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Minimum wage would be $26 an hour if it had grown in line with productivity (cbsnews.com)
182 points by apress 12 days ago | hide | past | favorite | 194 comments

I agree that minimum wages are too low but the argument that wages should track productivity is false from economical point of view, in my opinion.

The argument would be true if how people contribute to economy did not change.

But over time disparity in contribution to economy changed. Hundred years ago people had very similar jobs, mostly physical, manual, where each would contribute rather similarly.

Nowadays companies can produce virtual goods, sell "IP", and many other mechanisms to produce a lot with relatively little that just are not possible with traditional production lines.

Now, I think the correct reason to justify better minimum wage is basic human decency and also the role of the state as servants to entire population.

I think a person doing honest, important work for 8 hours a day 5 days a week should enjoy a compensation that should be enough for a basic living plus some little extra. Basic living means a decent place to live, medical care, ability to buy healthy, non-extravagant food, etc.

It doesn't matter if that job is cleaning streets or being cashier at Walmart. We need streets to be cleaned and we need to buy stuff.

These people doing basic jobs are unable to defend themselves and that's where the state should come in and make sure that people who do basic jobs are able to afford basic living.

I honestly think a minimum wage is one of the worst way's to guarantee a minimum quality of life. It keeps all the downside of an employer focused system and keeps adding more and more of the governments job onto corporations. Huge parts of this mess are from government intervention in the employee/employer relationship (healthcare being taken care of by your employer was to circumvent wage freezes by Congress during WW2).

We are already seeing good results from the expanded child tax credit distributed over time instead of lump summed. I'd like to see that expanded as a negative income tax credit over the full 12 months of the year. It doesn't have to be a ton of money either if the guaranteed floor is half of what's need to live it would force a lot of employers to clean up their act.

One other idea I'd like to pitch is a say every 5 year moving tax credit. Something like if you move >100 miles you can claim a $5k tax credit. The main goal would be to get people out of the rut where they are too poor to move but the area they live in is too expensive to stay.

If the goal is minimum standard of living, then the minimum wage is a stupid way to achieve this. Just give people money if their income is below a threshold. Why introduce this bizarre distortion in labor markets by setting a price floor on labor?

I’m not going to cite anything so feel free to ignore this statement, but I’ve encountered a substantial body of evidence indicating that the minimum wage hits teen unemployment the hardest. Teens are not trying to raise families on a minimum wage, they just want some extra cash. The minimum wage kills this opportunity, and the entire justification for it has absolutely nothing to do with the teen’s situation.

In the UK at least, there is a separate minimum wage for people under different ages. Teens have a much much lower minimum wage precisely because of what you just said.

> the argument that wages should track productivity is false from economical point of view, in my opinion

This view effectively negates all the other values you expressed. If people contribute N% of overall value but their remuneration tracks value at the epoch of that sort of contribution, you’re effectively ensuring people will exploit that for their own gain without equivalent contribution. And you’re ensuring that they’ll use the power that gives them to protect that disproportionate benefit.

The level of a minimum wage should certainly take productivity into account.

Economically, all jobs that have a productivity lower than the minimum wage's total cost to employers disappear.

So there is a balance to achieve and that's why low productivity is always seen as problematic (and why food delivery guys are never going to be paid a lot).

> The level of a minimum wage should certainly take productivity into account.

calculating the productivity of a job is non-trivial. A factory can't operate without assembly line. Does that mean the workers are responsible for all of the productivity? What about the engineers that designed the product? How much productivity goes to them?

So you say keeping streets clean is unimportant?

I think you are blind to basic human values.

If we left it to companies to determine who gets paid and who does not we would have half of population starve to death.

What stopping you from paying much more to these poor workers?

What is stopping companies is competition.

If you own a supermarket and want to pay a decent wage, bad news for you. Over long time you are likely to loose against your competitor who doesn't share your sentiment.

You may start with 100 companies of which 2 don't have any scruples and over time you will find out that these companies will take over the market along with other ones that will use this experience as learning on how to make successful business.

In the end the companies that are more aggressive win because that is just the nature of competition.

Governments are there exactly to protect individual people from aggressive predation.

Half the comments are suggesting that the investor class is just pocketing the extra wealth. How is that going to result in all their competitors going out of business? So I am guessing by no scruples you mean lowering the cost of goods to consumers. I am not sure how that qualifies as evil.

> Half the comments are suggesting that the investor class is just pocketing the extra wealth.

That's were most economists, orthodox or heterodox (Neo-keynesian, MMT) agree, the capitalist class captured all productivity gains since the 70s. They disagree on the "how". And imho, you are right, they are not stealing wages, they are capturing wealth creation, it's not the same thing, and its pernicious because most of them don't understand how it works (and those who are able to try hard to not understand).

I used to think people were idiot to go after the banks ten years ago, but in fact, they were intuitively way more intelligent than a "rational" me. I just did not understood "how money works".

>If you own a supermarket and want to pay a decent wage, bad news for you. Over long time you are likely to loose against your competitor who doesn't share your sentiment.

If you can market this "decent wage" to your customers successfully enough that they buy in, then you can continue along this trajectory. (As a side note, most people here probably wouldn't take you up on that "decent wage" retail job, in part because they don't consider the wages very impressive. On the other hand, people who work at the "unscrupulous" grocery stores have agreed to those wages. So "decent" might have a sliding scale.)

That only works if your customers are willing to pay for employees to be paid better.

As it is, it seems most people do not give a fuck about it and will still choose a store that is cheaper.

Actually, everybody knows Walmart or Amazon employees are paid shit and they still choose cheap.

From what I’ve seen in the U.K., Amazon shelf stackers get paid more than salaries at local inefficient independent shops

If a worker wants to partake in the profits of the company, they should work for a public company and buy shares, or be part of a company that offers profit sharing/private shares/options/bonus compensation.

Their salary is a cost, like any other expense, and should be kept to a minimum, and only high enough to retain talented employees according to the market rates for those positions.

That's a fundamental principle of corporate accounting.

This is a stringently normative claim that perpetuates the is-ought fallacy.

There are people who do pay more to these sorts of workers, but that doesn't fix the broader, societal problem.

This might be the case but many jobs I feel like would no longer be worth paying anyone to do at that rate. That would suggest to me that the productivity of minimum/low wage workers has not increased at the same rate as productivity generally. Which would make sense given most of that increase is attributable to technology which isn’t distributed evenly through different sectors of the economy etc.

The value of unskilled labor is probably much lower than everyone wants to think it is in a global economy. There is no incentive to pay workers in developed countries "fair" wages when that labor can be done at a fraction of the cost in the developing world. Service sector jobs are probably hit by this because while they cant be outsourced, all the other employment going elsewhere just means they have leverage. Some places like Canada even import developing world labor to work these jobs because they cant find local employers for the wages they offer.

Most of the productivity gains have probably come from finance and technology, which would explain why those are some of the most lucrative career options now.

> Some places like Canada even import developing world labor to work these jobs because they cant find local employers for the wages they offer.

This might be naive of me, but is it equally valid to say that these Canadian employers are only paying such low wages because they have access to cheap migrant labor from poorer countries who are willing to work for less pay than local labor? Without access to their existing low-wage workforce, these employers would have to raise wages until they attracted enough local labor.

I think that is largely the case in some circumstances. Specifically in agriculture, fast food and meat packing the temporary foreign worker program is used to hire people who will work for less than what Canadians consider fair, either purely based on compensation, or a combination of compensation and qualification.

And what can’t be outsourced will be automated whenever it’s cost effective, and our capacity both to outsource and to automate is far greater than it was even just a couple decades ago.

I get tired of hearing the term “unskilled labor” all labor is labor.

“Unskilled labor” is labor that almost anyone can do, therefore it is worth less.

And anyone can do javascript.

Companies wouldn't pay people who can do javascript six figure salaries if anyone could do javascript. Even if anyone could be trained to do javascript, that training still limits who you can hire to do the work today. Unskilled jobs means they require near zero training to do it, so a random person off the streets would deliver value within hours of starting.

