What do you want to do with the little people?

[laughing dog]

Yes; but that marginal profit is normally close to zero, since "marginal profit" is just economists' jargon for the first derivative of the profit with respect to the quantity of the input, and owners are trying to maximize profit, and on a typical curve at the maximum point the derivative is zero.

It is true that for any continuous function, the maximum (or minimum) is where the first derivative is zero. And it is true that in the case with one variable input (let's say labor), profit is maximized when the "marginal profit" (if you mean marginal revenue product - marginal factor cost = 0) is zero.

How are you getting that? Where in her post do you see anything to suggest she's talking about additional revenue or marginal profit?

From the question are those people going to produce $15 worth of goods in that hour if the marginal factor cost is $15 per hour and the MRP is $15 per hour.

 

[Bomb#20]

"The value"? Is that a substance of some sort? Have you seen any? What does it look like? Can you explain how to measure it?

My employer of the last 30 years was obviously able to measure it because I kept getting merit raises and annual performance evaluations.

For my part I went to work everyday with the aim of producing a quality product so I would have a job the next day. My focus was always on the customer. I expected to be paid appropriately depending on how profitable the business was.

That's not rocket science.

So if Alice in the next department over collaborated with you on producing a quality product, and neither of you could have produced it on your own, and your supervisor thought you produced most of the value of that product, while Alice's supervisor thought Alice produced most of the value, and both supervisors argued for merit raises for their respective underlings, then when the supervisors' supervisor was deciding how much of her raise budget to give you and how much to give Alice, how did she know which of your supervisors was right about their value judgments?

And if her overall raise budget was based on how profitable the business was, and that was determined by the sales price of the product, then your merit raise depended on the customers' judgment of the value of the product. Let's say the product you and Alice produced was two widgets. And your employer sold those widgets to the Acme and Zymurgy corporations. And Acme was willing to pay $500,000 for a widget because they thought it was worth at least that much to Acme, and Zymurgy was willing to pay $300,000 for a widget because they thought it was worth at least that much to Zymurgy. Which customer was right about what a widget is worth?

And when your employer's marketing department chose the price point, it decided to sell widgets for $300,000 each. Because that way it got $600,000, while it would have gotten only $500,000 if it'd charged $500,000 a widget. The willingness of Zymurgy to also buy a widget got Acme a $200,000 discount on their widget. You, Alice, and Zymurgy Corp. collectively increased Acme's profit by $200,000. Does the value of your and Alice's product include the $200,000? Your employer probably didn't take Acme's $200,000 into account in your merit raise.

When I would evaluate a person the most important question I asked myself was if everyone was like this person how would my job be, could I stay competitive, would I be able to meet tomorrow's challenges, could the company not just survive but would it excel, etc.?

So you'd ask yourself "Will he make me happier?", not "Will he produce some value that I can take, and keep from him?"?

 

[Bomb#20]

How are you getting that? Where in her post do you see anything to suggest she's talking about additional revenue or marginal profit?

From the question are those people going to produce $15 worth of goods in that hour if the marginal factor cost is $15 per hour and the MRP is $15 per hour.

But the marginal factor cost isn't $15 per hour. The question I asked, that Rhea thought she was paraphrasing, was:

"Do you think each worker making $10/hour is generating at least $15/hour in extra revenue?".​

The marginal factor cost is $10 per hour.

 

[DBT]

If a company is unable to meet its running costs, stock, upkeep, etc, it probably shouldn't be in business. Workers shouldn't be expected to subsidize a non profitable company by working for sub standard wages.

 

[Swammerdami]

There are some flaws in this discussion. Let's start with the distinction between average and marginal return.

Suppose Joel and Ethan Coen work together and produce a work of art that pays them $2 million. Let's assume their contributions are equal. Joel says to Ethan "You know I could work alone and produce a work almost as good that would pay me $1.5 million. (And we can't EACH make $1.5 million by making two movies: the market for Coen movies isn't big enough.) So your marginal value is only $500,000. Take it or leave it." Ethan could make the same statement. Should they each make only $500,000 ? What should happen to the extra million? Or is it obvious they should each receive the average (not the marginal) per-person return, $1 million? (Don't find quibbles with the hypothetical: there are probably much better examples to demonstrate the point; this was just the first to pop into my head.)

