My point is making the case for minimum wage, what its economic import really is, and what the background is (Smith is full of surprises, especially if you believe what you've been told about him). In particular, noting that the lack of a minimum wage amounts to a de facto welfare program for noneconomic businesses.
I'm not entirely convinced that MW is the way to fly (though I'm mostly convinced of it). And as I said: exceptions can be made, but they should be deliberate. It's one thing for a small mom'n'pop corner or small-town grocery to get a subsidy for providing a local level of services, another for some of the largest and most profitable companies in the world (Walmart, McDonalds) to be subsidized for subverting local economies.
The discussion of GMI / basic income or other non-means-tested aid recognizes inherent market failures in numerous directions. That's a longer conversation, and one that I plan to explore. I'm not dismissing it at all.
If the Basic Income in fact addresses every issue that the Minimum Wage is intended to address, and better, then I don't see that that's entirely the case. It's conceivable that a situation with both could be optimal, but any time you raise the Basic Income you can lower the Minimum Wage - and past some point, that would hit zero.
I believe you'll find that adequately addressed in my linked blog post, however, given that:
• Labor has a natural disadvantage to employers in wage negotiations (see Smith), exacerbated often by additional illegal disadvantages (see current wage price cap collusion by Silicon Valley firms),
• That below-subsistence wages are not sustainable, that is, they don't cover the full costs of providing labor, and
• That a business which cannot cover the costs of its inputs is, ipso facto, uneconomic, then
• Failing to require businesses meet the full costs of their inputs, and offshifting that cost onto labor, corresponds to a net subsidy of an uneconomic business by labor.
This presumes that the minimum wage is set to cover the subsistence rate, which is to say, the rate at which a laborer can support both themselves and their immediate family: nonworking spouse if required for maintenance of household and raising of children, and of children, their upkeep, and education.
I read your post, but the only part of it that I can find which remotely addresses my question is: "A man must always live by his work, and his wages must at least be sufficient to maintain him."
So if that's the relevant piece, you are asserting that it's welfare for an employer to pay a man less than a few dollars/day (i.e., subsistence) in wages? That still doesn't explain what you mean by "welfare".
yummyfajitas is (explicitly) interpreting "cost of production of labor" to be "subsistence wages" (and has asked for alternatives if that's not what is meant). Minimum wage is quite a bit more than subsistence wages in most places, and quite a bit less than what's typically referred to as a "living wage" - particularly if we're including raising children.
Federal minimum wage in the US is at best a rough proxy for living wage, as living expenses vary greatly by region (Jane Jacobs has some interesting things to say about this in The Rise & Fall of Great American Cities and Cities and the Wealth of Nations). In reality you'd want to calculate a living wage specific to a given area or region.
The official Federal poverty rate is based largely on the cost of food (housing was a much smaller component of expenses when it was first calculated, and for political reasons, the formula hasn't been adjusted mostly because it would make whatever administration did so look bad). It's presently $11,490/year for an individual ($5.75/hr), or $23,550 for a family of four ($11.78/hr). Good luck living on that in New York or San Francisco. In recognition of this, many aid programs are available at some multiple (e.g., 4x) of the poverty level.
In which case, I'd argue that the present Federal minimum wage of $7.75/hr is well below subsistence for a family throughout the US, and is below that of individual subsistence in many larger cities. Since providing for continued labor means supporting at least one child, if not two plus at least a partial share of a spouse's support, it's low by several times.
My reading is "subsidy, because they can get labor at below what it's actually worth", which is not necessarily a claim I would make but it doesn't seem incoherent.
Not "below what it's worth" but "below its real cost".
"Worth" is a sticky word in that it presumes the market sets value above provision cost. In the short term, this isn't necessarily the case, and given distortions, e.g., provisioning of an encumbered labor class such as undocumented aliens (who would tend to be averse to seeking legal remedies or unionization), or young and naive labor (as is typical in startups), or of a labor class with significant barriers to desirable employment (persons with conviction or drugs records, with poor credit scores, discriminated minorities, etc.), the "short term" can exist for a quite considerable period, possibly decades or centuries.
I wasn't committing to any particular definition of "worth". Certainly they're not getting it at below market value, but that's not an interesting statement...
There are criticisms of the calculation of this (it's weighted for food, housing and transport costs are a much large component now than when the index was first created), but it would correspond to $5.84 for an individual, $11.93 for a family of four. In the latter case, I'd assume one parent is working less than full time.