Look i see constant arguments from how some guy cant do his start up without h1b labor. Here is what sets the limits : a fucking law. Frankly if it was possible and there would be slaves doind software development the only thing that keeps that from happening is the rule of law.

Why would they hire H1B when they could just go to the nearest McDonalds and poach the cashiers to write javascript? It isn't like the cashiers need a visa to work in USA.

The reason of course is that those cashiers can't write javascript. Meaning, not everyone can write javascript, you have to admit it requires at least a bit of training so it isn't an unskilled job.

Edit: And yes, I agree, company owners are very greedy. They wouldn't pay that much money to get people to write Javascript unless they had to. If they could pay minimum wage and still get code written they would. Hence we must conclude that you can't just take anyone and make them write javascript, since if you could companies would already do that. Hence javascript is not unskilled labor as you suggested before. Every job that pays more than minimum wage is thanks to labor shortage in that sector, if there isn't a labor shortage it means that companies doesn't have to compete for labor so there is no reason to pay more than minimum wage.

This is the lump of labour fallacy. Edit: in the form, the set of jobs we have right now is fixed and will be the same for all time.

The flow of money is circular.

If lower-paid people had more disposable income, they would spend more on things that employ other people. Services like restaurants or haircuts or yoga classes or personal trainers or personal shoppers or life coaches, the last three of which are pretty niche right now.

The people providing those services would, in turn, consume other services and products.

I'm sure a lot of new services and products would appear too.

It’s absurd to assume that the opposite of this fallacy is true indefinitely though. There is a point where someone is simply not worth employing to do anything at all. There is a finite number of valuable things that can be done with little to no skill/education/training. It would take a much greater level of investment in our domestic workforce to get around this than we currently provide. And at the moment it’s simply cheaper to effectively outsource this training to other countries and bring in skilled workers on visas instead of subsidizing training for our own citizens, so that’s what we’ve been doing for decades.

There’s some truth to what you’re saying but IMO it would take a lot more to get there than simply having a higher minimum wage.

> It’s absurd to assume that the opposite of this fallacy is true indefinitely though.

But no one is suggesting we push the opposite indefinitely. We're suggesting to push it an amount commensurate with the rise in productivity.

If lower-paid people had more income they would be paying down debt, buying a better used car, paying for daycare, and maybe going on a trip or to.

Personal shoppers and life coaches I think kick in a lot higher than you do.

At first they would pay down debt, and buy a car that actually works, and other stuff that should have always just been available to them. Once that debt is paid off, and the car is not a constant source of worry - they have money to do those other things. For example going on a trip is the same type of "luxury" as shoppers, life coaches, etc - its spending money on something other survival.

I make probably 5x US median income and I've never paid for a life coach or personal shopper and I never will. I think you may be applying some Bay Area logic to the average American.

I often think of how many ordinary working people would be able to do more than just tread water and actually begin to build some wealth if there weren't rent seekers built into nearly every necessity for sustaining human life. As a society I believe we need to re-evaluate the relationship between profit-seeking entities and public goods.

Yeah, those were just random examples from my imagining an alternative universe in which minimum wage had kept pace with productivity.

You are quite right. Another counterargument is that a lot of household income goes into zero-sum, unproductive status signaling, a.k.a. "buying a house in a better neighbourhood", and "sending the kids to a better school".

Still, some of the extra income would be spent on things that employ other people.

Right, this is where this sort of blanket extrapolation breaks down.

Has the average productivity grown that much? Sure, I can believe that. Has the productivity at the lower margin grown that much? I seriously doubt that. The value created by stocking shelves at wal-mart just doesn't really change over time. There's a lot of labor on the lower end that is a solved problem with all the productivity wrung out of it decades ago.

It absolutely does! If Wal-Mart can pay more money for something, they would be /willing/ to pay it. The same stocking of shelves, they are able to capture more value from.

Unskilled laborers are just not able to capture that value from Wal-Mart because there is an abundance of unskilled labor and the average person (the laborer) has to derive income from work. They can't just say, "Puh, this isn't worth it any more!"

In addition, there's been a ton of improvements in productivity for warehouse workers. They are absolutely doing more work in the same amount of time.

The same is true at most big businesses.

That being said - at $26 an hour, there would be A LOT more pressure to eliminate more jobs.

>there is an abundance of unskilled labor and the average person (the laborer) has to derive income from work. They can't just say, "Puh, this isn't worth it any more!"

This was true throughout the 2010s, but under full employment even a low-wage/"unskilled" worker can realistically go get a different job if they don't like the one they have. There's probably an Amazon warehouse nearby that would hire them at a higher wage, or a restaurant if they're willing to do a different kind of work.

> Has the productivity at the lower margin grown that much? I seriously doubt that.

That's the problem. The minimum wage is a legal instrument, not just an economic process. It is designed for the lower margin to be "overpaid" over what they could get from the market otherwise.

It basically says "everyone working should get at least this much of our collective production". This is what we have decided our society should work like.

Our collective productivity increased much faster than minimal wage, making the minimal wage worker much poorer by comparison.

We’ve also completely failed to provide adequate opportunities for these workers to gain the skills and education to be able to do something more valuable with their time. That’s a problem the minimum wage can’t solve. There’s a threshold where people will just become unemployable under that model without more investment in them.

I completely agree. However, raising the minimum wage does nothing to address the skills gap at the bottom. If anything, one could argue raising the minimum wage would reduce incentive to acquire better skills and get a better job. Why put in the work to level up if those better jobs don't pay appreciably better anyway?

Won’t the productivity of stocking shelves go up if, for example, technology makes grocery stores more profitable? Perhaps technology helps stores order locally customized inventory that will sell better (and waste less), or perhaps delivery or curbside pickup systems help stores compete better against online stores. Even packaging improvements could increase productivity.

The fact that the stores themselves are physically able in practice to enjoy this increase in productivity without increasing pay to the people stocking shelves says very little about how the productivity of stocking shelves has changed.

Up to a point this would work but there is a point where stocking shelves at all is no longer worth it when the labor reaches a certain price, and they would probably just start tossing pallets of goods directly onto the sales floor and only support self checkout. And then probably invest in robotics to automate moving the pallets around. You could have an entire Walmart ran by fewer than 10 employees

Sure, robots might be able to do it cheaper in the near future, but that’s unrelated to the question of whether productivity has gone up.

There are many things that may just not get done at all though if they can’t be automated, or if automating them would be too costly. Stocking shelves in particular is probably one of those things. It’s hard to argue the labor is worth $26 an hour based on the total productivity increase of the corporation if they would just stop having you do it at all if it cost that much.

The idea that an individual workers productivity is derived from the total productivity of the business isn’t entirely accurate. In the case of stocking shelves, the value is mostly aesthetics and executing a marketing strategy. The value of stocking shelves is based on the value that stocked shelves provide, which doesn’t increase linearly with the productivity of a store.

The basic example is a janitor in the early 1900s is only marginally less productive then a current day one while an accountant from the same time is an order of magnitude more productive now (excel/etc).

This does not consider that the job market is actually asymmetric. Unfortunately employers hold the cards when it comes to wages.

I'm struggling to understand how productivity has anything to do with salary.

Productivity increases are inevitable for everything as automation keeps improving. Salaries go up with demand for skills. If its more difficult to hire for a critical role (a skilled job or competitive), or the role generates a lot of value for a company, salaries go up. Simple economics.

Low skill jobs and physical labor jobs actually require less and less skills as automation improves. In this situation wages would go down. But I do think it's a good idea to have a wage floor to account for the inflation and increases in cost of living. A social limit to what we all collectively feel is a minimum amount of money one of us should make to survive in the society we are building. I think universal healthcare and a UBI would solve a lot of this. Especially as its only going to get worse for people at the bottom.

> productivity has anything to do with salary.

It's not complicated and it's clearly a weak strawman. Productivity (almost universally) is tied to profit via efficiency. This is known to be astronomical at scale, which is what drives automation.

> Low skill jobs and physical labor jobs actually require less and less skills as automation improves.

I'm not sure there's anything to suggest this. Regulations (primarily about safety, information containment, etc) continue to be additive. There's a certain amount of sophistication necessary just to survive in most urban areas.