Also overlooked is that raising the wage of a burger flipper by $5 doesn't impact profits by a full $5: the restaurant (and its competitors) will recover much of that by raising prices. And once you realize that calculating the apparent worth of a component depends on revenue received, and the prices paid for other components, then you know that that calculation does not generally yield a single clear-cut answer. (And many expenses are "rents" with no clear relation to any value added.)

Having written all this, I am still not particularly sympathetic to some of the arguments for the minimum wage hike. I realize this may be a correct approach politically, but other ideas would make more sense if they were possible politically.

For starters, aren't there large differences in cost of living between, say, New York City and rural Flyover-Land? (In Thailand, the government-set minimum wages vary by province.)

Let's say there are 100,000 Microsoft employees in the U.S. earning $120,000 on average. The company's profits are about $15 billion, so all those salaries could be doubled and the company would still be profitable. Is that the inequity we're worried about? Programmers making $100,000 should be getting $200,000? Or do TFTers think that all the profit is made "on the backs" of the lowest-wage employees?

I DO support the repeal of right-to-work laws; I DO support minimum wage hikes; I DO support improvements to worker safety, family leave, etc. But some of the glib arguments in this thread just don't make sense, and will therefore reduce support for progressive policies. We want to help low-paid workers because they need the money, NOT because they're being "cheated."

Taxpayer-funded healthcare would be a boost to all workers in the ballpark of $4 per hour, I think, either directly to the individual or indirectly by reducing the burden of employer-provided benefits. Would it be sweet if progressives focused more on that agendum?

 

[Bomb#20]

Low as it is, minimum wage was put in place for a reason.....

Yes, of course it was. It's the same reason strikers have beaten up strike breakers, the same reason we put tariffs on Brazilian sugar, the same reason Hewlett-Packard pushes firmware updates into printers it already sold to make the printers start checking whether your toner cartridge was made by HP, the same reason the communists imposed state atheism and shut down the churches and mosques. It's because people don't like being competed with.

This is a supply-and-demand chart. The goal that a minimum wage is intended to achieve is to transfer wealth created by the money-for-work exchange, from the employers (labor "Consumers") left of point Qc, to the workers (labor "Producers") left of point Qc. But it achieves this goal only partially -- the minimum wage transfers the wealth in the upper blue area (left of Qm, above Pc, below Pm) between the employers and workers who are left of point Qm. But for the employers and workers between points Qm and Qc, the minimum wage takes away the wealth in the yellow area and doesn't give it to anyone -- instead it prevents that wealth from ever being created in the first place. The yellow area between Pc and Pm represents eliminated employer wealth; the yellow area below Pc represents eliminated worker wealth. The mechanism a minimum wage uses to cause the blue area to change from employer wealth into worker-left-of-Qm wealth is just this: it stops the workers between Qm and Qc from competing with them on price. So the workers between Qm and Qc losing that yellow area of wealth isn't just some unfortunate incidental side-effect of the minimum wage. It's an essential feature of the intervention: the yellow workers' unemployment is what makes the blue workers get richer. The yellow workers are sacrificed for the sake of the greater good of the blue workers.

Rhea's OP question to her political opponents was "What do you want to do with the little people?". That was a fair question. The people who a minimum wage sacrifices in the lower right yellow triangle are the littlest people on the chart: the people with the least wealth and the least prospect of getting an income. So the question for anyone who wants to increase the minimum wage is: What do you want to do with the little people?

 

[Bomb#20]

If a company is unable to meet its running costs, stock, upkeep, etc, it probably shouldn't be in business. Workers shouldn't be expected to subsidize a non profitable company by working for sub standard wages.

"Subsidize" does not mean "Sell one's labor for wages DBT declares substandard." The ever-popular claim that low wages are a subsidy to the buyer is propaganda without logical justification.

 

[bilby]

Low as it is, minimum wage was put in place for a reason.....

Yes, of course it was. It's the same reason strikers have beaten up strike breakers, the same reason we put tariffs on Brazilian sugar, the same reason Hewlett-Packard pushes firmware updates into printers it already sold to make the printers start checking whether your toner cartridge was made by HP, the same reason the communists imposed state atheism and shut down the churches and mosques. It's because people don't like being competed with.

