Minimum wages and poverty

A $15 minimum wage would be great for those employed by the fast food chains but would probably do little to alleviate poverty for those who remain unemployed or otherwise close to the line.

This observation follows from a Business Insider video interview with Paul Krugman.  I was concerned because it is not clear the headline is supported by what he said.   Here’s the headline: “Watch Paul Krugman, in 2 minutes, Destroy The Argument That We Can’t Pay Fast-Food Workers Higher Wages” and here is what he said:  “But what all the evidence says is we can raise these wages without losing a lot of jobs.  The best research on minimum wages all says that when the minimum wage is as low as it is in the United States there is hardly any cost to raising it.”  I know the guy won a Nobel Prize in economics but that is all the more reason to carefully evaluate a statement such as this.  Sometimes people who are recognized as experts make unsupported statements outside their specialty.

In this case he may be partially right.  Some firms in industries that usually employ  low-paid workers have found they can do well by paying their staff better than usual and providing decent benefits.  Employees who are being treated well stay on the job longer and provide better service to customers. This may not apply to all firms in all industries. 

But the reality is that generally wages are determined by supply and demand and governments that try to fight market forces often make things worse.   That people are willing to work for current wages paid by the fast-food industry indicates the supply exceeds the demand.  There may also be small firms paying low wages that genuinely cannot pay $15 per hour.  There could also be lots of owners or self-employed people not making that much.

Perhaps this should be considered a problem of poverty and we should be looking to alleviate all poverty rather than just for those who make the most noise.

I believe we should have a collective responsibility to ensure everyone has the opportunity to live at the same standard as most other people.  One way to do this would be a universal income scheme.  As well as dealing with poverty such a scheme would in effect set a minimum wage determined by supply and demand in that people would not have to work for low wages for life support.

Poverty is a big issue in North America and around the world, one which is probably going to get worse as the economy continues to slide.  Let’s try to arrange our economy so that no one has to live in poverty.

 

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Is minimum wage legislation the appropriate way to deal with poverty?

The problem with minimum wage legislation is that it is an inappropriate tool to solve a very difficult problem.  A universal basic income would be a more effective way of dealing with poverty.

People working for low wages are only a part of the problem of people struggling to survive on minimum incomes.  Legislated minimum wages may help some people at the bottom of the wage scale, but it will do nothing for the others and may even add to the number of unemployed.

The agricultural surplus is the excess food a farm worker produces beyond his/her own needs.  This is what allows the rest of us to do the things we do. With the huge agricultural surplus we currently have and with modern technology we do not need for everyone to “work” for the most part of their lives.

In our society we have traditionally distributed this surplus via jobs and wages.  It may be this system is breaking down and we should be looking for alternatives such as a basic income scheme.  Unfortunately many people have a religious quality belief that employment is essential and that anyone who does not work his/her entire life is a deadbeat.  The work ethic is great for those who want to build empires based the work of others.  Maybe the minimum wage is appealing because it is seen as a way of transferring profits to workers.

Another problem with minimum wage legislation is that it distorts the operation of the market and some low paying jobs may be lost as the minimum wage raises costs.    A universal income scheme would allow individuals to decide the minimum wage at which they would work.  Those people who want to eat fast foods would have to pay enough for the restaurant to attract workers as people would not be obligated to work in order to survive.

We probably should not take for granted the agricultural surplus will continue indefinitely as there are many things which could wreck our food factories.  There could also be problems with the non-agricultural part of our economy.  In either case minimum wage legislation will not be of much use whereas a universal income scheme might make adjustments easier.

 

If you liked this post your are invited to comment, press the like button and/or click  one of the share buttons. If you disagree you are invited to say why in a comment.  While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

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