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Comment by danenania | Hacker News Reader

Right, many minimum wage opponents focus on the scenario where someone is worth e.g. $14/hr to a business, and rightly point out that this person won't be hired with a $15/hr min wage.

BUT without a minimum wage, someone worth $50/hr can be paid $5/hr if anyone can do the job. It strikes me that this situation is far more common than the first scenario, and minimum wage opponents tend to ignore it in their arguments.

Minimum wage sets a floor for the market. That could theoretically increase unemployment in some industries with razor thin margins, but it's far from a given.

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If a company can hire someone worth $50/hr for only $5/hr and therefore make huge profits/margins, couldn't another company easily come along and undercut them? I don't think a scenario like that could exist very long.

>couldn't another company easily come along and undercut them?

Not necessarily. A lot of factors might give one company an exclusive position. Another coal mine can't just open up. There might be a large barrier to entry into the market or it might just take time for a competitor to surface.

If the other company can also do the same, why would they piss into their own cereal by reducing their profit?

And if the other company is a newcomer looking to gain market share by undercutting, they'll likely find themselves strongarmed or bought out of the market.

> If the other company can also do the same, why would they piss into their own cereal by reducing their profit?

Because that's how newcomers gain market share.

> And if the other company is a newcomer looking to gain market share by undercutting, they'll likely find themselves strongarmed or bought out of the market.

But then the high margins are still there, so the dynamic that attracts new entrants is still there.

The markets that maintain high margins are the ones with barriers to entry. Which, of course, we try to avoid as a matter of policy, so any policy that relies on their existence is quite problematic.

Between all the patents, it would be basically impossible to start a new mobile phone company from scratch which made its own chips, for example.

Patents are government-created monopolies and aren't free-market. The same goes with FCC and/or utility regulations. Copyright for the code running on those chips is another government-created monopoly. It is the most egregious because they establish those monopolies for a hundred years.

Services like Straight Talk and others that sublease towers and bandwidth from companies like AT&T or Verizon have massively cheaper costs due to the lack of contract phones (lower risk), lower support costs, lower advertising costs, etc. These lower costs are then passed on to consumers in the form of lower prices to the point that Verizon or AT&T prepay services have changed in an attempt to compete and even their main contract service prices have lowered somewhat.

As an aside, AT&T or Verizon actually rent most of their towers from other companies like American Tower or Crown Castle. They market how they're upgrading their towers, but that's not entirely true (they're basically bidding against each other on priority for tower upgrades).

I went looking for a new phone recently, there were brands I hadn't seen before on the shelves. Why you would need your own chips is beyond me, when you can buy them for a pretty small price.

Not wanting to get Huawei-ed?

There are multiple options for chips, no? Are they all made in China?

They sure could and do if labor is limited. If the supply of labor exceeds the demand, you wouldn't need to undercut; you and your competitor would advertise $5/hr and you would both get a worker. In our current world, we don't see chipotle trying to out compete mcdonalds on wages, so clearly for many classes of worker there is an oversupply of labor.

Sometimes even in the real world things do flip, and there is a demand for low skilled labor that isn't being met. I overheard a few restaurant owners talking about the pandemic and their business while I was in line outside the grocery store a month or two ago. They bemoaned how no one wanted to come back to work at the restaurant since they were making more on unemployment. Neither brought up the idea of paying more if they failed to find labor at that price point in the market. Instead, they quipped back and forth about how lazy their staff are behaving after these owners themselves laid them off not too long ago and put them on unemployment in the first place. This anecdote is American capitalism in a nutshell, imo, just pure cognitive dissonance between the realities of the working class and the perceptions from the capital class.

Undercut them in what sense? Pay the employee even less for $50 worth of labor?

Sell the results of that labor for just $49.

Someone is not worth $50/hr if someone else is willing to do the same job with equal capability for $5/hr.

There is a difference between someone being worth $50/hour and another person willing to do whatever for just $5/hour.

For example, rich kids can take unpaid internships because they don't have to worry about food or rent for the duration of internships.