This is a supply-and-demand chart. The goal that a minimum wage is intended to achieve is to transfer wealth created by the money-for-work exchange, from the employers (labor "Consumers") left of point Qc, to the workers (labor "Producers") left of point Qc. But it achieves this goal only partially -- the minimum wage transfers the wealth in the upper blue area (left of Qm, above Pc, below Pm) between the employers and workers who are left of point Qm. But for the employers and workers between points Qm and Qc, the minimum wage takes away the wealth in the yellow area and doesn't give it to anyone -- instead it prevents that wealth from ever being created in the first place. The yellow area between Pc and Pm represents eliminated employer wealth; the yellow area below Pc represents eliminated worker wealth. The mechanism a minimum wage uses to cause the blue area to change from employer wealth into worker-left-of-Qm wealth is just this: it stops the workers between Qm and Qc from competing with them on price. So the workers between Qm and Qc losing that yellow area of wealth isn't just some unfortunate incidental side-effect of the minimum wage. It's an essential feature of the intervention: the yellow workers' unemployment is what makes the blue workers get richer. The yellow workers are sacrificed for the sake of the greater good of the blue workers.

Rhea's OP question to her political opponents was "What do you want to do with the little people?". That was a fair question. The people who a minimum wage sacrifices in the lower right yellow triangle are the littlest people on the chart: the people with the least wealth and the least prospect of getting an income. So the question for anyone who wants to increase the minimum wage is: What do you want to do with the little people?

And the answer is "just give them enough money to live on, in exchange for their sacrifice in leaving the workforce".

Whether that's in the form of "welfare" payments just to the unemployed, or of UBI that goes to unemployed and employed alike, is an unimportant detail.

Human societies have always supported unproductive people. Infants, the sick, the elderly, the aristocracy, the priesthood; There's always been freeloaders. How large a proportion of society those people can represent is largely a function of the wealth of the society. Automation enables society to become very rich indeed, and to support a large number of freeloaders at a high degree of comfort. The choice to instead support a tiny number of aristocrats in extraordinary wealth while letting a bunch of people starve, is entirely ideological.

 

[DBT]

If a company is unable to meet its running costs, stock, upkeep, etc, it probably shouldn't be in business. Workers shouldn't be expected to subsidize a non profitable company by working for sub standard wages.

"Subsidize" does not mean "Sell one's labor for wages DBT declares substandard." The ever-popular claim that low wages are a subsidy to the buyer is propaganda without logical justification.

It's not what I say is substandard. The cost of living index determines that. According to reports, some workers need two or more jobs to make ends meet, working far more than 38-40 hours per week.

That, in one of the richest nations on Earth, is substandard....ethically, morally and economically.

For example:


An Overview of America’s Working Poor

''Wage stagnation and the increasing number of people who are working yet still poor are significant challenges of our era. One recent study found that there isn’t a single congressional district in the country where a full-time minimum wage worker could afford a two-bedroom apartment. With the rapid growth of unstable, low-paying jobs and the failure of even full-time work to pay family-supporting wages, it is critical to understand working poverty in order to enact policies that lift working families out of poverty.''
.

''Working poverty has increased dramatically over the last three decades, growing from less than 7 million in 1980 to today’s 12.4 million. Of all full-time workers ages 25 to 64, the share who were working poor declined slightly between 1980 and 2000 before increasing by 19 percent in 2012. In the 1980s and 1990s, the working poor rate hovered around 12 percent, but by 2012, was close to 14 percent.''

''To make matters worse, growing unemployment during the Great Recession pushed down on wages even further. Lifting the wages of workers requires a robust policy agenda like the one proposed by the Economic Policy Institute that tilts power back into the hands of workers.''

 

[Loren Pechtel]

If a company behaved like a labor union it would be called price fixing and they would be punished and forced to stop doing it.

Companies behave like labor unions all the time without it being price fixing and without being forced to stop doing it. It's not as though Warren Buffett and I are competing with each other to offer our customers lower prices. In our negotiations with our employees, suppliers and customers, he and I and the gazillions of other Berkshire Hathaway shareholders put up a united front, because that's a better strategy. When employees do the same, sauce for the goose, sauce for the gander.

