Against the Living Wage/”Subsidy” Arguments
By Jason Brennan On July 17, 2013
Suppose, on a reasonably competitive market, that Bob’s labor is worth at most $1/hr to any potential employer. (Suppose that this is the best Bob will be able to produce at any point in his life.) At anything over $1/hr, employers would be losing money every hour Bob worked for them.
However, suppose for Bob to lead a decent, fully human life (however some left-wing activist would like to define that), he would need to make $10/hr.
Now, suppose Bob works at fast-food chain McBurger in a competitive market economy where he gets paid his marginal product, $1/hr. Suppose that he therefore qualifies for government assistance, receiving an earned income tax benefit or basic minimum income, food stamps, and the like. Many on the Left would say that the government thereby “subsidizes” McBurger, because McBurger pays Bob less than it takes to keep him living well, and the government pays the difference. But this presupposes that if you hire someone for, say, 40 hours a week, you owe him enough money for him to lead a decent life.
I don’t understand where this presupposition comes from. If Bob is so lousy and unproductive that he can produce only $40 of value to McBurger in a 40/hr week, and if McBurger pays him for his marginal product, then this just means Bob isn’t productive enough to pay his own way in this world. Bob is going to be a net drain on the world–to keep him alive will require that he consume more than he contributes. From an economic standpoint, the world is better without Bob than with him.
Isn’t it more plausible to think that if there’s some enforceable positive duty to provide Bob with enough stuff to lead a life, that all of us, together share this burdensome duty, rather than just Bob’s employer? Why should Bob’s employer, specifically, be the one that has to bear the burden and lose all this money to keep him alive (at whatever level you consider decent)? This just seems like a kind of moral outsourcing to me. Why not instead Bob’s neighbors, parents, friends, or sexual partners? Bob does McBurger a service, and McBurger pays him for that service.
I’m not going to connect this directly to the Walmart picture above, because we can debate the empirics of whether the market is sufficiently competitive, etc., that any of this reasoning applies*. However, in reading websites and articles arguing that Walmart is subsidized by the government because many workers receive welfare benefits, it’s clear that the authors have not thought through the issue I’ve just presented. (Also, I’m definitely not applying any of this to third-world sweatshop workers, many of whom receive low wages simply because governments ghettoize them to poor countries rather than letting them travel in search of better wages. If you have been voting for closed borders candidates, then it is quite literally your fault that many third world workers receive low wages.)
Relatedly, I sometimes see arguments that go like this:
- McBurger made $200 trillion in profit.
- But McBurger paid many of its workers lower than living wages.
- Therefore, McBurger underpaid its workers.
But 3 doesn’t follow from 1 and 2. We could parody this argument by saying something like, “McBurger made $200 trillion in profits, yet it only paid $1500 for the Apple laptops it bought its executives. Clearly it could afford to pay more, since it has so much profit, so therefore it should.” Again, nothing like that follows. Since McBurger has so much money, it could easily afford to pay, say, $10,000 per laptop. Let’s say McBurger values the laptops at $3k each–at $1500, it’s getting a $1500 consumer surplus from the laptops. If McBurger bought 50 laptops at $10,000 each, it would still lose $350,000. This can hold for employees, too. A company with a high profit margin might be able to afford to pay its employees more than the marginal value of those employees, but it would still be losing money on each of them.
Imagine you argued for the following principle: “If you hire someone full-time, you have to pay that person enough to lead a decent life (defined as follows…), even if that person is so unproductive that you lose money by hiring him.” That kind of moral codes gives potential employers of the unproductive two options: 1) hire unproductive people at a financial loss, or 2) refuse to hire unproductive people. It forbids the middle ground–help out unproductive people (perhaps even, in the process, helping to make them more productive) by paying them what their labor is actually worth.
*Thus, a tip to people making the Walmart subsidy arguments: your arguments would be much better if you could establish, empirically, that Walmart employees are getting paid much less than their marginal product as a result of a market failure. When doing so, please keep in mind the difference between a market and a government failure, too. So, for instance, if you showed me that the average Walmart cashier had a marginal product of $170/hr, but she was getting just $13/hr because Walmart bribed the town aldermen to forbid Target and other competitors from establishing nearby stores, then you’ve got a real case.
EDIT: A question about living wage arguments. Suppose a homeless person offers to squeegee my car window while I’m stopped at an intersection. Suppose washing my window will take 60 seconds. Suppose that having my window washed is worth very little to me–I’d lose money on the transaction if I paid more than 10 cents. However, suppose that a living wage amounts to $30/hr. Am I morally obligated (not out of duties of beneficence, but out of justice) to pay him 50 cents, and thus lose 40 cents on the transaction?
bleedingheartlibertarians.com
tfowler • 3 minutes ago
In addition to the points raised in this post, there is the fact that welfare (other then EITC which requires work) raises the reservation wage of potential employees and thus is more of a cost to low wage employers then a subsidy.
bleedingheartlibertarians.com
Some Questions for Living Wage Advocates
Posted by Jason Brennan
In a previous post, I expressed skepticism at the thought that employers necessarily owe employees a living wage. I asked, what if an employee is just not very productive, and so his hourly marginal product is below the hourly living wage rate, whatever that is. In that case, for the employer to pay the employee a living wage would mean the employer loses money each hour the employee works for him. I also wrote:
Isn’t it more plausible to think that if there’s some enforceable positive duty to provide [unproductive employee] Bob with enough stuff to lead a good life, that all of us, together share this burdensome duty, rather than just Bob’s employer? Why should Bob’s employer, specifically, be the one that has to bear the burden and lose all this money to keep Bob alive (at whatever level you consider decent)? This just seems like a kind of moral outsourcing to me. Why not instead Bob’s neighbors, parents, friends, or sexual partners?