By either measure, and with the requirement that subsistence cover both the worker's and their childrens' living costs, the present federal minimum wage is below subsistence.
How do you figure a few dollars per day for someone within the US?
Where I am located, many millions of people subsist on 100 rupees/day. Adjusting that for purchasing power yields about 6-8 USD.
Granted, I'm not living a place where 75% of the poor own a car, 45% of the poor own their own home, and 67% have at least 2 rooms per person [1]. I'm not in a place where even the middle or upper class have all those luxuries. Yet somehow, in spite of living below what you would call subsistence, there is no mass die-off over here.
In any case, I now understand that by "subsistence", you actually mean "subsistence plus an expanding basket of luxuries." (As I'm sure you know, the federal poverty line measures a fraction of average consumption which has gone up over time, not a fixed basket of goods.) And apparently, some of those luxuries include living in highly desirable areas like NY or SF, which even the federal government doesn't include.
When you use common terms in such non-standard ways, it helps the reader to clearly define what you mean.
In any case, your factual claim regarding "obtaining an input at less than the cost of production" is clearly wrong, as a simple look at other countries will prove that labor can be produced at far lower cost (adjusting for PPP) than the US minimum wage.
I'm aware that the standard of living, including what's considered poverty, is much lower outside the OECD / G7 / G20 nations. Simply put: for the most part that wouldn't constitute a sufficient standard of living to interact with the working world in the US without imposing significant handicaps of opportunity. The reality is that it's not only the ceiling that's higher in the US than in India, but the floor.
The cost of living -- food, shelter, clothing, services -- is simply higher in the US. You're arguing against US Federal standards for poverty, quite standard definitions, by the way, and which, contrary to your assertion, are not normalized for high-cost coastal cities (as I indicated: the costs would be higher there, and living at the poverty line would be distinctly challenging). Living expenses vary across the US pretty markedly. I'm not finding a direct link to lists, but city-data.com has some good lists of various demographics by city:
As for San Francisco: supposing you do happen to live there, the cheapest available housing will run around $200/week or $800/month per room. Few properties will let you have an unlimited number of tenants, so figure on 2-3 people per room maximum, the higher values only if you've got young children. Cost of living also tends to correspond to earning potential. And while housing might be slightly less expensive further out, you'll need transportation: BART will run $15 /day or so, for much of the US car ownership is all but necessary, carrying with it gasoline, registration, insurance, parking, and other costs.
I don't doubt you could establish a lower prevailing subsistence wage in India, but it's not directly comparable to what the same lower bound would be in the US.
Straw man #1: The cost of living -- food, shelter, clothing, services -- is simply higher in the US.
"...100 rupees/day. Adjusting that for purchasing power yields about 6-8 USD."
"...labor can be produced at far lower cost (adjusting for PPP)..."
Straw man #2: You're arguing against US Federal standards for poverty, quite standard definitions, by the way, and which, contrary to your assertion, are not normalized for high-cost coastal cities...
"some of those luxuries [which you seem to think are part of subsistence] include living in highly desirable areas like NY or SF, which even the federal government doesn't include."
Billions of people worldwide produce labor at a PPP ADJUSTED wage vastly lower than the US minimum wage. About 95% of India lives on less than the bottom 5% of the US, PPP ADJUSTED [1], yet still manages to be productive. So clearly your claims that people paying below the US minimum wage are obtaining an input at less than the cost of production is incorrect.
The definition of the federal poverty line is irrelevant. The cost of producing labor is far less than what US employers pay for it, and far less than what they would pay absent a minimum wage.
No, it's not. I've already addressed that the poverty level varies across different parts of the US. It's established by local costs and prevailing wages.
You clearly can't or won't grasp this, and you're presenting arguments irrelevant to this point. I'm not arguing that cheaper Indian labor cannot substitute for more expensive American labor, in some cases, though you may well want to study why it doesn't do so in all cases (hint: labor productivity per worker is much higher in the US, for various reasons, and by various metrics).
Your comparison of US vs. Indian costs of living is in fact a strawman. You might as well compare living expenses in Park Circus vs. Malabar Hill.
I'm not sure I understand the point you're trying to make. I don't share Chris' politics, but the point he is making is straightforward: it is not in fact invalid to compare living expenses between SF and India. The poorest 5% of Americans do in fact enjoy a standard of living that vastly exceeds that of the average Asian. But Asia does in fact remain very productive.
