For instance in an economy where cash is readily available some employers might be tempted to split the compensation they give to their employees in two parts. An upfront one – which gets to be reported to the IRS – and a behind the counter one, that is settled directly between the employer and the employee. If a minimum wage is enforced the state knows for sure how much will be the taxable part.
Or in a situation when enough of the employers get together, form a cartel and start lowering the wages so much that the ordinary people end up dying of hunger.
In fact there are many opinions about how this concept imposes undue constraints upon the economy. Some say it discourages job creation, others say it makes it a lot harder to start a new business and so on…
While all these opinions have their merits, just as the concept itself has its own, I think the situation is a little bit more complicated than this.
For starters I’m going to introduce the concept of ‘priming’.
“Priming refers to the incidental activation of knowledge structures, such as trait concepts and stereotypes, by the current situational context. Many studies have shown that the recent use of a trait construct or stereotype, even in an earlier or unrelated situation, carries over for a time to exert an unintended, passive influence on the interpretation of behavior.”
In other words an established mind set influences both the way we see a certain situation and the decisions we make in certain circumstances.
Minimum wages do exactly that. It both sets our minds in a certain way and establishes a certain set of circumstances.
First of all it tells us that it’s OK to compensate labor as little as possible and then settles an ‘acceptable’ minimum.
I see some of you fretting: “And what’s wrong with paying as little as possible? Are you nuts? I have a bottom line to worry about here!”
Precisely. You should take into consideration the whole picture – the bottom line – instead of short-sightedly aiming your efforts towards short term cost cutting.
Henry Ford taught us a very valuable lesson more than a hundred years ago.
By paying each of the workers more you might end up lowering your aggregate labor costs on the medium time frame.
But there’s more. What Ford did created the conditions for a mentality change. Receiving more money prompted workers to start planning ahead. On $2.25 a day Ford’s workers could afford to work for 3 days a week and spend the rest drinking. On 5 bucks a day they realized they could raise a family. Things changed dramatically. They stopped skipping work and this is how the famous American working middle class was introduced to the world.
The advent of minimum wages turned back the wheels of history. Blue collar employees were returned to the condition of working beasts whose work is no longer evaluated on an individual basis but compensated according to some opaque calculations made by government bureaucrats.
The companies no longer compete among themselves for the best available talent; they just hire anonymous ‘industrial operators’ from a pool of undistinguished semiskilled, disheartened laborers.
The entire economy suffers, from lack of solvable demand and an increasing apathy that doesn’t bode well for the future.
Also, demography doesn’t help any.
I keep hearing that individuals should improve their skills if they want to live better and that mature people who see working for McDonald’s as a life-time career cannot ever expect a ‘decent’ life style since McDonald’s jobs are for students trying to earn some pocket money.
Well… things have changed a little since people who tell this story have been in college.
In those times families had three or four children and about half the jobs were in manufacturing. That meant that the father was the bread winner, mother stayed at home and the students manned the burger joints.
Nowadays most manufacturing jobs have been exported to China, father and mother are both working, part time, in the unglamorous part of the service sector and no longer venture to have more than one or two children.
That’s why McDonald’s has become a lifetime career. For lack of eligible students, first and foremost. Thirty years ago blue collar workers could afford to send their children to college and the students went to McDonald to work for pocket money. Nowadays blue collar workers no longer afford to make many children and don’t have the money to send them to college.
Increasing minimum wage won’t change much. It would only convince the people at the bottom of the society that there is no way out and the CEO’s that there is no need to make any fundamental change in the way they manage the ‘work-force’.
Until employers will start considering their employees as partners instead of adversaries things will remain just as they are now. Or get even worse.
PS. How come so many of us constantly forget that most of the clients – after all they are the ones who keep the economy afloat – are employees?