Productivity is a function of both labor and capital. The owners of a factory might invest in machines that are 10x more efficient, but if they're no more difficult to operate, then the labor won't be any more scarce (and therefore won't command a higher wage). In fact, it might actually reduce demand for labor, because companies won't need as many people to maintain the same level of output.

> Salaries go up with demand for skills.

Said while business owners are screaming about a labor shortage.

I’ve seen plenty of places suddenly offering $15 an hour or more, so clearly the market is responding somewhat. I’m sure most businesses were waiting to see the unemployment benefits end first though.

And said labor shortage is how competition for workers and wages go up, what is strange about this?

In the 1930s, a store clerk in a large city could afford to support a family in a home they would eventually own on their single income.

Today, a couple with that same job would likely be in public housing and would be scraping by.

The 30s was the great depression. And 1933 was pretty bad. $0.5/hr is a typical wage. [1]

In Chicago in 1933 a 4 bdrm apartment was listed for $35/month. [2]

So basically, rent was eating half your salary even then. But then again, you had a 4 bdrm apartment and not a closet.

Probably would've been tough to buy a house on that though.

And of course, there is this:


“the two great problems it ignored before — housing and traffic.”, Herb Caen, 1948

Some things never change.

[1] https://www.jstor.org/stable/41815102 [2] https://blog.rentconfident.com/2635/classified-history-housi...

To the extent that that's true, it's in large part because their income is now absorbed by land rents, which were much lower in the 30s. There's an obvious contradiction in the american dream: home ownership is the goal, so homes should be a good investment. If homes are a good investment, that means the price of homes goes up. If the price of homes goes up, they get less affordable for everyone who doesn't already have one. Look at what happens when you don't institute regulation designed to guarantee that homes continue to be a depreciating asset: https://pbs.twimg.com/media/E9V_0VBWEAE1ixe?format=jpg&name=...

In the 1930s many homes only had icebox "refrigerators" that worked by putting Ice in the top to cool whatever was below.

IMO productivity has been absorbed by getting more for your money in hidden inflation . Eg: today when you buy a phone (and internet access) you get a free encyclopedia (wikipedia), movie theater (youtube), camera, Video recorder, note pad and pen (app), alarm clock, calendar, ... get my drift?

Same with a "home" which is now far more advanced and sq ft per person.

That's where all the productivity gains have gone, the basics of today are more complex than the "complex" things of the past

The fridge of today is cheaper than ice deliveries.

A phone is amazing for what it is, but you can't just pile on more features and use that as an excuse for lower pay. Phones don't cost a budget-breaking amount.

Home size makes sense as an increased cost, but most of the reasons that make it hard to afford living space are really bad reasons.

Quarter after quarter companies are posting record profits. You aren't getting anything for free. You paid for all of that in one way or another. Wikipedia you might not have, its kept alive by donations. The others are paid for by either sitting through ads or having your data harvested and sold. Just because you aren't handing over money doesn't mean there is no cost associated with it.

This is a terrible argument that try's to gloss over the actual problem. Wages have been stagnant for decades while inflation is still a thing. The middle class is dying and its not because they have bigger homes and better tech. Corporate America is strangling the middle class then cries for bailouts when they hit even the tiniest speed bump(and gets it without much issue). While helping the average American becomes a massive issue.

All the replies are missing my basic point. Everything built today is far more complex than what was built before. If a car is twice as hard to make then I can be twice as productive, but still only produce 1 car (with twice as many features, say).

Or I can make a single phone, but with N times as many features.

The productivity gain has been absorbed by complexity in the things we produce.

Both my parents were raised in houses that were largely built by their parents. They both have memories of using oil lamps and outhouses for a while due to no electricity and no indoor plumbing while that building was taking place. And the final homes were tiny by modern standards.

That was 1940s and 1950s. I’m often amused by the “manual labor used to pay well enough to buy a house” argument since the houses available at the time were much different than those available now.

Those aren't economically relevant productivity gains. You're basically required to have a phone to participate in society, that's more of a monthly tax unless you use it to generate income. Same with housing, it costs much more than the minor changes that have been made in design saves per month.

A person who services horse-drawn buggies would probably have made a nice living in 1880, not so much in 1980. There is no reason to believe that “the same job” should yield the same standard of living across time.

What is the comparative quality of life like or those two examples?

Adjusting the time frame a bit:

Many people I know from my parent's generations bought their home in the 70s while working low-skill jobs like retail. They describe that period of life as fun and generally enjoyable. Many started families during that time.

Conversely everyone I grew up with who slotted into low skilled labor living in those small apartments self-describes as miserable. They describe the long hours necessary to to maintain what they consider a basic existence as soul-crushing.

This is a normal, expected phenomenon in an economy characterized by continuous technological advancement. Low-value jobs eventually disappear as technology makes them obsolete, and as this process unfolds the people who are employed in those jobs will experience a declining standard of living.

Owning any single family home (presumably with a yard) seems clearly more attractive than living in a public housing apartment complex.

I'd rather have an apartment with Internet access than a house without.

Not me. Internet can be installed quickly and cheaply, but we're yet to discover a way to do the same for land.

Internet can be installed quickly and cheaply

Not in the 1930s.

So you mean that you would rather live now than in the 1930s?

That was not the question. One of the things people never factor in is all the government regulations around housing.

A single family home from the 1930's would be illegal to build today because building codes have been expanded some for good reason, others less so.

As such it make is hard to do a apples to apple comparison

This is a good video where an economic professor explains some of that


From the wikipedia article:

>The Foundation for Economic Education (FEE) is an American conservative libertarian economic think tank.

>FEE, founded in 1946, is considered the oldest free-market think tank in the United States. An early aim was to roll back policies of the New Deal. FEE opposed the Marshall Plan, Social Security and minimum wages, among other American social and economic policies.

Points of the video:

- Mainstream media sells entertaining truth that are mostly negative

- People think gun violence is getting worse every single year over a span of 25 years, but it only got worse for 8 of those years! There is a 50% decrease from the 90s.

- Conveniently remove suicide from the gun violence data and ignore the current up trend in homicide

- We shouldn't look at wages, but look at total compensation and it's up by 45% for the median worker since 1979!

- We have more household that are rich according to this data despite what the media says

- You don't need a cellphone, just cancel it if you're poor, also don't get medical treatment that didn't exist in the 70s if you want to have the same cost of living than your grand parents

- Let's compare the average middle class American 100 years ago to one today and you'll see how much better you have it now! Especially if you are a racial minority (he don't mention this last part)

- omg, look at how much hours of work was required 100 years ago to purchase these products (stamp, bread, movie ticket, gas, coffee, eggs, butter, milk)

- only movie ticket are more expensive today, but we get much nicer movie like the Marvel movies! (But remember to cancel your 10$ Netflix subscription if you can't afford it) (a previous point he made)

- back in the days, it took 4 years to raise money to buy a car, but only 2.5 years now!

- He mention that the minimum wage worker has to pay more for housing today, but it's because they are much more technologically advanced!

- house 100 years ago: no electricity, no running water, no indoor toilet, no AC

- Houses like that are now illegal to buy!

- Thus, the minimum wage worker can't buy house like that anymore! (he also can't buy a modern house, but nevermind that)

- So poor people today have a better living standard than the middle class had 100 years ago and in a 100 years the next generation will be even better off with private jets and yachts to travel around!

- There is less child labor in the world, less wars and stuff!

- So in summary, be humble! Appreciate, be thankful for the fact that the world has become a better place. (i.e. stop complaining about society because the iphone exists type of arguments)


Thanks for the tl;dr! The one-word refutation was a nice touch. Very persuasive and compelling argument.

>> FEE opposed the Marshall Plan, Social Security and minimum wages, among other American social and economic policies.

AS do I, in a sane world, with a sane court none of those would be constitutional as they are completely outside the scope of the powers granted to the federal government. FDR had to literally extort the court to get them stop striking them down


Good rebuttal to all the points, you have convinced me that everything is terrible and we all should embrace socialism as our one true economic model /s


But no seriously, you oppose social security and the minimum wage? We should let corporations exploit workers as much as they please and provide no care for the ones who can't work?

