Minumum Wage: It May Not Be What you Think It Is
I don't want to get myself in trouble here, but I've heard it put best that minimum wage is a hurdle for businesses to overcome rather than an opportunity for the lower class (I know this is a famous quote so if you know who it was, please comment). I first heard this and it was actually a revolutionary thought.
I know I'm probably fighting an uphill battle already so a quick disclaimer. In
my essay Free Trade: A Race to the Bottom? I pointed out, I am not on the side
of terrible working conditions, but I can recognize how high employment
standards can inhibit competition on the global stage. Let's say in this
example overhead is zero, they need 20 people for a job, and their employment
budget is $100 a day.
20 people/$100 per day= $5 daily wage
Let's introduce a $10 minimum daily wage. The company now must make a decision. Do they double their employment budget? Or do they hire half as many employees?And what are the ramifications of this policy?
First, if they double their employment budget, then where are they cutting costs? Possibly in freight, leading to longer shipping times. Or in advertising,
leading to less project generation. They may even increase cost to the
consumer. You can begin to see where this is leading.
A more likely scenario is a reduction in hiring. A company will likely maintain
everything else and attempt to have 10 people do the work of 20. However, in
all likelihood this will prolong whatever business endeavor they had originally
set out for. This is a vacuum example, imagine the ramifications of these
policies across thousands of businesses.
Without getting too political, many times this is circumvented by inflation. So
realistic wage offerings are generally much higher than is required by law.
This is what is commonly left out of most debates, and most politicians will
use this as a talking point while knowing it won't have the clear effects that
I'm talking about here.
Nevertheless, this is an important concept to think about because if the day ever comes that
inflation is halted (or slowed to a pace that makes this scenario a reality)
then citizens should understand the realities of minimum wage laws.
As a footnote I would like to say two things:
1. I do not believe the ideal way to solve this problem is to pay next to nothing.
I'm only trying to illustrate how leaving things undecided may help
unestablished businesses and that the narrative of higher wage higher standard
of living is untrue and may hurt the local businesses around you.
2. This is an actual problem for many small businesses in this country, and large
businesses have been shown to lobby for higher minimum wages. The presumed
tactic is that it may price out local or startup businesses.
Free Trade: A Race to the Bottom?
I've been thinking about free trade a lot lately. This is especially because I don't like admitting I'm wrong. I feel like free traders fall into the perfect world fallacy, as I did myself. Free trade in a vacuum does work perfectly, but that is the issue. There is a lens of equality spread evenly among global market participants.
We can see that this is not true though. The rise of China is a perfect example of this. In the 90's they were granted favorable developing country loans via the World Bank, of which they still receive today (although a transition is underway). On top of that, the Clinton administration ignored their human rights violations allowing them to take advantage of these loans, while also opening them up to world trade.
The US by comparison is seen as a world leader/lender and is subject, in general, to much higher rates over the past 30 years. At the same time, they have had the highest quality of private employer benefits of any other country. This leads to a much higher cost per employee, and cost to employer, which translates to cost of goods.
So, you can see how difficult it is for US companies to compete with other nations (especially and including China), and why outsourcing has become the norm. Where I believe the current administration was right was including tariffs to raise costs on other nations to domestic businesses. Where they were wrong is not including two aspects. Primarily, reduce taxes across the board, not just the corporate tax rate (the consumer is just as important as the producer), and cut the red tape. Let businesses find what a quality job looks like.
The free market must be free for it to work. You could argue, it is not the free market that failed, but government intervention into the market that has destabilized US production. Had companies been able to control wage and benefits, you may have seen a more competitive response to the Chinese introduction to the market.
However, I have come to the conclusion more and more, the West has a largely Christian lens they apply to the world (nonviolence, charity and forgiveness). This governs much of the public perception to policy. I believe a shift must be made in understanding. The world is very much like the Dark Forest analogy, in the sense that if you leave yourself exposed, predators WILL take advantage. We have seen this in the recent decades; the United States has been taken advantage globally.
