can fail.
OK. Don't take this the wrong way but let me repeat the statement + question:
Put another way, Ford understood that to get what he wanted he'd have to consider the fate and faith of his employees. Do you think that's how Bezos thinks?
I think what you're saying is - correct me if I'm wrong - Bezos does __not__ factor in his employees in the way Ford did.
p.s. The fact that we even have the term "human resources" tells us a lot, eh.
There is a massive difference between employers raising minimum wage (healthy for the economy, good for the individual, healthy for the employer), and the government raising minimum wage ( hurts the economy, regressive against low income individuals, bad for the individual, bad for employers).
>and the government raising minimum wage ( hurts the economy, regressive against low income individuals, bad for the individual, bad for employers
Government raising the minimum wage is:
* Bad for profits (the main effect is to redirect cash flows from profit to wages).
* Progressive for low income individuals (it raises the bar on low wages - raising wages just about the minimum). The inflationary impact is very muted compared to this.
* Positive for GDP growth - the multiplier effect of money going to low wage earners is much higher (>3x) than profits (<1x) because they have a higher proclivity to spend the money than profit recipients will.
> “The owner, the employees, and the buying public are all one and the same, and unless an industry can so manage itself as to keep wages high and prices low it destroys itself, for otherwise it limits the number of its customers. One’s own employees ought to be one’s own best customers.”
I note that in a world of globalising trade this isn't true - there are vast untapped reserves of both employees and customers out there. It then becomes possible to cannibalise the existing market through unsustainable practices. Until the global market as a whole is lifted up to the same level.
> One’s own employees ought to be one’s own best customers.
taken literally this is an absurd claim. sure it makes sense if you're making the first mass produced car, but no matter how well my company treats me, I'm not going to buy their niche B2B software.
You aren’t getting the complete picture if you discuss the $5 workday without also mentioning Ford’s Sociological Department. They were basically a group of investigators that looked into numerous aspects of Ford’s employees personal lives. If your kid didn’t go to school, if you kitchen wasn’t clean enough, if you spent too much time at the bar, if you weren’t saving enough, you wouldn’t qualify for $5 a day. That new salary wasn’t purely a capitalist endeavor, it was a totalitarian endeavor that gave Ford the ability to control the lives of his employees.
Dodge v. Ford Motor Company, 204 Mich. 459, 170 N.W. 668 (Mich. 1919)[1] is a case in which the Michigan Supreme Court held that Henry Ford had to operate the Ford Motor Company in the interests of its shareholders, rather than in a charitable manner for the benefit of his employees or customers. It is often cited as affirming the principle of "shareholder primacy" in corporate America. At the same time, the case affirmed the business judgment rule, leaving Ford an extremely wide latitude about how to run the company....
How is there no mention of the strength of organized labor during that period in the article or any of these comments? That was a big part of what motivated Ford to appease the workers when rolling out his new flexible production system. It wasn't his benevolence.
Ford, the company, along with GM gave up that system half a century later for a more rigid system that included more outsourcing but had the upside of being impermeable to strikes. Toyota on the other hand continued the flexible system along with the higher cost of labor and royally outsmarted the American companies in the 70s.
The role of organized labor shouldn't be ignored. And neither should the competitve advantage of working with well-skilled and well-contented labor.
The strength of organized labor, particularly at Ford in 1914 was weak, both GM and Chrysler unionized in 1937, Ford was the last to do so of the big three, holding out until 1941.
Ford's rationale for increasing the wage for his workers, as laid out by him, was to make it so every Ford employee could buy a Ford car.
If you're curious, and want to know more about Ford Motor Company, I highly recommend a book called Wheels for the World by Douglas Brinkley. (https://www.amazon.com/gp/product/067003181X/) Ford opened its full archives to the author, and it covers their entire history, warts and all.
>The strength of organized labor, particularly at Ford in 1914 was weak
It was about seeing off an incipient threat. IWW were quite active at the time. Amazon's goal last year was similar when they raised wages even though they refused to recognize the union.
>Ford's rationale for increasing the wage for his workers as laid out by him, was to make it so every Ford employee could buy a Ford car.
Which was obviously bullshit. The effect employees buying cars could have had on the bottom line was far outstripped by the increased wage bill.
Ford doubling his minimum wage is simply an example of capitalism (not government) raising wages. This is why capitalism is the greatest economic system (by a mile) ever devised.
An increase in aggregate worker productivity isn't necessarily an increase in the ability of workers; most productivity gains are attributable to capital investment. If you took a productive modern worker back 500 years, they wouldn't be much more productive than the locals of that time, as they'd lack the tooling, machinery, resources, equipment and factories that magnify human productivity today. It hence makes sense that the gains from rises in productivity wouldn't all accrue to workers, as the gains result from the actions of business owners investing in better means of production, not from action on the workers' part.
All productivity gain is the result of capital investment. That doesn't mean the benefits should not accrue to workers. Who do you think is provisioning, configuring and using the machines that result in that gain? Shareholders?
For one thing, Ford's logic is quite sound precisely because he's the only one raising wages. If his aim is to remain competitive and retain workers, that only works if he's the only one doing it -- competition, by definition, is relative.
Furthermore, the idea that people become richer because the number on the bottom of their check goes up, rather than the buying power of that number, is easily debunked by looking at the entire history of inflation. I'm easily making more money, in nominal dollars, than an average CEO in 1919, but I'm not running wild in Saint-Tropez every summer either.
The one thing the article does get right is Ford's attempt to fight the stock market crash in 1929 by raising wages further backfiring. The reason is because his higher wages were not the actual reason why Detroit was richer -- the opposite was true: he was able to pay higher wages because Detroit was richer; or, more precisely, because he made the best cars in the world and capital flowed into his company and his city at high rates. But when the economy contracted, Detroit was going to feel the pinch, also.
Nothing in this article makes a case for raising a federally mandated minimum wage, and actually undermines the argument quite a bit.