What the conservative libertarian says:

>Personal responsibility! The free market will fix everything if only it was truly free! Charity will provide for the miserables! Real capitalism was never tried, we just need less government intervention. Freedom > everything else.

What the conservative libertarian probably believe:

>** them, I only care about my interests. Why should I care about dumb people loosing at the game? Not my problem. I'm smart. I deserve to win.

The video is as bad as PragerU videos. They misrepresent statistics and historical events to push an agenda backed by multi-millionaires magnates. They use the biases the viewer have to gently confirm beliefs that were never really challenged in their education and work life. Most viewer won't check the sources and take at face value what is presented because they trust that the professor is a good guy acting in good faith and that he did the research and knows what he's talking about.

>Good rebuttal to all the points, you have convinced me that everything is terrible and we all should embrace socialism as our one true economic model /s

Maybe one day you will come around and say the exact same sentence but without the /s.

>> you oppose social security and the minimum wage? We should let corporations exploit workers as much as they please and provide no care for the ones who can't wor

At the federal level yes. State level is a different matter

See I am originalist when it comes to the constitution, and I see nothing in Article 1 Section 8 that grants the federal government the power to set a minimum wage, or provide for social security. I dont believe it is wise to simply ignore the constitution when it inconvenient to political goals

If the federal government needs the power the proper channel do that is via a constitutional amendment that would grant said power

Further on Social Security, I would actually go farther. I believe the execution of Social Security is highly unethical as is the funding source for it (income taxation). For public finance I support a Henry George Style single tax system. Such a system would not only be completely constitutional it would enable either a UBI or a Friedman style negative income tax that would serve not only for elder care, but also the poor in a way that is not unethical (like income tax clearly is) and is not unconstitutional

You have also incorrectly attributed me as being conservative libertarian. While it is true socially I am libertarian, economically when it comes to public finance I ascribe to Georgism making me Geo-Libertarian, not conservative libertarian.

I support a VERY VERY limited government, distributed in power where the most impactful government to an individual should be as close tot hat individual as possible, as such I believe most things should be done at the city, county and state level. With very little being done at a Federal Level.

I believe income based taxation is unethical and is akin to labor theft that in other context would be viewed as a form of slavery.

I believe socialism is untenable as an economic construct that has always and will always fail unless we get to the point where we have Star Trek levels of technology and resources are with out most limits. However while we are constrained to this planet, with a limited set of resources socialism can never work. Socialism @ our technology level will falter when a community gets to be about 100-200 people. Small socialist communities can work, large ones cant, national ones generally devolve to mass suffering and death

The answer to that question seems obvious: it depends.

First, the 1930s aren't a great point of comparison (with Great Depression occurring then). The 1950s are a better comparison.

Second, yes the broader advance of science and technology has lifted many boats simultaneously - we've all benefited from the advance of communications, medications, travel opportunities, etc (with some notable setbacks for those forced to pay the environmental costs of some of those advances).

It's unquestionably better to be a non-white person in the US today than it was in the 1950s, even with all the systemic issues that still disproprortionately hinder them today.

But by many other criteria, quality of life is worse:

- Affordability of educational opportunities (i.e. the housing/school/childcare cost inflationary nexus, university fees)

- Housing insecurity (many families pushed dislocated by rapidly rising rents).

- Level of education/qualification required to achieve middle class comforts like housing security and good education for your kids (it'smuch higher). As others have noted, IPads and PlaysStations are not indicators of middle class comfort - paid vacation is.

- Increasing despair/hopelessness/alienation/failure due to winner-take-all dynamics, with effects like the drug/opioid epidemics, mental illnesses, homelessness, high concentrations of violent crime in disadvantaged populations (despite overall lower crime than in the 1970s-1990s).

- The spillover effects of all the above on those who are generally better off.

Tvs and ipads don't replace owning your ownw home.

Whenever a minimum wage argument uses 1968, you know you don't need to take it too seriously.

That was an outlier year with the highest historical value.

First Google graph: https://www.today.com/money/good-graph-friday-minimum-wage-w...

1968 appears to be when the correlation between minimum wage growth and productivity growth stopped. You could use any year between the late 40s and early 70s (it's hard to be precise with the chart in the article) and you would get a similar result.

This is when gold was decoupled from the dollar and money printing began.

Yes, weaken labour regulations, allow workarounds like the gig economy, break up unions, enforce no increase in minimum, tolerate regulatory capture, permit highly wealthy individuals and organizations to have substantial say over politics through lobbying, campaign donations and think-tank policy marketplaces and guess what? The elite will pocket basically all of the productivity gains, the more elite the more in your pocket. Those with no leverage are left with a dwindling share of the pie. Trickle up economics

Productivity is a price ceiling for labor. It only raises wages by allowing marginal producers come online and compete in the labor market. It could also reduce the total demand for labor, so there's no reason to assume wages and productivity would stay linked. The correlation only makes sense in a first-order way: I produces twice as many widgets; "you should pay me twice as much." But that widget machine wasn't free, and it doesn't mean you'll sell twice as many.

The productivity of minimum wage labor did not increase by that amount. It's largely unchanged. Computers did not do much to revolutionize productivity on your average minimum wage job.

This is a major reason why wage growth is unequal across job types.

> The productivity of minimum wage labor did not increase by that amount.

Maybe include a link?

I don't have one. Google it if you care enough.

It should be pretty intuitively true if you think about which jobs benefited the most from technology and which benefited the least.

No it would not. The average productivity of a US worker might have increased by a certain amount, but not the productivity of the minimum wage earners. If their productivity had gone up that much, there would be no need for a minimum wage law, the employers would simply be glad to pay them based on their productivity.

Do you think that companies pay based on productivity, or based on the minimum amount they need to pay in order to attract workers?

If the former, do you believe that if a remote worker moves from NYC to Idaho, and their employer cuts their pay by 25%, it is because their productivity has dropped by 25%? Or because their employer knows they can get away with paying them less in an area with lower cost of living / less high paying jobs?

> Do you think that companies pay based on productivity, or based on the minimum amount they need to pay in order to attract workers?

It's both. Productivity has a very direct effect on the minimum amount they need to attract workers. If a low skilled worker can produce 100$ an hour of value, and you're paying them 10$ and hour, someone else will very quickly be willing to pay them 11$, or 12$, etc. Suddenly, you have to pay several times what you did before in order to keep your employees or attract new ones.

> If the former, do you believe that if a remote worker moves from NYC to Idaho, and their employer cuts their pay by 25%, it is because their productivity has dropped by 25%? Or because their employer knows they can get away with paying them less in an area with lower cost of living / less high paying jobs?

Same as the other answer. In NYC there are more companies competing for your employee, so you have to pay more to keep them. Competition in the middle of nowhere is restricted more so than in the middle of NYC.

>It's both. Productivity has a very direct effect on the minimum amount they need to attract workers.

Productivity only puts a ceiling on the amount they'd be prepared to pay for a worker.

It doesn't affect the minimum amount required to attract them. That's determined by competition (i.e. who else is out there) and leverage (how much they need the job).

This is why business leaders lobby hard to reduce public sector wages/pensions (so private sector doesn't have to pay as much to compete for workers) and public benefits (like universal health care), which reduces worker leverage => reducing wages => increasing profits irrespective of worker productivity.

Your second paragraph refutes your first. Productivity is an input to the supply of competition, so it does more than create a ceiling, it also serves as an upward force on the floor.

Do business leaders lobby to reduce public sector wages and benefits? That's not something I've heard before. In any case, whether or not there is competition from the government, if there is a gap between productivity and wages, then there are profits to be had by private companies willing to do the arbitrage. In the case of such a gap, the government doesn't really matter unless they are paying above the productivity rate.

> Productivity is an input to the supply of competition, so it does more than create a ceiling, it also serves as an upward force on the floor.

This is trivially disprovable. Did grocery stores increase the wages of their clerks once self checkout was a thing, or did they keep wages the same and lay off some of them?

Productivity only affects wages when there’s competition for labor, not when there’s competition for jobs. When there’s competition for jobs productivity gains are captured by the company, not the laborer.

