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Comment by dredmorbius | Hacker News Reader

Agreeing generally with your points, though to add:

There would be little need for minimum wage laws

Consider turning the concept of minimum wage on its head. As Adam Smith noted: "A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more, otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation." (Wealth of Nations, Book 1, Ch. VII)

A minimum wage law addresses a number of issues, of which welfare is only one:

• It assures the future supply of labor.

• It levels the field in bargaining between employers and labor (another point Smith addresses in Ch. VII on which I've written before).

• It calls out businesses which are operating on an uneconomic basis.

• It's not an "arbitrary price control" as some assert, but an acknowledgement of a fundamental economic reality dating to Smith.

• In the case of specific firms with positive externalities, exceptions can be made, but these should be recognized as exceptions.

More on this:

http://www.reddit.com/r/dredmorbius/comments/1z5vfb/thoughts...

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I would rather enable new businesses which would currently be uneconomical, in part due to labor costs. In particular, reward by profit share would be much more viable; workers could afford to gamble with their labor the way investors gamble with their capital.

Moreover, minimum wage only affects bargaining if there is solidarity and consistency across the entire workforce; as soon as it's possible to send the labor to China for 20 cents an hour, the benefit collapses (and meanwhile, we burn vast quantities of oil shipping goods around the world, mostly so that employers can end-run around the costs of Western employment standards).

Don't get me wrong, I'm not opposed to minimum wage. I just think that basic income accomplishes the same human rights goals, while also allowing the market to price labor more accurately and take more risks, thereby benefiting the whole ecosystem.

I would rather enable new businesses

I allow for making specific provisions for this. I'm not arguing that you'd never want to subsidize labor, just that you 1) want to recognize that below-subsidence wages are a subsidy to business, and 2) that when you make exceptions, they're specific and for enterprises which provide net benefits.

A highly profitable company with high levels of negative externalities? Not so much.

The labor-export challenge is another issue which also should be addressed. I'd like to see, expecially, labor conditions (e.g., prison labor) and environmental impacts addressed through tariffs or other trade requirements, though international trade laws put (IMO harmful) limitations on this.

I don't think that minimum wage + basic income are mutually exclusive. I'm just highlighting what the actual dynamics of sub-minimum wages are.

"The labor-export challenge is another issue which also should be addressed. I'd like to see, expecially, labor conditions (e.g., prison labor) and environmental impacts addressed through tariffs or other trade requirements, though international trade laws put (IMO harmful) limitations on this."

I mostly agree. I think that the WTO - for its faults - has been great at getting rid of barriers, and I think that barriers should not be erected without justification. However I think that, potentially, tremendous good could be done sitting down and drawing up a framework allowing for certain kinds of barriers when there is a disparity between worker protections, environmental regulations, &c (including enforcement thereof), and so reducing the race to the bottom. Of course, defining such a framework that doesn't allow too much wiggleroom is non-trivial and might be impossible...

"I don't think that minimum wage + basic income are mutually exclusive. I'm just highlighting what the actual dynamics of sub-minimum wages are."

I don't think they're actually mutually exclusive, per se, but I do think that with a sufficiently high BI the MW that reflects (shall we say) human cost of production of labor is $0. I'm not sure whether a sufficiently high BI is optimal, or whether the MW remains worthwhile to keep on the books if the market clears all labor far above the ideal MW anyway.

BI and MW address two different problems.

BI answers "should people be provided with the necessary essentials to survive".

MW answers "should businesses be compelled to pay a fair market rate for labor", again, unless a specific exemption is made.

Providing BI without allowing for MW still creates an environment in which at least some businesses can game the market to obtain below-cost labor. I see this as a market inefficiency which should be corrected.

The human cost of production of labor isn't zero, which is precisely the point.

If a specific business (or industry sector) wants an MW exception, that's yet a third question (essentially: is the product of this business and/or sector sufficiently valuable to warrant a net transfer of wealth from the rest of the economy to it). My knowledge of economics and markets is such that I don't believe that the free market will allocate resources efficiently in all cases, but where you're going to allow for such a subsidy, you'd best do it consciously, for specific reasons, and as transparently as possible.

