There is a much beloved story about Henry Ford that in 1914 he started paying his workers $5 a day, because that way they would be able to buy the cars they were producing, which would in turn lead to greater profits for the company. Someone told me that story over forty years ago, and it immediately struck me as one of the stupidest things I had ever heard. Notwithstanding the self-evident absurdity of such reasoning, it still gets mentioned from time to time, invariably accompanied by glowing praise for such wisdom. And that is because people can be very forgiving of an argument that leads to such a congenial conclusion.
Let us say that I own a business making widgets, and I have one employee. I pay him such a niggardly wage that he cannot afford to buy my widgets, which cost $100 each. Therefore, I decide to pay him an extra $100 per year in hopes that he will buy from me one widget per year. Only, he would have to pay taxes on the $100, so I would actually have to pay him, say, $110 per year in order for him to have an extra hundred after taxes. However, the hundred he pays me is not pure profit, for the marginal cost to make the extra widget will eat into that, leaving me an after tax profit of, say, $50. In the end, I have paid him $110 extra and have gotten $50 in return, for a net loss of $60. Complicate this example as you will, increase the work force, vary the amounts, change the number of items bought per period of time, and the result will be the same: the business will lose money.
That is, the business will lose money if this is the only consideration. However, there are fortunately other reasons why a business will profit by paying its workers more: more highly skilled workers can be employed, there will be less turnover, morale will be better, etc. As a result, I have no doubt that Ford benefited by increasing the workers’ pay, as have many other businesses before and since. But the cockamamie reason that paying the workers more will increase profits, because they will buy more of what they produce, is not one of them.
These other reasons, alas, only go so far. More often than not, employers will pay the minimum wage, morale and turnover be damned. In fact, they would pay even less, if they could get away with it. At one time, subsistence was said to be the lower limit, beyond which there would not be much point in working—if you are going to starve to death, you might as well do it at home resting. But lately I have been reading stories about internships, where workers are paid nothing at all, while being supported by their parents. When I was young, an intern was a doctor fresh out of medical school, and he got paid. But now the term has come to refer to workers whose only compensation is the hope that the “job” will lead to an actual paycheck in the future, a hope that far too often goes unrealized.
One thing I learned early on was to ignore any promises made by a prospective employer about the future. Only that compensation that was immediate entered into my calculations. And working for free was out of the question. I had to know how much I was going to be paid in order to know how hard I was going to work—which wasn’t too damn hard in any event. But I guess those were better times. I would hate to have to compete for work in this climate.
Internships aside, we do have a minimum wage, and there is a lot of pressure building to increase it. While it may not pay a business to unilaterally raise the pay of its workers, it makes a big difference when every other business is forced to do the same, in which case the businesses continue to compete on a level playing field. And, liberal economists will argue, the extra money paid to the workers will improve the economy as a whole. So, what does not work for an individual business going it alone, will work for all businesses taken together.
Or does it? Conservatives have a case to make against raising the minimum wage, or even having one at all. First, an increase in the cost of labor will make some jobs not worth doing. The wages of a widget repairman are not limited so much by competition from other workers, as from the cost of buying a new widget. Second, an increase in the cost of labor will make some people unemployable, because they are slow or not very smart. To put things more broadly, an increase in the minimum wage will make it more profitable to send work overseas, or to invest in labor-saving technology, leading to greater unemployment.
There are arguments to be made against these conservative economists, such as that unemployment has not gone up when the minimum wage has been hiked in the past. But I suspect they have a point, and I prefer to meet it head on. Let us grant, for the sake of an argument, that an increase in the minimum wage will result in persistently high unemployment. The conclusion that we should not raise the minimum wage follows only if we regard full employment as an unqualified good. But as Jesse Jackson once noted, one of the advantages of slavery was that everyone had a job.
Nevertheless, if we insist on a minimum wage increase anyway, and the conservative economists are right, then unemployment will become persistently high, and may even increase. This will swell the ranks of Marx’s army of the unemployed, which benefits the capitalists. They may have to pay a higher minimum wage, but with competition for such jobs being fierce, the opportunity for exploitation will appear. Workers will be pressured to stay late and work off the clock, or to take work home. Those who miss too much work owing to illness or maternity leave will find themselves laid off “for not being flexible.” Managers may even insist on kickbacks for the privilege of having a job.
There is a way to go between the horns of this dilemma. A good welfare system, like the one we had before Bill Clinton put an end to it, ensures that we can have a living minimum wage for those who work, and welfare for those who do not. With welfare, Marx’s army of the unemployed is depleted by draft dodgers and deserters. The capitalist cannot exploit the proletariat when there is a government check to fall back on.
Unfortunately, a lot of people resent the slackers who live on the dole more than they resent the rich who exploit them. During the Reagan administration, the welfare queen became the odious symbol of abuse, an unmarried woman popping out babies to increase the size of her government check. We no longer ask women if they work, because they take umbrage at the suggestion that housewives just take it easy all day. So now the question is phrased differently, as in, “Are you employed outside the home?” After all, taking care of a house and raising children is work, even if there is no paycheck for all they do. And as Tom Lutz points out in Doing Nothing: A History of Loafers, Loungers, Slackers, and Bums in America, there is agreement on this point on both ends of the political spectrum. Conservatives who believe in the traditional family, where the woman stays home to raise the children, insist that what she does is work. And feminists from the left also argue that the woman who chooses this option performs work. Thus, everyone is in agreement—unless the woman gets a check from the government. In that case, the refrain is, “She needs to get off her ass and go out and get a job!”
The implied difference is this. The woman who is supported by her husband is imagined to be white. She keeps the house clean, runs the errands, and sees to it that the children behave and do their homework. The woman who is supported by the state, the welfare queen, is imagined to be black. She lives like a slob, probably doing drugs, while her dirty children run wild in the streets. The reality is that, black or white, a lot of women who are supported by their husbands are lousy housekeepers and worse mothers, while there are plenty of single moms on food stamps and Medicaid who do a great job of providing a home for their children. But resentment trumps reality every time.
And thus it is that against their best interests, enough workers from both parties supported the movement to limit welfare, which was realized in legislation during the 1990s. We tolerate fraud in the Defense Department, and we tolerate fraud in the companies that are too big to fail, but any chiseling by the undeserving poor will not stand.
I realize that a return to welfare as we used to know it, or even better than we used to know it, has little chance of becoming a legislative reality right now. But knowing what needs to be done must precede our doing it. A living minimum wage must be built on a solid foundation of welfare, if we are to have the economic security that the rich are determined to deny us.