> Do business leaders lobby to reduce public sector wages and benefits?

They absolutely do, yes. I’m genuinely baffled how you’ve never heard this. The Chamber of Commerce crowd is always trying to shrink governments (and their tax bills), and attacking public unions is a big part of this.

> This is trivially disprovable. Did grocery stores increase the wages of their clerks once self checkout was a thing, or did they keep wages the same and lay off some of them?

That doesn't disprove anything. Productivity is an input to and has an effect on demand, but it's not the only factor. It doesn't need to be the only factor to matter. Lots of things matter. Economics is a complex field.

Right, so do you have any examples of rising productivity driving up wages for minimum wage jobs?

How is productivity an input to competition among the minimum waged?

> If a low skilled worker can produce 100$ an hour of value, and you're paying them 10$ and hour, someone else will very quickly be willing to pay them 11$, or 12$, etc.

You’re ignoring worker supply. If there are more workers than jobs available, wages will remain low regardless how productive they are. If there are few workers available the price of their labor will rise as employers try to outbid each other for the labor. Supply & demand for labor controls which side of the equation ends up in a bidding war for the other side.

The productivity of labor doesn’t set the price of labor, if that were true then labor saving devices would drive wages up, which they clearly do not. Rather it’s supply and demand that sets wages, with productivity setting the ceiling since few employers want to hire people at a loss.

Yep, their OVERALL productivity, as part of the system, has dropped by 25%. Isn't that obvious? They are not spherical workers in vacuum, they are part of economic system. If you open a store in the middle of a desert, your overall productivity will be zero, regardless of your productivity in the store, because no buyers, no roads, no police, no electricity, no water, etc.

The productivity of a remote worker does not depend on their location, obviously.

If you WFH in NYC then move to Idaho while still working the same job then your productivity has not moved at all. If the employer tries to lower the salary it is simply because they think they can.

Remote worker is part of remote economic system, so yes.

This one stuck out to me, because I moved to Idaho.

It’s also not clear if a employer could cut such wages by 25%; that has less to do with CoL and more to do with the labor market. Or to use your formulation; do workers charge for their services according to the local cost of living, or do they charge for their labor what the market will bear?

Companies do pay the minimum amount they can get away with.

That said, lower paid jobs are also lower productivity jobs. There is obviously an upper limit to what a company is willing to pay that is based on productivity, and higher productivity also requires specialised skills.

No-one is going to be paid $100k to flip burgers at McDonald's both because that job does not produce anywhere near that and because it's easy to find people. If it became too difficult to find people salaries would not go very high because of the productivity cap and they'd find a way to do without people or shut down (because no-one is going to pay $100 for a Big Mac, either).

Now, they could pay a medical lawyer minimum wage if they could get away with. But the supply is quite small because it is highly skilled and productivity is very high, and so pay can be high and can remain high.

>"the employers would simply be glad to pay them based on their productivity."

Maybe for smaller companies, but any business with an HR department, investors, or board of directors is going to pocket the gains rather than distribute it out via raises. And, in my experience, they even resist raising COLA rates despite the company consistently growing year over year and inflation beginning to rise.

I also assert that people wouldn't need to switch around jobs during their careers in order to get substantial pay raises if pay rose with productivity.

This represents a fairly common misunderstanding of "productivity" as used by economists, as in this story. In economics, labor productivity is simply the output per unit of labor. A common metric is revenue per hour worked.

How does this fit into the discussion here? If a company earns 10% more in inflation-adjusted currency this year than last year, but headcount has increased < 10%, by definition the staff was more productive this year than last.

It's fairly easy for anyone to apply this calculation to the economy as a whole, or to a given subset. Find total revenue in period X and total revenue in a later period Y and the corresponding # of employees, and you can determine whether and how much productivity increased.

Objection: "but the minimum wage earners are not more productive, everyone else is driving the productivity gains." You can run the calculation on any low-wage industry you want, you will likely see roughly similar results.

Yeah… for economists “productivity” is simply an aggregate quantity, kind of like “velocity of money”. It is doubtful one can say anything intelligent about “real” productivity of individual workers based on this number alone.

>the employers would simply be glad to pay them based on their productivity

Based on...? What employer do you know of that just willingly offers employees raises for no reason other than "you're producing more for the company so here's some free cash"? The only role I'm aware of at most companies that directly ties your output to your income is sales, and even that can be sketchy depending on where you work and how transparent they are with the financials.

Most publicly traded company's goals are to pay you as little as possible to retain you.

Yeah this seems like a dream world, if you're a publicly traded company you have a legal obligation to pay people as little as you can, and with most companies in general the founder/owner feels like they're entitled to as much as they can take for "taking the risk"

I think this is probably right?

If you consider positions like janitors, bussers in restaurants, hotel housekeepers (etc) and ask the question "what has happened since 1968 which would've caused productivity for these jobs to increase by 150%?", what would the answer be?

When your life (and health coverage!) depends on your job and you don't have the energy or time to shop around for alternative jobs, you have little negotiating power. Your employer will not simply raise your wages just because productivity has increased without you finding some negotiating power to demand it.

This is why labor unions are so helpful for the working class.

> If their productivity had gone up that much, there would be no need for a minimum wage law, the employers would simply be glad to pay them based on their productivity

Agree with your first objection. Believe this requires more data to be sustained. Minimum-wage workers have a poor bargaining position.

This is just begging the question. How do you know wage changes equal changes in productivity?

That's one way of seeing it and it could definitely be a factor. An increase in the workforce numbers could be another factor

"employers would simply be glad to pay them based on their productivity."

I honestly mean no offense, but that sentiment indicates a spectacular misunderstanding of capitalism.

Not when we are talking about $15 vs $26 per hour. If you think there are workers out there whose productivity is $26/hour, but who can't find work at more than $15/hour, then you can truly disrupt the market and hire all these workers for $20/hour and become rich.

PS: it looks like the federal minimum wage is still $7.25 [1], not $15. You can become richer.

[1] https://www.dol.gov/general/topic/wages/minimumwage

>If you think there are workers out there whose productivity is $26/hour, but who can't find work at more than $15/hour, then you can truly disrupt the market and hire all these workers for $20/hour and become rich.

How? If their productivity is $26 / hour but their market rate is $15 / hour, by paying them $20 / hour you'll just post lower profits than companies that pay them market rate.

The workers will leave all the other companies and work for you, so those other companies will be dead in the water and/or stuck raising their own workers' pay to compete

At least, that's how it was supposed to work in theory.. Now that we see people out there going for improved wages/jobs in line with good capitalist doctrine, the business owners are all screaming in rage about a "labor shortage"

Yeah, but there's a soft form of collusion going on. If we live on an inescapable island of 1000 people, and I have 200 jobs, and you have 200 jobs, and Bob has 200 jobs, then the fact that you and Bob pay twice as much doesn't matter. You guys only need 400 workers, total. Those 600 other workers will be left to compete for the 200 jobs I have.

I still get to name my price. And once you see that I can undercut labor costs due to this, it makes no sense for either you or Bob to continue paying twice as much as I do.

And let's not pretend that if you don't have the very best workers, you can't compete. First of all, you can't identify the best. You hope to get lucky, but in reality, you're going to be paying not the best, but those adequate enough to perform the job reasonably well.

COVID assistance has changed the game. Because before, the choice was to have a job or starve homeless. You'd take almost anything in desperation. Remove desperation and people stop acting desperate.

Yeah, I'm really optimistic about the labor market now

This is the first time I've ever seen restaurant workers, delivery drivers, etc taking charge of their own careers the same way Silicon Valley tech workers do.

All of our laws and safety nets are designed around the idea that people will act in their own rational self-interest and hop jobs when it suits them, but I never saw that actually happening until this last year.

I'm pretty sure Walmart would prefer to post higher profits than to drive the local hairdressers out of business and have more job applicants than they know what to do with.

You could, if you also had access to the same assets that the employers paying $15/hour do.

Practically speaking, it's relatively hard to enter into a market and outcompete existing firms for labor without a significant amount of capital to offset the existing assets of the employers you're competing with.

