One hundred years ago today, the State of Oregon brought in its first minimum wage law. The first such law in the US was passed in Massachusetts two years previously. This applied only to women because unlike men they did not at that time enjoy freedom of contract. In 1923, the US Supreme Court struck down the federal minimum wage for women as unconstitutional. The minimum wage has been advocated, lobbied for and enacted in many places since, including in the UK. The current talk is of a living wage, which is higher than the legal minimum.
The good intentions behind the minimum wage are a poor substitute for what happens in practice. As John Kennan wrote in 1995 when the US minimum wage was $4.25 an hour: “If the minimum wage were to be increased to $25 per hour how many workers would lose their jobs[?] Cause and effect would be obvious, even to the most jaundiced eye.”
In the private sector, no employer will pay an employee more than he is “worth”. It makes no sense for an employer to pay $10 or $15 and hour to an employee who produces work valued at only $2. Obviously the calculations involved in this are far from simple, many employees add little or no value in themselves but are necessary - cleaners, for example. That does not negate the argument, because an employer must first and foremost make sufficient profit to pay all his overheads including his staff, a profit for himself, and still have money to reinvest, for a rainy day, and so on. If he cannot do that, he will go out of business. It’s that simple. The public sector is not quite so simple, because both national and local government can raise money in order to pay a higher minimum wage. In the UK for example, the local government wage bill can be topped up by the government proper, but who foots the bill ultimately? The ratepayer or the taxpayer.
You will find a number of informative videos on YouTube that deal with the negative effects of the minimum wage, mostly made by Libertarians. Sadly, their arguments ring true. All this is cold comfort to low paid workers, who are among both the most needy and the most deserving in society. Can nothing be done to help them that will not destroy jobs or push up prices? Yes, something can be done, root and branch reform of the financial system. It is important to recognise that capitalism as such is not the problem, rather the real problem lies with the banks and the people who control them. The other thing we must recognise is that in the highly advanced technological society of the 21st Century, people with few or no skills and those disadvantaged by mental afflictions and serious criminal records cannot earn a living wage. A hundred years ago, a low class Negro in the American Deep South could eke out a living pushing a broom, as did Jim Conley. Today, jobs that require no skill, low skill and increasingly moderate skill are being replaced by machines. Now here is a quote to make you think: “IN the US, over 8,000 waiters have PhDs or equivalent qualifications, as have 5,057 cleaners. Roughly 317,000 waiters have university degrees, as have 80,000 bartenders and 18,000 parking attendants. These figures have been highlighted by Richard Vedder of the University of Ohio, and are based on official statistics from 2010; today’s situation is unlikely to have improved. A similar trend is becoming visible in the UK...”
The solution to the problem of low pay is not the minimum wage but Basic Income; in the past this has had various names, but BI seems to have stuck. This would be payable to everyone - including billionaires - as an unconditional guaranteed income. The wealthy would be permitted to opt out on say a quarterly basis, and its big advantage is that it would destroy overnight the poverty trap into which those at the bottom of society fall. By abolishing means-tested incomes (social security in the UK; welfare in the US...), it would make low paid work, occasional work and even occasional low paid work attractive.
In April last year, a petty crook named Jamie Robery was given a 24 week sentence for stealing from a motor vehicle. At the age of just 33 he has over 40 convictions. There are thousands, probably tens of thousands of men like him in the UK, proportionately more in the US, and countless more throughout the world. Men like Robery become trapped in a downward spiral of prison, homelessness, crime, and even more prison. For women of this humble estate there is an equally unappealing option.
Basic Income would give men like Robery and other members of the underclass the opportunity to improve themselves. No employer with a grain of common sense would pay a man like him a living wage, but with a Basic Income, even he would be able to find occasional menial jobs which might provide enough incentive for him to keep his hands off other people’s property.
The minimum wage does nothing to address the problem of the underclass - criminal and non-criminal - anymore than it does to assist the low paid. Genuine advocates for social justice should abandon such chimeras and lobby for the only real solution: Basic Income.
Finally, the question that is always asked: who will pay for this universal Basic Income? There are three answers, one of them specific to the USA. The first is that the introduction of Basic Income will replace the costly and unwieldy welfare system, including food stamps. The social security system in the UK is so incredibly complex that even judges find it difficult to understand. When people are refused benefits, there is a lengthy and costly appeals process on top of the enormous bureaucracy used to administer it. Basic Income will put all these people out of a job, which means it will not be popular with them, but those bureaucrats who have any ability beyond pushing a pen (or in the 21st Century, clicking a mouse) will soon find real jobs in the private sector. The past two decades have seen an orgy of credit loaned into existence by the banks for the purpose of speculation. This was what led to the crash of 1987 (Black Monday). If this credit creation is diverted away from the banks into the pockets of the people, it will be used to get the economy moving. And it will not cause inflation. Don’t be taken in by that scare-mongering.
Finally, for the US, part of this expenditure can be funded by downsizing the expensive and redundant American Empire. With the collapse of the Soviet Union, the US has become the de facto world policeman, which is the main reason it is so hated by much of the world. If it stopped trying to export its own brand of democracy to Africa and Asia especially, it would have the time, money and resources to concentrate on raising the living standard of its own people, those who do not belong to the top 1%.
[The above article was published originally February 17, 2014].
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