If I'm looking for ordinary gainful employment, or plan on raising a family, there are minimum standards which are imposed, whether through social expectation, law, regulatory requirements (e.g., immunizations for children attending schools, water, power, and/or septic connections for residences, etc.). Not meeting those requirements will put handicaps on your ability to find and/or keep gainful employment independent of your qualifications otherwise.
Arguably a similar state exists within India, but prejudices are far more baked in to the system and are generally acceptable (I turned up numerous articles discussing discrimination by caste, religious affiliation, sex, etc., while doing some associated research for this thread, they make for ... interesting reading).
I'm not addressing the morality of the differences in living standards between the US and India, or even between Park Circus vs. Malabar Hill (both of which are within India, and, arguably, represent a larger divide than that between the median incomes of the US and India (roughly: $42,693 and $1,219/$3,608 nominal/PPP). That's a separate issue and independent of this discussion.
The question at hand is: what is the minimum wage necessary to provide for a sustainable supply of labor, meeting present standards, within the US. And the answer to that question is, of necessity, relative to prevailing conditions, including expectations, within the US.
If I require the labor I hire to maintain certain standards of cleanliness (running water), communcation (electricity & phone), availability (possibly use of a car), then the cost of production of that labor is going to be higher than if I don't require these things. It's quite possible (though I've no idea whether it's in fact the case) that these things are more expected and/or more expensive (relative to other things included in PPP) here.
Comments
My point is making the case for minimum wage, what its economic import really is, and what the background is (Smith is full of surprises, especially if you believe what you've been told about him). In particular, noting that the lack of a minimum wage amounts to a de facto welfare program for noneconomic businesses.
I'm not entirely convinced that MW is the way to fly (though I'm mostly convinced of it). And as I said: exceptions can be made, but they should be deliberate. It's one thing for a small mom'n'pop corner or small-town grocery to get a subsidy for providing a local level of services, another for some of the largest and most profitable companies in the world (Walmart, McDonalds) to be subsidized for subverting local economies.
The discussion of GMI / basic income or other non-means-tested aid recognizes inherent market failures in numerous directions. That's a longer conversation, and one that I plan to explore. I'm not dismissing it at all.
The way you'd presented it, I read you as contesting the claim that BI reduces the need for a minimum wage.
I think they're complementary policies.
If the Basic Income in fact addresses every issue that the Minimum Wage is intended to address, and better, then I don't see that that's entirely the case. It's conceivable that a situation with both could be optimal, but any time you raise the Basic Income you can lower the Minimum Wage - and past some point, that would hit zero.
I disagree: https://news.ycombinator.com/item?id=7338761
Can you explain what you mean by "a lack of a MW is welfare?"
I believe you'll find that adequately addressed in my linked blog post, however, given that:
• Labor has a natural disadvantage to employers in wage negotiations (see Smith), exacerbated often by additional illegal disadvantages (see current wage price cap collusion by Silicon Valley firms),
• That below-subsistence wages are not sustainable, that is, they don't cover the full costs of providing labor, and
• That a business which cannot cover the costs of its inputs is, ipso facto, uneconomic, then
• Failing to require businesses meet the full costs of their inputs, and offshifting that cost onto labor, corresponds to a net subsidy of an uneconomic business by labor.
This presumes that the minimum wage is set to cover the subsistence rate, which is to say, the rate at which a laborer can support both themselves and their immediate family: nonworking spouse if required for maintenance of household and raising of children, and of children, their upkeep, and education.
I read your post, but the only part of it that I can find which remotely addresses my question is: "A man must always live by his work, and his wages must at least be sufficient to maintain him."
So if that's the relevant piece, you are asserting that it's welfare for an employer to pay a man less than a few dollars/day (i.e., subsistence) in wages? That still doesn't explain what you mean by "welfare".
What part of "obtaining an input at less than the cost of production due to uncorrected market imbalances" don't you understand?
yummyfajitas is (explicitly) interpreting "cost of production of labor" to be "subsistence wages" (and has asked for alternatives if that's not what is meant). Minimum wage is quite a bit more than subsistence wages in most places, and quite a bit less than what's typically referred to as a "living wage" - particularly if we're including raising children.
Federal minimum wage in the US is at best a rough proxy for living wage, as living expenses vary greatly by region (Jane Jacobs has some interesting things to say about this in The Rise & Fall of Great American Cities and Cities and the Wealth of Nations). In reality you'd want to calculate a living wage specific to a given area or region.