Awarding the benefit to large, politically-connected, and highly profitable companies strikes me as a gross market mis-allocation.

If the market clears labor above its minimum sustaining rate, then the MW is a non-issue, but you'd best be sure that that's the case, and if it's a non-issue, then having the MW present changes nothing materially in the market.

But if people aren't forced to provide their labor by virtue of a sufficient BI, there is no longer that imbalance. Since individuals' needs are taken care of, the cost of labor as opposed to idleness is whatever dis-utility the potential worker finds in the task, and if the pay is below that we can expect them not to take the job. Again, if you run through the benefits you claim for MW, every one is provided by a sufficient BI even in the absence of MW.

Look at the short-run loss-minimization problem.

In the short run, a business (or an individual) will continue to operate (or work) so long as at least a portion of its fixed costs are covered (that is: you're meeting the marginal cost of operation / labor).

By putting the subsidy of BI underneath an individual, you're covering that much more of their fixed costs, and it may well be that the person is ahead by working at a below-full-cost wage. And if the BI covers enough of those fixed costs, this can be sustained indefinitely.

Again: this represents a net subsidy of the business which is receiving this labor. There's a reason I'm saying BI and MW are complimentary. They address different market failures.

But with a sufficient stipend, all of the fixed costs can be covered. At which point there is no short-run loss-minimization problem, because costs will only be above pay if marginal costs are above marginal pay, at which point the individual will stop working.

I'm ... not convinced this fully addresses the other aspects of business subsidy presented by lack of a sustinence-level minimum wage. I'd need to think about it in more detail.

Basic Income addresses all of these points, better.

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?"

"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.)

PPP is not COLA.

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.

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.

No, the minimum wage prices unskilled workers out of jobs, and thus, reduces competition from those whose compensation - which is based on their productivity - already exceeds the minimum wage.

There are reasons why people aren't paid $100 for flipping burgers. If a higher min. wage caused no harm, then we could just set it to $3000 per hour and then.. POOF, no one would be poor! Of course, if that were to happen, the economy would collapse immediately.

People are paid according to the value they produce to their employers, and the minimum wage simply does not affect those calculations.

There are reasons why people aren't paid $100 for flipping burgers.

1: Strawman. The issue isn't "make a mint doing unskilled labor", it's "be paid enough to survive".

2: There are circumstances in which pay for mundane tasks (or goods) can be quite high. The all-in cost of a gallon of gasoline delivered to an FOB in Afghanistan is about $400 (among the reasons the military are so interested in alternative energy and efficiency measures). A chef in an extreme environment might similarly make considerably more than market wages elsewhere, though that's not on the basis of cooking skills alone (thin market, risk premium, etc.).

3: Direct wealth transfers to the poor have been tried, and, in at least some cases, the results have been encouraging:

http://beforeitsnews.com/alternative/2011/10/canadas-experim...

Try to imagine a town where the government paid each of the residents a living income, regardless of who they were and what they did, and a Soviet hamlet in the early 1980s may come to mind.

But this experiment happened much closer to home. For a four-year period in the ’70s, the poorest families in Dauphin, Manitoba, were granted a guaranteed minimum income by the federal and provincial governments. Thirty-five years later all that remains of the experiment are 2,000 boxes of documents that have gathered dust in the Canadian archives building in Winnipeg.

Cash transfers to the poor in India, Indonesia, and Ghana, Africa:

http://www.welfareacademy.org/pubs/international/policy_exch...

http://www.globalpost.com/dispatch/news/regions/asia-pacific...

http://www.cpc.unc.edu/projects/transfer/countries/ghana

People are paid according to the value they produce to their employers, and the minimum wage simply does not affect those calculations.

No: People are paid the SUBSET of they value they produce for their employers they can claim under prevailing market conditions. Which, again as my citations from Smith note, favor employers and almost always will.

> 1: Strawman. The issue isn't "make a mint doing unskilled labor", it's "be paid enough to survive".

I never said anything about "making a mint" flipping burgers, so .. "strawman" right back at you, I guess.

