Tuesday, June 27, 2006

The Minimum Wage and Some Stories

When it comes to the minimum wage, conservatives and libertarians have no idea what they’re talking about. The theoretical discussions about this issue are just bizarre. The self-fulfilling logic is as follows: 1) Lots of people are getting paid at the minimum rate. This implies that many people who are worth less than the minimum will not be able to get jobs. 2) Not many people are getting paid the minimum rate . This shows you that everybody is worth more than the minimum rate and therefore the minimum wage rule is a wasted effort.

I’m gonna tell you a little story – actually two little stories, compare and contrast. Assume there’s no truth to either. Fiction. It’s just for entertainment. See if you can ascertain the moral.

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My daughter goes to school downtown. She takes public transportation. She buys a bag of tokens every week for the bus at student rates and I get her a monthly pass for the train. The other day she calls me on her cell phone. That is, she calls my cell phone from her cell phone, which is OK because we’re on a family plan. She says, "Daddy, I fell asleep on the bus and when I woke up we had passed the station. Now I’m lost. What do I do?" So I ask her to read the street signs and she gives me a couple names, which I plug into MapQuest, which is already up on the screen. Bad section of town.

Two minutes later, still on the phone, I’m in my car heading downtown. Her cell phone has a good charge on it, but mine doesn’t, so I plug in the adapter and start charging while I’m still talking with her. My map is open on the passenger seat and I see she’s approaching a bus intersection, so I tell her how to get a transfer and when to get off. She goes the wrong way, but we get it fixed up after she gives me a few more street signs and landmarks. I meet the second bus at a convenient location and realize that we’re not going to be able to get home before her lesson, so I stop at a local store, buy her another notebook and pick up a gallon of milk. Then I take her straight to her lesson, whereupon I call my wife to find out whether she can pick her up after the lesson. If not, I wait. Otherwise I go to the Home Depot to look at the insulation and replacement windows for the house. Our house, I should say. We just paid off the last of the mortgage. My wife wants to re-mortgage to pay for home improvements, but I’d rather do them myself or wait until we can afford it.

Now, my other kids go to private school because quality education is extremely important to us, but my youngest was able to get into the special public school, which was up to our standards. We were thrilled For one thing, we saved a lot of money. After-tax money, I wanna tell ya. So, the transportation money and the cell phone and half a dozen other things that we used to think about, that’s just chicken feed. Our other kids carpool and ride their bikes, so it works out well.

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My daughter has a friend in the public school whose mother works in a warehouse up in the northeast some place making minimum wage. I know she could get more over the river for the same work, but then her daughter couldn’t go to the same school and she wouldn’t be close to the grandmother who does daycare for the younger ones. She asks for a raise every so often, but the boss just laughs at her. She’s a little ADHD and imagines this is the only job she could do. The boss tells her she’s lucky.

She’s on the bus route, but usually walks to work so she can afford the daughter’s tokens, and also because she buys three cigarettes at the corner store for a dollar. The train would get the daughter to school much faster than the three buses, but there’s never enough money for the rent at the end of the month, much less for the monthly pass. The only reason she shells out for the tokens is that her daughter can buy them at school. Since she often works a double shift, she doesn’t have time to go buy one at the train station.

The prices of public transportation are really outrageous. I believe there are three reasons for this: 1) Unions are greedy and always schedule their actions around the election cycle, so the mayor usually just folds rather than endure the negative publicity. 2) Every time an accident takes place, somebody sues the bus company for a zillion dollars, and they usually get it. 3) The public portion of the funding seems to just disappear. … But then again, I might be all wrong. Maybe the prices reflect legitimate market forces.

So anyway, the girl’s half-brother goes to the same school. One morning he gets yelled at by a teacher. He and his friends decide to ditch school for a day. They jump the turnstile and take the train out to one of the friend’s houses. Transit police do nothing. Meanwhile, the girl finds out what her half-brother is up to and decides to call her mother. She borrows my daughter’s cell phone, sneaks into the bathroom and calls the warehouse. The mother is on break smoking one of her cigarettes under the exhaust fan. She can’t hear the supervisor yelling for her, and the supervisor doesn’t want to leave his post. He makes a couple dollars more and doesn’t want to be docked. The girl then calls the grandmother, who can’t really understand the situation or what to do about it. The girl won’t call the boy’s father because the father is abusive and she doesn’t want to get the boy in trouble. She walks out of the bathroom thinking about the problem with the cell phone in her hand. A teacher confiscates the cell phone and it’s several hours before she can contact her mother.