To start with China, the United States let them enter global trade alliances when they knew they shouldn't. How can you compete with that low a cost of labor? Next, the US has been subsidizing international development for decades. Not all of these have been loans; many are grants which we see no repayment on. Finally, every year the US intercedes in their own markets and raises the cost of employees either through insurance, wage, college loans etc., while their competitors maintain some of the lowest working standards imaginable and receive funding and low interest loans.
I am not saying one is better than the other, but I would say as a culture we need to have a conversation as to how we move forward. Do we protect the quality of life domestically and begin to trade internally and make costs expensive for other countries? Or do we allow free trade but cut mandatory benefits to citizens? I believe we can find a shade of both that brings a stable and balanced economy, but we MUST learn to move forward with a tendency toward caution and think how global market players will take advantage of what we do. This is the aspect that I believe is left out of the free trade argument.
In some instances, it may lead to a race to the bottom. Because in order to compete in a free-market environment you may be forced to undercut your competitors and this may be at the cost of your citizen base. What do you think?
I've been thinking about free trade a lot lately. This is especially because I don't like admitting I'm wrong. I feel like free traders fall into the perfect world fallacy, as I did myself. Free trade in a vacuum does work perfectly, but that is the issue. There is a lens of equality spread evenly among global market participants.
We can see that this is not true though. The rise of China is a perfect example of this. In the 90's they were granted favorable developing country loans via the World Bank, of which they still receive today (although a transition is underway). On top of that, the Clinton administration ignored their human rights violations allowing them to take advantage of these loans, while also opening them up to world trade.
The US by comparison is seen as a world leader/lender and is subject, in general, to much higher rates over the past 30 years. At the same time, they have had the highest quality of private employer benefits of any other country. This leads to a much higher cost per employee, and cost to employer, which translates to cost of goods.
So, you can see how difficult it is for US companies to compete with other nations (especially and including China), and why outsourcing has become the norm. Where I believe the current administration was right was including tariffs to raise costs on other nations to domestic businesses. Where they were wrong is not including two aspects. Primarily, reduce taxes across the board, not just the corporate tax rate (the consumer is just as important as the producer), and cut the red tape. Let businesses find what a quality job looks like.
The free market must be free for it to work. You could argue, it is not the free market that failed, but government intervention into the market that has destabilized US production. Had companies been able to control wage and benefits, you may have seen a more competitive response to the Chinese introduction to the market.
However, I have come to the conclusion more and more, the West has a largely Christian lens they apply to the world (nonviolence, charity and forgiveness). This governs much of the public perception to policy. I believe a shift must be made in understanding. The world is very much like the Dark Forest analogy, in the sense that if you leave yourself exposed, predators WILL take advantage. We have seen this in the recent decades; the United States has been taken advantage globally.
To start with China, the United States let them enter global trade alliances when they knew they shouldn't. How can you compete with that low a cost of labor? Next, the US has been subsidizing international development for decades. Not all of these have been loans; many are grants which we see no repayment on. Finally, every year the US intercedes in their own markets and raises the cost of employees either through insurance, wage, college loans etc., while their competitors maintain some of the lowest working standards imaginable and receive funding and low interest loans.
I am not saying one is better than the other, but I would say as a culture we need to have a conversation as to how we move forward. Do we protect the quality of life domestically and begin to trade internally and make costs expensive for other countries? Or do we allow free trade but cut mandatory benefits to citizens? I believe we can find a shade of both that brings a stable and balanced economy, but we MUST learn to move forward with a tendency toward caution and think how global market players will take advantage of what we do. This is the aspect that I believe is left out of the free trade argument.
In some instances, it may lead to a race to the bottom. Because in order to compete in a free-market environment you may be forced to undercut your competitors and this may be at the cost of your citizen base. What do you think?