Poor kids can't usually afford to take jobs that don't pay.

I'm guessing poor kids usually don't have jobs at all.

Only about 40% of poor people 18-64 even have jobs.

The minimum wage workers around here are of two types:

1. teenage children of the upper middle class or higher

2. poor adults with a history of bad decisions

It's kind of a weird mix. Where are the children of the poor? You'd think they might want money much more than the children of better-off families do.

Surgeons, business owners, passenger jet pilots, software developers, and corporate executives all send their teenagers off to work minimum wage jobs. The point seems to be to learn about answering to a boss and/or to learn why success in school is important.

I'm not sure where you live, but my experience has been the complete opposite. When I was a poor working kid nearly every other poor kid I knew in high school started working at 16. Some of my friends from wealthy families did as well, but not nearly as many and usually only during the summer and not during the school year. Most did not have their first job (not including internships) until after college.

Where are the children of the poor?

The ice cream parlor in Sausalito is run by (and frequented by) the children (and parents) of one class?

The Denny’s in Excelsior by that of another?

I am not talking about the intrinsic worth of a human. I’m talking about the price of their labor. Someone’s labor being worth $50 or $5 is a function of supply and demand.

The parent was comparing the value a worker brings to the company against the worker's compensation. To illustrate how the worth of a transaction can be different from the cost: If I offer to give you a $50 bill in exchange for a $5 bill, is that bill not worth $50 just because I lost on the deal?

Both the value of the worker and this situation both ignore the supply side. A $5 bill is worth $50, assuming there is a supply of people willing to pay $50. Likewise, a worker is only "worth" $50/hour if there is a supply of people willing to pay them $50/hour. If they're working for $5/hour, there's a good chance the supply of people willing to pay them $50/hour is slim to none. I would argue at that point that they are actually worth $5/hour, and $50/hour is a fiction like saying my shares of Hertz are worth $10,000 a piece.

I think there is a miscommunication in "worth" between some of the posts here.

Definition 1. - your version "a worker is only "worth" $50/hour if there is a supply of people willing to pay them $50/hour."

Definition 2. "a worker is "worth" $50/hour if they add $50/hour value for the business." (who then goes on to pay the worker as little as possible, maybe only $5/hr)

Not sure which definition is "correct".

When you’re talking about wage prices, definition 1 is the relevant definition.

Definition 1 includes both supply and demand. You have a worker willing to work for $50/hr and someone willing to pay them $50/hr.

Definition 2 is only taking into account demand. You have a supplier who has set their price, but no buyers at that level.

I would certainly value that piece of paper at $50 but apparently you value it at something less than $5 because you are willing to accept $5 for it. I haven't a clue as to why you would value it at less than $5, perhaps you get some entertainment value in giving away money?

This doesn't seem like a particularly helpful illustration.

You arrived at the conclusion that something can be worth more than you paid for it, which is the point I was trying to illustrate (because the person I was replying to assumed that the lowest price you can pay = worth). So it seems like the illustration did its job to me.

Yes but it is wrong to do so because wages are not set only by the worth a worker is to a company. That is only one side of the equation (demand). The labour market also have a supply side component which is the ability for the company to find labour.

You seem to be refuting a claim that no one made. We aren't only talking about wages, but the amount of value the worker contributes to the company. The latter is typically significantly higher than the former. In a profitable company, this is true by definition (at least on average across all the company's employees).

Another way to look at it is: what is the maximum a company could conceivably pay for a particular role, even if that amount was way above the market rate? That number would presumably be a bit below the value that role is expected to contribute.

>That could theoretically increase unemployment in some industries with razor thin margins, but it's far from a given.

It's not a given when you're talking about a small region like Seattle. However, increasing the minimum wage to the entire US would dramatically increase unemployment in the poorest areas. The minimum wage is why territories like American Samoa and Puerto Rico have the highest unemployment.

Edit: changed Guam to American Samoa

> The minimum wage is why territories like Guam and Puerto Rico have the highest unemployment.