When the mother finds out, she waits until break time, tells the boss her problem, clocks out, and walks over to her friend’s house. Can she borrow the car? OK, if you gas it up for me. She arrives at the house to find two drunk boys. Her son is missing. The alcohol had a bad effect, and he left the house in some sort of rage. They thought he might be walking home. Hours later she finds out her son is in the hospital, badly injured. She goes to visit the boy three days a week. The father refuses. The daughter now lives with her biological father, who is happy that he doesn’t need to send grocery money any more.

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At the end of that day, I got a phone call from the school saying I had to pick up the phone. I scolded my daughter that night for lending the phone out and grumbled about the inconvenience of driving to school.

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So what is my feeling about the minimum wage? IMO, the market is not fair. The market is not efficient. The market is not wise. Many people are trapped into very inefficient decisions. It’s not as bad as the old company store scam, but it’s not good either. People don’t know what they’re worth. They lack mobility. They may be unassertive, even meek. They are often uninformed and poor negotiators. Some of these people may also have issues that make them vulnerable to manipulation. Employers don’t fire them because it’s too hard to replace them, but they don’t pay them any more than the minimum because they don’t have to. In general, the assumptions behind the economic models do not apply.

Poor people don’t have sufficient flexibility to fix problems ahead of time, before little problems turn to big problems. They don’t know how to defend themselves. They don’t know where to go or what to do. So poor people end up paying for social corruption, economic distortions, crime and stupidity. The middle class pays for the mistakes of the poor, and the upper class campaigns against taxes and opines on such academic subjects as the minimum wage, the death tax, socialized medicine, real estate prices and why Ted Kennedy is a buffoon.

Society is not well organized. The class strata are pulling apart. People in a position to change things don’t really understand what’s happening, and may not care. We need to institute social mechanisms that have a chance of addressing these problems.

6/25/2006 12:57 AM

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9 Comments:

At Tuesday, June 27, 2006 8:20:00 AM, Blogger mal said...

JJ, you raise a lot of great points in your story. I agree, social decisions are not necessarily fair or efficient. I am just puzzled about the alternatives. I do not yet see a better one than the market system.

 
At Tuesday, June 27, 2006 8:26:00 AM, Blogger mal said...

BTW- congratulations on the mortgage! Best financial news of the year for you

 
At Tuesday, June 27, 2006 1:07:00 PM, Blogger Leesa said...

I actually think most of the cost of public transportation is justified. I looked at the cost to the city of Public Transportation one year (in Savannah, GA), and you could have purchased small $5,000 cars for all monthly ticket purchasers and gotten a better deal. These buses cost more than $100K, they get 5 to 7 miles to the gallon, and you have to pay someone to drive them. Then, in most cases, you see two or three people on the buses.

You stated: "the market is not fair. The market is not efficient. The market is not wise. Many people are trapped into very inefficient decisions." Perhaps the market is fair, penalizing people for making inefficient decisions.

 
At Tuesday, June 27, 2006 11:17:00 PM, Blogger jj mollo said...

Mal,

Thanks. I believe it is one of the most important goals, after paying off credit card debt, of personal finance. Some people like to point out that it all depends on the specific rates you are paying and receiving. I suppose that is technically correct, but many elderly people, reduced to poverty for one reason or another, are saved by the fact that they own their own homes.

 
At Tuesday, June 27, 2006 11:54:00 PM, Blogger jj mollo said...

Mal,

Regarding my idea of an alternative, I don't want you to get the idea that I'm a communist. I believe that market economics is like gravity. It is a law that you can't get away from, though many have tried. You can, however, plan around it, make use of it, harness it toward social ends.

The way things work today, though, is a cruel form of capitalism that combines aspects of free markets with tribalism, piracy and kleptocracy. In general, it works better than every thing else, but it is still not solving the essential problems.

Human networks are what really matter. We have always depended on one another and we take care of one another, but the widening separation of the classes leaves those who are already well off to help one another make still more money, while for the rest it's like the halt caring for the blind. In my mind, perhaps only in my mind, there once was a village where all kinds of people confronted each other on a daily basis. They had to adjust for the expectations and standards of each other, and they grew to love one another.

I have noticed that when I have moved from place to place, I have made new friends and unfortunately lost many of the old friends. My fault, I know, but it reflects the flexibility of networks and general human adaptability. We can exploit that if we actively choose rather than passively leaving it to the tyranny of geography, chance and social evolution.

My proposal is that we make a conscious choice. We choose to build artificial human networks that incorporate the best characteristics of our traditional networks, such as the Church, and democracy, and charitable organizations, and unions and everything else that has produced positive results. We have new tools now, such as the internet, that could help us do this.