But you need to understand that no one else is obligated to pay you "enough to survive", regardless of what you're capable of. Have you ever run a business? If you did, you'd find yourself paying your employees roughly market salaries, because that's what their productivity is "worth" (to you and your business).

You could be greedy (and/or a scumbag), and pay them below market, or you might be smart and long-term oriented and pay them above market rates (because it's in your personal interest to keep good employees around - they're not easily replaceable after all).

But the bottom line is that business are not charities, and they can't just pay people whatever people want - especially when people's desires are infinite - they have to live within their financial constraints, placed on them primarily by their customers.

McDonald's doesn't pay minimum wage just because they're mean. They do it because anyone off the street can flip burgers and cook fries. The productivity of an entry level employee flipping burgers is just not that valuable.

> 2: There are circumstances in which pay for mundane tasks (or goods) can be quite high

Sure, but that doesn't mean that all mundane tasks are valued as highly.

Value is subjective, by the way. Which means, among other things, that you can't tell someone what they should be willing to pay for Person X's labour - that's up to the potential employer to determine for himself, based on his subjective preferences, valuations and prioritizations of his means and ends.

Based on the exact same principle, no one can "correctly" tell you what you should be willing to pay for a fruit smoothie tomorrow at noon.

> People are paid the SUBSET of they value they produce for their employers they can claim under prevailing market conditions

Again, businesses are not charities. They need profits, and their owners want profits - that's why they're in business to begin with. What they deem an acceptable level of profit for their own businesses is subjective, and up to them.

The same works both ways. Employees decide under what conditions they're willing to accept Job X.

I never said anything about "making a mint" flipping burgers

ORLY? "There are reasons why people aren't paid $100 for flipping burgers."

But you need to understand that no one else is obligated to pay you "enough to survive"

Re-read Smith's argument. The obligation is from the economy itself, in order to sustain itself. If it's not able to do so, it's on the way to inevitable decline. Though couched in moral terms, the argument's really an empirical one as I see it.

And of course: you can argue causality either way. Is sub-sustinence wage a cause or effect of decline? Most likely, either, depending on circumstances.

businesses are not charities.

And economies and labor supplies aren't bottomless extraction wells. There's a reason it's called enlightened self-interest. Which counters your "What they deem an acceptable level of profit for their own businesses is subjective, and up to them".

> ORLY? "There are reasons why people aren't paid $100 for flipping burgers."

OK. I didn't know what you were referring to. Either way, my claim was that there are (good) reasons why people aren't paid $100/h to flip burgers, and your claim is that people must be paid "enough to survive". I'm not sure there's a strawman there to begin with.

> Re-read Smith's argument. The obligation is from the economy itself, in order to sustain itself. If it's not able to do so, it's on the way to inevitable decline. Though couched in moral terms, the argument's really an empirical one as I see it.

Care to make a clear claim about this? Something like "People must be paid 'enough to survive' because otherwise the economy will inevitably decline".. ? Or something? :P

That does sound like something "couched in moral terms", and I don't see how it's an "empirical" argument. Has intentionally not paying people "enough to survive" been tried somewhere, and has it then demonstrably lead to an economy's decline? :P

> And economies and labor supplies aren't bottomless extraction wells. There's a reason it's called enlightened self-interest. Which counters your "What they deem an acceptable level of profit for their own businesses is subjective, and up to them".

Nope, it doesn't. That's like saying I'm not allowed to decide what business I want to run, for how long, and under what conditions. The alternative, of course, is forcing me to keep running a business I don't want to run. Can you see a problem with that?

Not only that, but your demand for everyone being paid at least "enough to survive" amounts to demanding that people be forced to pay others salaries that someone other than the employer deems acceptable. Can you see a problem with that?

We haven't even discussed what "enough to survive" means. That sounds awfully subjective. What if I like to spend $2500 a month on hookers and cocaine, and don't have enough left over to survive? I guess I need to be paid $2500 + "enough to survive" per month, then? Does that make sense? Or perhaps you think there should be some limits to how much people are paid, regardless of how much they claim they need to survive? Who would determine what's enough though? How would he know? Why would he be in a position to decide things for other people?

Can you see a problem with that?

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