One new buzz-phrase that I absolutely love is “living wage”. I love it because it’s an easy way to spot hippies. You just listen for that term and Wal-Mart in the same sentence and you know you’ve found one. Of course, if you’re talking to them in person you should know it long before they open their mouth (unless you’re both blind and anosmic) but it’s often useful when listening to NPR or reading blogs. You know immediately that you’re dealing with someone with almost no useful perspective on the world and should discount just about everything they say.
For some reason a lot of people seem to think that everyone deserves a $40,000 per year salary just because they exist, and that any corporation not willing to pay said amount to its employees is unjust. Fortunately just a little bit of thought will quickly show why it is actually impossible for everyone to earn a “living wage”. I’ll save the discussion over whether or not everyone deserves such a salary for another day and for today stick to showing why it isn’t really possible.
First of all we have to realize that labor is a product, and like all products its value is subject to the laws of supply and demand. Skilled labor is less common than unskilled labor and therefore more valuable. That’s why lawyers make more than plumbers, who in turn make more than cashiers. Anybody can be a cashier, it takes less than a day of training and even a person of below-average intelligence can manage it. Plumbing, while not brain surgery, takes significantly more skill and training than running a register, and becoming a lawyer takes many years of training and is beyond many people’s intellectual capacity. If being a lawyer required only a day of training and an IQ score in the eighties they wouldn’t make six figures, they’d make $7.50 an hour. And if becoming a cashier at Wal-Mart took six years of schooling and tens of thousands of tuition dollars they’d start off at $75k per year.
I think that that is evident to everyone. What isn’t evident at first glance is the fact that it’s impossible, under our current economic system, to simply pay everyone a living wage. I’ll illustrate that by using 5 different occupations, cashier, plumber, accountant, programmer, and lawyer. We’ll assume that typical starting salaries for those professions (I’m just making these up for the purpose of illustration) are $15k, $30k, $45k, $60k, and $75k respectively. We’ll also say that they require 0, 2, 4, 6, and 8 years of training (completely ignoring tuition costs).
So let’s say that we change the minimum wage to $15 per hour, which works out to roughly $30,000 per year for a full time employee. Now all cashiers make $30k per year. What would happen to plumbers? Becoming a plumber takes two years and is certainly far harder than getting a job at Wal-Mart, so the supply of plumbers would quickly dwindle. I’m sure some people would still learn to plumb just because they think they’d like it better, but most people aren’t going to spend that time and money training for no financial benefit. Plumbers would become scarce, supply shrinks, demand stays the same, and as such they would begin to demand higher salaries which people would be forced to pay because we can’t survive without plumbers.
Soon plumbers would be making $60k per year. Remember, the laws of supply and demand have already shown us that plumbers will make double what cashiers do, that doesn’t change just because you increase cashier salaries. So what happens to accountants, who used to make $45k per year? I’ve met a lot of accountants and none of them enjoyed the job very much. And almost nobody is going to deal with four years of college to make the same amount of money they could after two years of training to be a plumber, let alone $15k per year less. So now all of the people who would have become accountants take jobs like plumbing because they are easier to get into and pay more. Soon we’d have a shortage of accountants, and we can’t get along without them any more than we could without plumbers. We’d soon find accountants making $90k per year. (I have a lot of friends who will read that and get excited. Bear with me while I explain why it wouldn’t really help.).
Now all of a sudden people who were considering 6 years of school/training to be a programmer start switching their majors to accounting, causing a programmer shortage, ramping their salaries up to $120k. Law students say “screw law school, I can make the same amount programming with a lot less work” and suddenly we have an attorney shortage. Now lawyers make $180k. And so on and so forth all the way up the tree, until everyone was making exactly twice what they used to.
But then everyone has to pay twice as much for their groceries (Wal-Mart has to almost double their prices to pay their cashiers $30k per year), twice as much to get their pipes fixed, twice as much to get their taxes done, or twice as much to use TurboTax (since the programmers that wrote it cost twice as much), and twice as much to sue for custody of their children. Everyone is paying twice as much in taxes (assuming brackets adjust accordingly, if not they’re paying more), but that’s good because it now costs twice as much to build roads, staff schools, and staff the BMV with lazy employees who make me wait in line for two hours just to renew my license just because they have a cushy government job and due to lack of competition realize they won’t get fired. So everybody makes more money but everybody pays more for everything too. And where do we all end up? Right back where we started.
Now people who make $30k per year can’t afford to raise a family of four. We all make exactly twice as much as we used to, but now money is worth half of what it was. We’re all in the exact same situation. All we’ve done is create a brief period of rapid inflation, which economists all seem to agree is bad idea. And once again hippies will complain that Wal-Mart employees don’t earn a living wage.
I’m obviously oversimplifying by quite a bit here, and I’m certainly no economist. There would be a number of side-effects (your life savings are now worth half as much, foreign labor, which probably hasn’t gone up in price, would be even more sought after, etc.) that I couldn’t predict. This is more of a Scott Adams-like thought experiment than anything else. But the point is that in a capitalist economy it’s more or less impossible for everyone to earn a “living wage” simply because if everyone could provide a service worth one they already would, they’d be paid accordingly, and hippies wouldn’t be singing kumbaya in Home Depot parking lots.
My other complaint with hippies on this subject is that they seem to have forgotten what life was like for retail employees before Wal-Mart and other large retailers. If you think living off of $7.50/hr is hard, try living off of the $5.25 those mom and pop stores pay. Wal-Mart’s devotion to cost cutting has enabled them to both charge less for products and pay their employees more. They provide health benefits to some employees, those nickel and dime stores usually don’t provide them at all. Also try doing your shopping at Mom and Pop’s where products often cost 50-100% more. Good luck working at the corner store and raising a family.
Personally I hate shopping at Wal-Mart. I’ll go pretty far out of my way just to get to a Target. The lines aren’t as long, the people aren’t as dumpy, and the stores look a hell of a lot nicer, plus they often have nicer stuff. But as a corporation Wal-Mart has done more to improve the quality of life for the middle and lower classes in America than possibly anyone else in our history. They’ve created jobs in both retail and manufacturing, both at home and overseas. They’ve drastically lowered the cost of living. And they’ve given me a place to pick up Excederin at 3 a.m. All of those seem like good things to me. I’ll take them over those patchouli smelling bums any day.