The official Federal poverty rate is based largely on the cost of food (housing was a much smaller component of expenses when it was first calculated, and for political reasons, the formula hasn't been adjusted mostly because it would make whatever administration did so look bad). It's presently $11,490/year for an individual ($5.75/hr), or $23,550 for a family of four ($11.78/hr). Good luck living on that in New York or San Francisco. In recognition of this, many aid programs are available at some multiple (e.g., 4x) of the poverty level.
http://www.obamacarefacts.com/federal-poverty-level.php
In which case, I'd argue that the present Federal minimum wage of $7.75/hr is well below subsistence for a family throughout the US, and is below that of individual subsistence in many larger cities. Since providing for continued labor means supporting at least one child, if not two plus at least a partial share of a spouse's support, it's low by several times.
"welfare for noneconomic businesses"
My reading is "subsidy, because they can get labor at below what it's actually worth", which is not necessarily a claim I would make but it doesn't seem incoherent.
Not "below what it's worth" but "below its real cost".
"Worth" is a sticky word in that it presumes the market sets value above provision cost. In the short term, this isn't necessarily the case, and given distortions, e.g., provisioning of an encumbered labor class such as undocumented aliens (who would tend to be averse to seeking legal remedies or unionization), or young and naive labor (as is typical in startups), or of a labor class with significant barriers to desirable employment (persons with conviction or drugs records, with poor credit scores, discriminated minorities, etc.), the "short term" can exist for a quite considerable period, possibly decades or centuries.
I wasn't committing to any particular definition of "worth". Certainly they're not getting it at below market value, but that's not an interesting statement...
Can you then define the "real cost" of labor? Surely it's not subsistence, since that's only a few dollars/day.
I've just referenced the Federal poverty rate elsewhere: $11,670 for an individual, $23,850 for a family of four.
http://familiesusa.org/product/federal-poverty-guidelines (the numbers cited previously are apparently pre-2014 and are slightly lower).
There are criticisms of the calculation of this (it's weighted for food, housing and transport costs are a much large component now than when the index was first created), but it would correspond to $5.84 for an individual, $11.93 for a family of four. In the latter case, I'd assume one parent is working less than full time.
By either measure, and with the requirement that subsistence cover both the worker's and their childrens' living costs, the present federal minimum wage is below subsistence.
How do you figure a few dollars per day for someone within the US?
Where I am located, many millions of people subsist on 100 rupees/day. Adjusting that for purchasing power yields about 6-8 USD.
Granted, I'm not living a place where 75% of the poor own a car, 45% of the poor own their own home, and 67% have at least 2 rooms per person [1]. I'm not in a place where even the middle or upper class have all those luxuries. Yet somehow, in spite of living below what you would call subsistence, there is no mass die-off over here.
In any case, I now understand that by "subsistence", you actually mean "subsistence plus an expanding basket of luxuries." (As I'm sure you know, the federal poverty line measures a fraction of average consumption which has gone up over time, not a fixed basket of goods.) And apparently, some of those luxuries include living in highly desirable areas like NY or SF, which even the federal government doesn't include.
When you use common terms in such non-standard ways, it helps the reader to clearly define what you mean.
In any case, your factual claim regarding "obtaining an input at less than the cost of production" is clearly wrong, as a simple look at other countries will prove that labor can be produced at far lower cost (adjusting for PPP) than the US minimum wage.
[1] http://www.census.gov/prod/2008pubs/h150-07.pdf
I'm aware that the standard of living, including what's considered poverty, is much lower outside the OECD / G7 / G20 nations. Simply put: for the most part that wouldn't constitute a sufficient standard of living to interact with the working world in the US without imposing significant handicaps of opportunity. The reality is that it's not only the ceiling that's higher in the US than in India, but the floor.
The cost of living -- food, shelter, clothing, services -- is simply higher in the US. You're arguing against US Federal standards for poverty, quite standard definitions, by the way, and which, contrary to your assertion, are not normalized for high-cost coastal cities (as I indicated: the costs would be higher there, and living at the poverty line would be distinctly challenging). Living expenses vary across the US pretty markedly. I'm not finding a direct link to lists, but city-data.com has some good lists of various demographics by city:
http://www.city-data.com/toplists.html
http://www.city-data.com/
As for San Francisco: supposing you do happen to live there, the cheapest available housing will run around $200/week or $800/month per room. Few properties will let you have an unlimited number of tenants, so figure on 2-3 people per room maximum, the higher values only if you've got young children. Cost of living also tends to correspond to earning potential. And while housing might be slightly less expensive further out, you'll need transportation: BART will run $15 /day or so, for much of the US car ownership is all but necessary, carrying with it gasoline, registration, insurance, parking, and other costs.