The other downside is that it can initially leave a business more vulnerable to a bad economy in the same way corporations buying back shares can make them more vulnerable. With that said, the solution is to slowly increase wages while also building a sufficient amount of capital to weather an economic downturn.

And at the end of the day, anything that went into business expansion and/or profits could have gone at least partially to higher wages instead.

Why do you think the capitalist pay programmers so much?

Because they don't have an alternative. If the supply of programmers was as large as the supply of minimum wage workers pay would drop significantly.

That is exactly what capitalism is about. Prices being driven by supply and demand. Companies certainly try to pay the minimum they can get away with, just like workers look for jobs that pay them the maximum they can find. Companies are not generous (although some claim they are), and workers aren't either. But the competition drives the prices and, in the case of jobs, the salaries. If you are productive, you'll be in demand, and you'll be paid handsomely. If you are productive but live in communist Soviet Union, you'll get very close to whatever else gets in a similar job.

I think you're thinking of a Market Economy.


Capitalism is about the private ownership of the means of production and profits.

But yeah, competition for labor (and other things) via differences in wages are attributes of a market economy.

Capitalism can be a healthy part of this, but sometimes it isn't.

Crony capitalism for instance can provide companies the opportunity to collude so they can artificially suppress wages, which distorts the market economy for labor.


Nobody is "glad" to pay programmers that much - they pay as little as they can get away with, which for programmers happens to be a higher floor.

Because they 'currently' have no choice. Give it a few more decades..

It indicates the major flaw of capitalism: It has no moral compass whatsoever. Its a vicious meat grinder. I think the comment is quite insightful, in the employers might think one thing while the realities of capitalism dictate another.

Capitalism is the only system that seems to work at all under the realization that society itself will never have a moral compass.

Outside of small communes, any society that heavily relies on trust doesn't work.

That's not to say that capitalism works well, or that we can't reign in some stuff (public works, monopoly regulation, etc). But a capitalistic base is the only system we've figured out that works at all.

s/capitalism/the universe/g

Anyways, your statement is not true. Capitalism absolutely has a moral compass, it had the moral compass of the consumptive patterns of society; if that compass points the wrong way then either we must take a hard look at ourselves, or, think about what policies are twisting consumptive patterns to go the wrong way.... Probably a bit of both.

The consumers don't drive much. They just exist in the environment they were born into. The idea we vote with our money doesn't hold much water when the system is rigged with regulations set by the largest corporations to their own benefit. Keeping out competition. And that's just never going to stop either, so the economic system needs examined, not hoping for some sort of libertarian awakening.

To make this worthwhile to continue at all, this conversation first needs to clearly define capitalism. Capitalism is not the free market. Markets existed long before capitalism. Capitalism is exclusively paying people less than the value they produce, to create a profit for the employer.

To rectify that economic system's moral compass, you create incentives to moving towards worker-owned enterprise. Instead of the employer/owner running your gas station, the employees that actually work it have 1 share each. To own a share you have to actively work there. That model resolves most issues with capitalism. Worker's unions also resolve it, but in a less ideal way as the tension between employer-employee still exists. Which is just a slightly kinder model as master-slave, or lord-serf.

Not sure about the universe comparison. The universe is chaotic entropy as far as we know, but assigning human misery- that we actively create, to the universe is a bit much.

"Instead of the employer/owner running your gas station, the employees that actually work it have 1 share each."

This is laughably naive. The power, then, devolves to whosoever authority gets to conjure the legal definition of "actual work". How can I be that person, and how can then use my power to enrich my friends and cronies and screw BuckRogers over? After all, all employees are equal, but some employees are equaller, and some are not even employees.

Calling the idea "laughably naive" doesn't seem appropriate when many businesses today are ran this way, some of them producing billions of dollars a year. That makes me question your age, as anyone with some life experience knows about worker co-ops. They're all over the western world. GE and Microsoft are fully aware of them, they've researched this extensively, sending representatives around the globe to figure out why these businesses maintain such high quality. It's the removal of worker alienation.

The authority to define what working there is decided upon by the shareholders, it's a democratic workplace. So you couldn't be that person on matter how hard you tried. That's kind of the point. To finally remove the master-slave class tension from the our places of work and replace it with democracy.

nobody is saying that NO companies should be run that way. I have a lot of respect for worker co-ops. But to say that ALL companies should be run that way is silly. Look at the companies where co-ops are successful: They have either 1) very predictable revenue streams or 2) are in an enterprise where there are almost no material costs (costs are entirely personnel or upkeep/personnel-infra costs).

In this universe are often high-capital-expenditure endeavours. You WANT the wealthy to take the risk on those, and not the workers.

For example, a co-op of 20 needs a million dollars to create a factory to build widget X. Where does this co-op get the money from?

What happens when widget X fails? Are the losses evenly distributed among the co-op members?

What co-op-ing everything winds up doing, in effect, is either 1) socializing the losses of adventures of politically-connected "wantrepreneurs" who are adept at converting political capital, or 2) making participating in risky ventures only accessible to the economically wealthy.

So in the long run enforcing it is likely to cause more economic disparity, not less.

Good thing that I never said all companies were to be worker owned. Because that wouldn’t be my belief. Other than my views not aligning with the premise that you’re pushing onto me, I agree with your points and think that they are good. My belief is that capitalist and democratic business should coexist and even compete for employees. I know where I want to be a developer. I think some of your assertions would be proven false, such as a democratic workplace not having the ability or will to borrow money to expand.

The majority of businesses actually are proven and stable business models. The local convenience store is pretty much the perfect cooperative opportunity. There’s really no reason for 7-Eleven out of Japan to be owning most convenience stores.

Venture capitalism still has a place in the ideal mixed mode economy.[0] For those risky ventures. But that’s really not what the majority of the economy should consist of. And it doesn’t. We’re just really misaligned in our model for what the majority of our economy is.

Unions did a good job of distributing wealth in a free market way. But those still drive out capitalist businesses to cheaper countries. Cooperatives have every incentive to stay here.


Not to mention worker-owned companies and co-ops have shown to be able to weather economic uncertainty better. I will say, with the limited data we have. There is some truth that in America, various things rig organizing a company around the idea of co-ops and worker owned, so there are not many and not an abundance of data to be had on this. But the example we do have internationally, they tend to show that they weather the boom and bust cycles better.

I don't agree that companies even try to pay based on productivity, but the first point is correct. Minimum wage workers have generally not gotten anymore productive.

The impact of, say, Microsoft Office has been enormous on the median white collar worker's productivity. Such gains have been much smaller on low skill manual labor tasks.

Most minimum wage jobs in america are attendants, cooks, aides, etc.

Not the classic factory worker failing to reap the profits of improved capital machinery.

Why should the minimum wage track average productivity?

Wages started to diverge from productivity at about the same time as the USA opened up to non-Western immigrants in 1965:


"The act greatly increased the total number of immigrants as well as the share of immigrants from Asia and Africa."

Immigrants from poor countries are easier to exploit, and will accept lower wages/standard of living, because their 'new life in the new world' is still superior to their homeland.

All the arguments about “no training” are wrong when a citizen shows up they had 12 years of training. They can presumably read write do basic arithmetic and reasonably socialized and understand a social hierarchy. The public school system did this an having a 28 dollar minimum wage would mean you would have the taxes from those from everyone making at least 28 dollars an hour. But saying they have “no training” is a lie and does a disservice to all the teachers and parents that got this person ready to work.

It's getting there. The biggest employer in my hometown, a huge shipping conglomerate, was paying $8.50 until a few years back. Today, they're starting at $21. That's a huge jump.

By this same metric the median household wage would be 140k The chart says production per worker has doubled.

Average household income 1970:10k[0] Inflation adjusted: 70k[1]



Hm - that's about 3.5x what it is now. Does that mean everybody else should be making 3.5x what they're making now, or does this just apply to the lowest earners?

This $25/$26 figure was what was being quoted >5 years ago. It's more now.

The comparison comes from (iirc) purchasing power parity based on the minimum wage when it was first established.

It very obviously applies to the workers that saw the least share of productivity gains. What case would you make for raising the salaries of those paid more than their equivalent jobs were paid (adjusted for productivity growth) when the minimum wage began?