It's true, everything can be, and has been, coopted by selfish people. However, when we focus our communal efforts we have been able to overcome this tendency.

The critical characteristics of the networks that I am envisioning are that they should be complete and homogenizing, which is to say that everyone should be coaxed into cooperation and that the smallest unit of the network should bring the greatest variety of people together. Let's say we should learn how to put a village into a bottle and string the bottles together in the most cooperative way.

 
At Wednesday, June 28, 2006 1:19:00 AM, Blogger jj mollo said...

Leesa,

There are many ways of looking at the economics of public transportation. I may be expressing some frustration that comes from something beyond the effect it has on the poor. I would like to point out, however, that once upon a time there was a network of electric trolleys in some cities. These trolleys were cleaner, quieter, more pleasant and probably a lot cheaper than the $100,000 buses you are talking about. In the 50's and 60's, GM colluded with city officials in a number of places to sell the trolley lines, rip them up and replace them with buses, provided of course by GM. A similar process goes on to this day. As a lover of trolleys, I have been repeatedly heart-broken. I admit I don't understand the economics, but I am certain we have lost a lot. I am also certain that clever manipulators make indecent and probably illegal profits while changing things to the public detriment.

The fairness of the market is of course a value judgment, but the thing I would have you consider is that a lot of these "unwise" choices are not really choices. People are locked into bad situations. Many, for instance, would love to get the monthly discounts on train fare but they are living hand to mouth. They literally cannot accumulate enough money at one time in order to make cheaper purchases. Grocery stores in the city charge much more than grocery stores in the suburbs and the quality is lower. Police stop enforcing laws in some sections of the city which might lower your property value. When you can't stand it any longer, you sell out at a pittence and move into a rental home elsewhere. It may be the natural working of the economy, but sometimes it seems like a conspiracy.

 
At Sunday, July 02, 2006 1:17:00 PM, Blogger Internet Esquire said...

"When it comes to the minimum wage, conservatives and libertarians have no idea what they’re talking about."

No more so than liberals and socialists. Indeed, speaking as a libertarian, I've found that most discussions about the minimum wage are steeped in ignorance. To wit, if you are truly interested in helping the working poor, an expansion of the Earned Income Tax Credit would be the most efficient and equitable way of doing so. However, you very seldom see the EITC even mentioned in discussions about the minimum wage. When it is mentioned by proponents of the minimum wage, it is with the notion that somehow the minimum wage and the EITC can work together. This notion ignores the fact that over two thirds of those earning the minimum wage do not live in poverty whereas many of the working poor earn a great deal more than the minimum wage and could easily be lifted out of poverty by an expansion of the EITC.

 
At Monday, July 03, 2006 2:18:00 PM, Blogger jj mollo said...

InterEsq,

I think I agree with you to a great extent. One of the advantages of the Credit is that it comes in a big chunk on the tax refund. It's sort of an enforced savings program. Once a year they get to make decisions to change their lives. Unfortunately, there are many people out there, like cash checking agencies, who cater to current needs versus long-term needs. They will lend them money at exhorbitant rates in anticipation of a tax return. The variety of parasites is truly amazing, and as in nature, the parasites seem to effect those who are not healthy for other reasons.

I think the greatest damage to the poor is being done by illegal immigrants who will circumvent the laws to work for even less than the minimum wage and live in substandard housing.

The fact that raising the minimum wage benefits people who are not necessarily poor may dilute the program but it is not necessarily a bad thing. I'll bet it benefits working class families indirectly, keeps retired people contributing to society for a longer period and makes teenagers more likely to work during the years that they are developing lifelong habits.

 
At Monday, July 03, 2006 3:13:00 PM, Blogger jj mollo said...

InterEsq quoted the following: "The minimum wage is nothing but a huge off-the-books tax paid by a small group of people, with all the proceeds paid out . . . to another small group of people."

Whereas the EITC is a subsidy, paid by all, for these businesses that hire people at subsistence wages. One commenter on his site mentioned that a lot of people don't even file their income taxes to get the refund. Now why do you suppose that is?

My contention is that minimum wage workers are at a disadvantage on negotiating for salary, often lacking information, flexibility and self-confidence. Sometimes they are held up by extortionary pressures. Any "taxation" effect of the minimum wage goes partially to make up for the free ride that these businesses have been getting on the backs of low-wage workers.

Hiring the euphemistically designated "undocumented workers" is also a subsidy, paid for out of the pockets of the poor and at the expense of the Shared Commons, which belongs generally to the citizens of the US. I object to such pilfering.

 

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