Some commentators said that this question was moot, as all workers are productive enough that an employer could pay them a living wage and yet still profit or at least break even from hiring them. Of course, these commentators said that because they want it to be true, not because they had any evidence that it’s true.
If you’re on the Left, you might be tempted to believe something like the following: “With the exception of a few disabled people, perhaps, all adult workers are productive enough that their potential employers can hire them at a living wage [however you might define that] and still make a profit.” If you find yourself thinking something like that, ask, did you come to this conclusion after studying labor economics closely, or did you come to it because it would be convenient for your ideology? Unless you define the “living wage” as very low, it would be pretty surprising if this were true. So, for instance, this website defines a living wage for a single adult living alone in the District of Columbia as $13.68/hr, a single adult with one child living as $26.37/hr, and one adult with 2 children as $32.97/hr. Do you think many low-income workers in DC are producing $32.97/hr?* Even in DC, that doesn’t seem very plausible. Is it even plausible to think that all potential employees will produce $13.68/hr? Many low-income workers are dysfunctional, badly behaved, or just not very skilled. Sorry.
Now here are my new questions.
In the MIT Living Wage Calculator, what counts as a living wage depends not merely on the local cost of living, but also on how many income-earners and how many dependents a family has. That seems entirely reasonable. Of course, you need more money to support 10 kids at a decent level than to support 1. Thus, the MIT living wage calculator says that a single adult, living in DC, with no kids needs to make $14.84/hr, but if she has 3 kids, she needs to make $49.19/hr. Seems reasonable to me. Questions:
If you believe employers owe employees a living wage, do you think that an employer has a moral duty to pay an employee more just because she has more children? Suppose Bob and Jane are equally productive employees with the same background credentials and qualifications. Suppose they are getting paid the same amount, and both right now make an amount that exceeds the MIT living wage. But suppose Bob later has triplets, and as a result, suddenly makes less than the MIT living wage (since the living wage for a person with three children is higher than a person with none). Is the employer obligated to pay him more because of that? Suppose the employer decides to pay Bob much more than Jane because Bob has triplets, even though they are equally productive employees. Suppose Jane says, “Bob is getting paid $50 an hour, and I’m only getting paid $20, even though we’re equally productive. That’s not fair–he shouldn’t get paid almost three times what I’m paid just because he had kids.” Should we tell Jane she’s an evil and immoral jerk who just doesn’t care about social justice? Suppose Bob’s labor is only worth $23/hr to his employer. When he has triplets in DC, he now needs to make $50/hr to get a living wage. If the employer says, “I can’t afford to keep Bob on a living wage, so I’ll just fire him. After all, I care about social justice, and I don’t want to pay a worker less than a living wage.” Does the employer do the right thing?
bleedingheartlibertarians.com
murali284 to Craig J. Bolton • 4 days ago
It is obviously not very helpful to the worker to employ him at a starving wage.
This last bit is false. Suppose I were to take a job at a "starving wage" Certainly, I would not be able to support myself entirely on those wages, but whatever I do get paid can supplement whatever financial assistance I am getting. After all, I could get money from other sources (e.g. family, friends, the state, charities etc) Suppose previously, my graduate scholarship wasn't enough to support me, but TA-ing at a non-living wage earns just enough to support me on top of whatever I was getting via scholarship. Or, suppose instead I was borrowing money from a very good friend. Clearly, with a job that pays me at least something, I am less likely to run out of my friend's good will* (and extra savings**) if I have a job that pays me something rather than nothing.
The general point is this: Once we factor in the flexibility in options by which we may obtain the necessary resources to survive, even non-living wages can do plenty of good.
*Often an honest attempt to impose as little as possible on others helps generate the good will that forgives whatever imposition that is nevertheless made.
**Sometimes the people who help us cannot afford to help us all the way. Any paying job is going to go some way towards alleviating this additional financial burden we place on others.
bleedingheartlibertarians.com
urstoff Craig J. Bolton • 3 days ago
Welfare is subsidizing poor adults so that they don't have to get multiple jobs.
The "welfare is subsidizing Wal-mart" argument again requires magical thinking that the labor of the most unskilled is worth much more than what they are actually paid. Let's assume that there is no welfare of any kind. The likely results: Wal-mart workers work multiple jobs; Wal-mart workers are mostly teens or retirees that are working for supplemental income; Wal-mart follows Costco and pays their workers more because they hire workers with higher skills. In any of these scenarios, it's not Wal-mart that's on the losing end, it's unskilled adults.
bleedingheartlibertarians.com |