>Does that mean everybody else should be making 3.5x

No, it doesn't necessarily mean that. Productivity gains have not been distributed proportionally; which is what this metric is underscoring for our lowest wage workers.

EDIT: If I'm misreading this, I welcome the enlightenment.

> Yet rising productivity is no guarantee of a healthy economy. Equally important is how the fruits of productivity are divided.

It sure seems like you can. Isn't the article about how productivity has gone up without a commensurate increase in wages for the last 50 years? Where's the basis for a skeptical employer to buy this seeming counter-factual?

I support a much higher minimum wage, but this article wouldn't have convinced me of anything I didn't believe already.

Wages in the broader workforce haven't risen with increased productivity (in the developed world). Any additional profits aren't exactly getting shared with workers.

The article kind of a raises a moot point, if regular wages aren't tied to productivity what should minimum wages be tied to?

I believe that minimum wage should probably be set to some social factor, above some level of worker exploitation and a wage that a person could actually live on.

How much of this increase in productivity is the result of off shoring low wage jobs?

Why would overseas workers be counted in a measure of US worker productivity?

If you're measuring average productivity per worker (I don't know if this is the case), removing the least productive workers would increase average productivity

If a US company has higher revenue then they appear more productive. It could be that they have reached that productivity by using off shore workers.

So the number of people indirectly involved in the US economy has increased.

But the article isn't talking about company revenue, it's talking about worker productivity - income generated in an hour of work.

How do you calculate income generated in an hour of work without looking at revenue?

What I'm trying to say is that labor productivity does not have anything to do wages.

We can talk about productivity in terms of output divided by input wages, too, but that's not what this article is talking about from what I can tell. It is strictly talking about workers in the US and it's talking about how much output they can generate from each hour of labor performed, regardless of what they are being paid.

(I will say, the article's own loose terminology does make it a little ambiguous, but to me the context of the article points squarely at labor productivity: output per hours worked, not hours per wage earned)

Let's take an example:

Chinese worker works 40 hours at $5/hour

US worker works 40 hours at $25/hour

Weekly total sales of product from each plant is 1,000 units at $10 per unit, so revenue is $10,000

So, now we divide revenue by hours worked for labor productivity. In this example, whether the employee is Chinese or US their labor productivity is still $10,000/40 = 250

Obviously, this hypothetical company might choose to mainly use Chinese labor for this particular product, but that doesn't change the fact that each employee is equally productive in this example.

If this hypothetical company chose to increase offshoring, their revenue would not increase because the output is worth the same either way, but their profit would increase if all other costs remain the same.

Ah I think I know where we are crossing wires.

I'm wondering if they have hidden the hours worked offshore. So it it looks like productivity per hour is up but actually it's happening off the books of US companies.

So in the example. The US plant has US workers that input say 20 hours to make 1000 parts. But buys in a component made in China and that component has 1000 hours per 1000 output parts. The US company sees that component as a material cost not a labor cost so doesn't count that as labor going into the end product.

I hope I'm making sense?

I see what you mean. In this theory it's almost like US labor faces a survivorship bias.

In your hypothetical example, a US company wouldn't really keep a factory open in the US that produces 1000 outputs per 1000 hours. They'd rather purchase the good as an input material from an overseas factory. e.g., Apple's iPhones aren't produced at all by Apple employees.

Another topic we never really reached in this discussion is how worker productivity is affected by capital investment:

Is a McDonald's worker more productive than they were in 1980 because of their own abilities and skills improving, or is it due to computerized and automated assistant devices like automatic drink pouring machines and sophisticated point of sale software?

1. I don't think there's a good argument for tying minimum wage to median productivity gains across the entire economy. Is an accountant today 5x more productive than an accountant in the 1960s? Perhaps. But is a dishwasher or a frycook 5x more productive? Probably not. I also think the biggest problem impacting lower income folks is housing costs and IMO minimum wage is not the best tool for fixing that issue.

2. 1968 as a start year is super mega cherrypicked. A lot of people say "if minimum wage had kept with with CPI inflation since 1968, it'd be $12/hour now!" They usually neglect to mention that if minimum wage had kept up with CPI inflation since 1948, it'd only be $4/hour. The only reason to use 1948 vs 1968 is to massage the data to match your preexisting hypothesis.

Going off of productivity has a lot of gotchas, I'd go for tracking purchasing power for non-imported goods like housing for the zip code that the job is located in. There might be some interesting side effects to that. Pushing businesses into poor areas, which should have a positive effect on society as a whole to get money coming into those areas without handouts or mandates. It'd be a fun experiment to run.

I see zero arguments against pegging the minimum wage to $12 an hour in 2021, maybe a tad more to offset years of what amounts to theft from worker's pockets. People on one hand will badmouth those on welfare, and then turn around and not want to reward those that go to work either. Those two together never sat well with me. Seems like people are just envious, bitter creatures all around.

Yeah that's interesting. I think incentivizing distribution of jobs might solve a lot of issue... but who knows there are always side effects and loop holes.

I agree, might be worth an experiment.

Imagine if executive compensation had also been pegged to productivity.


Stagnant wages and record profits. Coincidence?

Wages are based on supply and demand. Minimum wage is an artificial propping up of wages. If there are too many workers, then employers don't need to compete to hire them, and wages are depressed.

Meanwhile we import over a million new legal immigrants each year (along with unknown numbers of illegal aliens), the vast majority of whom are low-skilled workers. The people decrying low-skilled wages are the same ones supporting policies that actively reduce those wages through increased competition.

The real question is, why did wages in general ) not just minimum wage) start to diverge from productivity in the early 70s?

Keeping that in line would mean to socialize wins - it wont happen and doesn't make sense either. Sorry.

Has the productivity of minimum-wage workers grown in line with overall productivity?

Minimum wages and tax reductions should all be indexed. Plenty of things are indexed to go up annually based, so why not the few things that really matter be it indexed down for taxes and up for minimum wages.

The interesting part of the equation is how allocation shifts with political parties. In the last few cycles its been best to load up on assets when Republicans have more control and then switch to more debt when Democrats get in power. Net effect is the same but the flipping makes it seem like change is happening

Minimum wages were designed to protect workers live's from being wholesale sacrificed in factories. The theory of a government mandated "livable wage" is a concept from 3rd wave Socialism.

It is truly the worst possible way to guarantee quality of life as it gives employers an excuse to be "legal" while being horribly out of line ethically.

This comment thread has really dashed my hopes of ever having a well-informed economic discussion on HN. Seems like a large majority of commenters are stuck in the 19th century, and have no idea that we moved on from the labor theory of value. Perhaps modern economics education is to blame…?

When productivity increases, you have 2 choices:

1. increase your wages. pay your suppliers more.

2. decrease your prices.

It doesn't really matter which you do. Do we want higher wages or lower prices? You can't do both. Does it even matter? The net effect is the same. Who cares that we've universally chosen #2?

Note: I'm assuming there's modest competition. Monopolies have a 3rd option: more profit.

> [...] their pay has flatlined, or even declined when factoring in inflation [...]

Neither #1 NOR #2 are happening, what is instead happening is #3

> [...] increased inequality with most gains going to people at the top [...]

Even if that is true, productivity is not the cause there.

Productivity increases our wages because it naturally decreases prices. It's already account for.

Edit: to those that don't believe it, what do you think would happen if suddenly 3x more of every product popped into existence?

Or you could do either of:

3. massive bonuses for execs and wage increases for white-collar workers

4. stock buybacks and dividends to directly distribute profits to shareholders

Let’s not pretend that both of these don’t happen at the cost of regular employees.

Even if this were true, it provides little in the way of an explanation. Why do 10s of thousands of companies across hundreds of industries pay their regular employees a small fraction of their worth? What is stopping someone else from coming along and paying them a larger fraction of their worth?

> Why do companies pay their regular employees a small fraction of their worth?

A dead German economist might have an answer for you ;)

I am not sure Marx has much to say on why a person earning $100/hr for a company and being paid $10/hr wouldn't have his earnings potential stolen by another company willing to pay him $20/hr. $90/hr of profit is great but $80/hr in my pocket is better.