But...they don't, even though Guam, unlike several states, has a higher minimum wage than the Federal level.

https://en.m.wikipedia.org/wiki/List_of_U.S._states_and_terr...

Guam’s minimum wage is on the low side, about $1 higher than the federal minimum.

> Guam’s minimum wage is on the low side, about $1 higher than the federal minimum.

There are, if I counted right, 19 states and all other federal districts except DC and the Virgin Island at (well, below for American Samoa) the federal $7.25 level (American Samoa's level is also a federal level, but it's federally set lower than the rest of the US), and a few more states at the same level as Guam; so it's pretty close to the middle, not really much on the low side.

I must have been thinking about another territory rather than Guam. It looks like unemployment was counted before the pandemic for the US territories and after the pandemic for states.

Puerto Rico has structural issues related to endemic corruption that discourages business investment, and that is why companies generally avoid doing business there despite the very generous tax incentives for doing business in Puerto Rico.

PR's minimum wage has very little to do with it, except for being a convenient scapegoat.

Corruption that discourages investments is one side of the high unemployment. The other side is tiny businesses that can't even afford to pay minimum wage. They're allowed to pay less than the federal minimum wage if they're sufficiently tiny, but that means that they can't expand.

> someone worth $50/hr can be paid $5/hr if anyone can do the job

What business sectors enjoy consistent 90% gross margins?

I know you were trying to make a broader point, but Facebook has been flirting with 90% gross margins for more than 5 years.

But then you have to ask, how can they do that? And the answer is, of course, the network effect of their social network. The value derives predominantly from that and not what the employees are doing -- if they did the same work for someone else who doesn't control a popular social network, it wouldn't create the same returns.

In economics this is called a barrier to entry. Industries with lower barriers of entry are more competitive (see: restaurants) and have lower margins. Industries high high barriers to entry tend to gravitate towards monopolies. For industries with the highest barriers to entry (like tap water) markets don't work and we have to use heavy handed regulation to avoid letting the industry completely screw over the populace (see: water barons).

Of course it is pretty weird to think of a social network as a utility.

They've conned their users into doing 99.9% of their work for them for free in the form of collecting, collating, and entering many petabytes of personal data to be ready for sale. I'd have super-high margins if I could do this in ANY industry.

That's not the right question to ask, since many other costs besides labor figure into gross margins.

What formula then is used in calculating “someone worth $50/hr“?

Does it omit or include those costs?

It's not always easy to quantify. Consider people like janitors or security guards. They may be absolutely critical to the business running even though they don't produce revenue directly. Even if minimum wage was set to $100/hr for these jobs, it would still be worth it for many companies to hire them, since producing any revenue could be contingent on having people in those positions. At the same time, they are very competitive labor markets, so without a floor, the pay could go very low despite being essential to the business.

When someone is directly contributing to revenue, like a factory worker or salesperson, it's a bit simpler since you can look at their output, but you still need more information than gross margin to know the maximum a company could profitably pay an employee, since a company might design their operations very differently depending on the price of labor.

$100/hr is considerably more than I make as a software engineer. if my employer was required to pay a janitor $100/hr, they would fire them and have all the junior engineers spend the last hour of their day cleaning. having someone clean the building is essential for any business with a physical presence, but it's only worth hiring a person specifically to clean if they can be paid less than your core employees or if they can do it much more efficiently. this is why restaurants typically do not employ janitors.

Another example that has come to mind lately is how do you quantify non-production skilled or intellectual labor?

The value of maintenance, safety, quality are often only only apparent after being cut

They may be absolutely critical to the business running even though they don't produce revenue directly.

They don't produce revenue, but one must assume they provide some value and in this case avoiding the loss of revenue due to theft, fires, etc.

Enterprise software vendors?

Apple's appstore? :)

someone worth $50/hr can be paid $5/hr if anyone can do the job

How do you define "worth" here?

Different people are saying different things but your question is most important.

I suspect - but obviously can't speak on behalf of - the GP is using a definition of:worth $50/hr for the business bottom line.

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