I don't doubt you could establish a lower prevailing subsistence wage in India, but it's not directly comparable to what the same lower bound would be in the US.
Straw man #1: The cost of living -- food, shelter, clothing, services -- is simply higher in the US.
"...100 rupees/day. Adjusting that for purchasing power yields about 6-8 USD."
"...labor can be produced at far lower cost (adjusting for PPP)..."
Straw man #2: You're arguing against US Federal standards for poverty, quite standard definitions, by the way, and which, contrary to your assertion, are not normalized for high-cost coastal cities...
"some of those luxuries [which you seem to think are part of subsistence] include living in highly desirable areas like NY or SF, which even the federal government doesn't include."
Billions of people worldwide produce labor at a PPP ADJUSTED wage vastly lower than the US minimum wage. About 95% of India lives on less than the bottom 5% of the US, PPP ADJUSTED [1], yet still manages to be productive. So clearly your claims that people paying below the US minimum wage are obtaining an input at less than the cost of production is incorrect.
The definition of the federal poverty line is irrelevant. The cost of producing labor is far less than what US employers pay for it, and far less than what they would pay absent a minimum wage.
[1] http://economix.blogs.nytimes.com/2011/01/31/the-haves-and-t... (Just in case you missed it: these numbers are adjusted for ppp.)
Straw man #1
No, it's not. I've already addressed that the poverty level varies across different parts of the US. It's established by local costs and prevailing wages.
You clearly can't or won't grasp this, and you're presenting arguments irrelevant to this point. I'm not arguing that cheaper Indian labor cannot substitute for more expensive American labor, in some cases, though you may well want to study why it doesn't do so in all cases (hint: labor productivity per worker is much higher in the US, for various reasons, and by various metrics).
Your comparison of US vs. Indian costs of living is in fact a strawman. You might as well compare living expenses in Park Circus vs. Malabar Hill.
I'm done here.
I'm not sure I understand the point you're trying to make. I don't share Chris' politics, but the point he is making is straightforward: it is not in fact invalid to compare living expenses between SF and India. The poorest 5% of Americans do in fact enjoy a standard of living that vastly exceeds that of the average Asian. But Asia does in fact remain very productive.
Living in conditions which are acceptable for a given cost in India would be prejudicial to hiring consideration in the US.
The question isn't "absolute standard of living", but "what is a necessary income to provide for a supply of labor".
Why is lack of running water, electricity, use of a car, and a private bedroom acceptable in India and unacceptable here?
Again: I don't like where that line of reasoning takes us either, but I obviously find the logic harder to dismiss than you do. Why is that?
I didn't say "acceptable", I said "prejudicial".
If I'm looking for ordinary gainful employment, or plan on raising a family, there are minimum standards which are imposed, whether through social expectation, law, regulatory requirements (e.g., immunizations for children attending schools, water, power, and/or septic connections for residences, etc.). Not meeting those requirements will put handicaps on your ability to find and/or keep gainful employment independent of your qualifications otherwise.
Arguably a similar state exists within India, but prejudices are far more baked in to the system and are generally acceptable (I turned up numerous articles discussing discrimination by caste, religious affiliation, sex, etc., while doing some associated research for this thread, they make for ... interesting reading).
I'm not addressing the morality of the differences in living standards between the US and India, or even between Park Circus vs. Malabar Hill (both of which are within India, and, arguably, represent a larger divide than that between the median incomes of the US and India (roughly: $42,693 and $1,219/$3,608 nominal/PPP). That's a separate issue and independent of this discussion.
The question at hand is: what is the minimum wage necessary to provide for a sustainable supply of labor, meeting present standards, within the US. And the answer to that question is, of necessity, relative to prevailing conditions, including expectations, within the US.
If I require the labor I hire to maintain certain standards of cleanliness (running water), communcation (electricity & phone), availability (possibly use of a car), then the cost of production of that labor is going to be higher than if I don't require these things. It's quite possible (though I've no idea whether it's in fact the case) that these things are more expected and/or more expensive (relative to other things included in PPP) here.
You get it. tptacek and yummyfajitas not so much.
PPP is not COLA.