> You can't do both.

I'm being entirely serious: I don't see why not.

> It doesn't really matter which you do.

It really, really matters if productivity increases are uneven.

The critique is that much of the investor class has chosen:

3. Pay yourself more.

Yes, indeed we have seen decreased prices in housing, healthcare, education, etc in the last 40 years.

You bring up a good point, but the reasons for that are not directly related to productivity. 2 big ones:

1. money supply. Average wage and population have both increased. How can that be possible if the total amount of money in the economy is fixed? Well it's not. Increases in money supply are slightly more than productivity growth rate in order to prevent deflation, and they err on the side inflation. There's literally more money in the economy than ever before.

2. monopolies. Healthcare & education & housing are not competitive markets. You can't invent more land. Healthcare is a basketcase. And schools are in effect a luxury good where exclusivity is the main product.

You combine #1 and #2 and you get what you expect.

The solution to this is not to increase minimum wage with productivity. That doesn't make sense.

IMO minimum wage should be pegged at some standard of living in a 50th percentile cost of living suburb.

Profits are also a thing.

Business generally prefers to do neither 1 nor 2.

You forgot one option.

3. Take less profit.

> You can't do both.

You can definitely do a bit of both. The sum just can't net you less than if you had done neither. Which is why many corporations just opt for neither.

3. Collect more profit

The reason why #2 doesn't have the same effect as #1 is scale.

Wealthy people are not affected by prices in the same way as average people.

I hypothesize that being able to buy more with the same income rather than being given a higher income helps the wealthy more. Let's take a practical example:

A banana now costs 50 cents. It would have to cost $2 if we paid for higher labor costs, for that $20+ minimum wage.

But if you're upper-middle class or above, or way above, it doesn't really matter if that banana costs 50 cents or $2. Heck, for some people, it wouldn't really matter if it cost $50 or $100 or even $1,000 if you're Jeff Bezos.

There are only so many bananas you could possibly want.

In this way, I think that option 1 would be more beneficial for the common person. Sure, they'd have to pay for a $2 banana, but they'd be making a more comfortable salary and they still only want one banana. Meanwhile, Moneybags Factory Owner would have to dispense their wealth to labor instead of hoarding it in capital.

I'd also argue that we don't do #2 "because of competition," instead that it was an intentional choice not to tie minimum wage to inflation and to keep it at rock-bottom levels. That is corporations-write-the-laws policy. If the minimum wage were raised there would absolutely still be competition and companies would still be trying to make productivity gains from option #1.

...or they'd just raise the price of a banana to $4, to keep relative profits the same, people would earn more than previously, but everything would be more expensive. Say what you want, we do buy and own a lot more stuff than we did in history.

The only unfair thing here is, why does amazon pay (relatively, percentually) less tax than local banana stand.

> ...or they'd just raise the price of a banana to $4, to keep relative profits the same

I'd say for many products they can't actually do that because there's only so much demand. Also, because middle and higher earners wouldn't be getting the same kind of raises that the minimum wage folks would get if the minimum wage were raised.

If you're above minimum wage, you're essentially being paid at a market equilibrium rate: an intersection of supply and demand. But if you're at minimum wage, you're at "the company would pay you less if they were legally allowed to" territory.

My point is that "everything would be more expensive" would actually be a net benefit to the lowest earners.

Labor is very nearly never 100% of the purchase price of a product or service.

So, if you increase your labor cost by 100%, that doesn't mean the product's price increased by 100%, because labor is only one component of a product's price.

It's the same math that makes living in HCOL areas worth the expense (e.g.: increase your expenses by 50% and your wage by 50%. As long as you are paying less than 100% of your wage into your expenses that's a net gain).

McDonald's in Denmark is a great example. Their employees make well over $20 an hour and have 6 weeks vacation. Big Macs in Denmark don't cost double the price, but the workers are paid just about double depending on which region in the US you compare to.

If minimum wage workers aren't responsible for the growth in productivity, why should they be paid as if they were? Would productivity actually be increased, if business owners not only had to invest in, say, machinery to improve productivity, but also needed to pay employees more now that they were using machines that improved their productivity?

For example, I build fences for a living. Usually I pay a guy $100/day to dig post holes, and he can dig 20 post holes in a 6 hour day.

I decide to scale up, so I buy a post hole digging machine for $20,000. This machine is pretty much point and shoot, and now lets the same guy dig 200 post holes in 6 hours. Not only has he dug 10x more post holes, but he also feels better at the end of the day because he was using a machine and not his own muscles to do the job.

How much should that guy get paid now? Is it $1000, since he is 10x as productive? Is it $100, because he is working the same amount of hours as before? Is it $80, because his job is actually easier now because I put in $20k of my own money to make it so?

This is the heart of capitalism right, you bought the capital, the post hole digging machine, and so you get to (this next word is being used with its technical definition, make full use of and derive benefit from (a resource), not the emotionally charged one) exploit the value generated by labor using the capital.

In your scenario you didn't say how much you charge the customer, but I'll assume that it's more than you pay the laborer so that you can turn a profit. You are paying the laborer $5 per post hole. Let's say you have a healthy profit margin so you charge the customer $10 per post hole. The laborer makes you $200 each day of which you pay the laborer $100 and pocket the other $100 as profit.

Now you have a post hole digging machine, they guy can dig 200 post holes and that generates $2000 dollars in value for you of which you pay out $100 to the laborer and pocket the other $1900. Now you used to make $100 profits, so let's subtract that out and say you make an additional $1800 per day from that laborer. If the capital costs $20,000 you will pay for the capital in $20,000 / $1800 = 11.11 days, we can round up and say 2 weeks.

So in 2 weeks you will have paid for the capital expenditure with the increase in productivity, and then there will be upkeep and maintenance on the post hole machine, but every day after the first 12 days you go from labor making 50% of the value they generated digging holes to labor making 5% of the value they generate digging holes.

Now we tell ourselves, this is the system working, you took the risk in buying the post hole digging machine. The laborer could save up his earnings for 200 days (assuming he had no other expenses, which is not realistic) and also have $20k to buy a post hole digging machine and then could just go capture the full value of his labor himself, or could pay someone $100 to operate it and make $1900 a day.

If you are the guy digging the holes though, 6 months after the machine is paid off you are still only capturing 5% of the value you generate, does that seem like a good deal anymore. At what point does your taking 95% of the value someone else generate become predatory. We make ourselves feel better by saying, it's a free market, if he doesn't like it he can go get a different job. But at the end of the day, someone making $1900 has a lot more economic power and the options that come with it than someone making $100. After a year of hard work that laborer has $36,500 and the capitalist has $693,500.

It's not surprising that as the economy has done this day after day, year after year, we are faced with massive income inequality, and it was really only a matter of time before the guy actually digging all the post holes your selling might ask how this arrangement is fair.

The laborer isn't having 95% of the value they're creating taken though. As you said, the labor went from 50% of the value created to 5%. The machine is producing most of the value.

Now factor in the laborer being easily replaced by any other unskilled laborer.

> it was really only a matter of time before the guy actually digging all the post holes your selling might ask how this arrangement is fair.

No one said it's "fair" as in all outcomes being equal. But it is "fair" in the sense that the laborer is being paid in proportion to the value they are creating vs the cost to find a replacement. If the laborer wants to improve their situation, they need to figure something out besides mindlessly digging holes someone else tells them to.

And if the fencing business dried up the next day, how much of that $20k debt should the laborer be responsible for? If you take the risks you end up taking the lion's share of the rewards. If you want improve the outcomes for the laborer, make it easier and less punishing for them to take risks.

Do any of the results change if instead of picking a quite high margin in postholes, you pick something more reasonable? What if it takes 15 years to pay off the hole digging machine, not 6 months?

15 years worth of postholes is 200 * 365 * 20 = 1,460,000 postholes, that would mean a profit of $0.0136 per posthole.

6 months worth of postholes is 200 * 30 * 6 = 36,000 postholes and a profit of $0.55 per posthole to pay down the capital investment.

In my original post I claim $5 per posthole profit can pay this off in 11 days.

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