(If you're talking about a UAW-style union where all the companies in an industry have to buy from the same union, then you're right, companies aren't allowed to behave like that. But there's no reason unions have to behave like that. My father spent most of his career in a union that only represented employees of one employer.)

Even without the UAW-type situation it's all the employees.

 

[Loren Pechtel]

It is very common for companies to form contracts with each other in restraint of trade: " ... and in return Company A agrees for the next five years to buy all its Widgets from Company B." Yes, union contracts can seem especially strict but this was accepted deliberately during America's Rational Era because of a major imbalance: the huge bargaining disadvantage individual laborers would be under if unable to unionize effectively.

Which says nothing about what company C does. The whole point of a union is to deny the company a choice.

 

[Loren Pechtel]

That's not the question I asked. My question was:

"Do you think each worker making $10/hour is generating at least $15/hour in extra revenue?"​

It wasn't about how much goods are worth or about who produced them; I asked about extra revenue. The question is about a worker's effect on the employer's "marginal" income, i.e., how much difference there is between income with the employee's work and income without it. The distinction between what I asked and your attempted paraphrase is probably lost on anyone who's never taken Econ 101.

The distinction was lost on me, and I passed ECON 101. In ECON 101, the basic theory is that an employer will use a worker as long as the worker's additional revenue generated per additional unit of time worked (which is the additional market value of the worker's output) exceeds the additional cost of that additional unit of time worked. The market value of the output (i.e. the market price x additional output) includes the marginal profit as well as the additional expense of producing the good). So, Rhea's question comes straight from ECON 101.

The Econ 101 answer is very simplified, but the basic idea is right.

Note the corollary that you're missing: If you raise the price of a worker (minimum wage hike) you raise the value that they must produce in order to be worth hiring. Anyone producing value between the old minimum wage and the new minimum wage loses their job. (Yes, this is simplified, but less so than your premise.)

 

[Loren Pechtel]

Low as it is, minimum wage was put in place for a reason.....

To keep blacks out of the labor force.

 

[Loren Pechtel]

If a company is unable to meet its running costs, stock, upkeep, etc, it probably shouldn't be in business. Workers shouldn't be expected to subsidize a non profitable company by working for sub standard wages.

If there were better jobs out there such companies would have zero employees. The fact that they have employees proves there are not such jobs out there.

Thus the question is really whether "substandard" wages is better than no wages. You're saying no wages is better.

 

[bilby]

That's not the question I asked. My question was:

"Do you think each worker making $10/hour is generating at least $15/hour in extra revenue?"​

It wasn't about how much goods are worth or about who produced them; I asked about extra revenue. The question is about a worker's effect on the employer's "marginal" income, i.e., how much difference there is between income with the employee's work and income without it. The distinction between what I asked and your attempted paraphrase is probably lost on anyone who's never taken Econ 101.

The distinction was lost on me, and I passed ECON 101. In ECON 101, the basic theory is that an employer will use a worker as long as the worker's additional revenue generated per additional unit of time worked (which is the additional market value of the worker's output) exceeds the additional cost of that additional unit of time worked. The market value of the output (i.e. the market price x additional output) includes the marginal profit as well as the additional expense of producing the good). So, Rhea's question comes straight from ECON 101.

The Econ 101 answer is very simplified, but the basic idea is right.

Note the corollary that you're missing: If you raise the price of a worker (minimum wage hike) you raise the value that they must produce in order to be worth hiring. Anyone producing value between the old minimum wage and the new minimum wage loses their job. (Yes, this is simplified, but less so than your premise.)

Indeed. That's why we have unemployment. In the glory days of the 1800s, nobody who wasn't rich was unemployed. If you were eight years old, you could always find a job collecting dog shit from the streets for the local tannery, for a few shillings a bucket.

At worst, your employment (and sole source of income) could be begging. If you put in fifteen or sixteen hours a day, seven days a week, fifty two weeks a year, you might even survive on that employment to the ripe old age of died at twenty eight after drinking 2d worth of the cheapest gin.

The nineteenth century had essentially zero unemployment; Instead it had poverty - of a kind and scale that was truly horrific.

The replacement of poverty with mere unemployment was a massive boon to a vast swathe of the population. It wasn't until the 1980s that the 'economic rationalism' of Thatcher and Reagan (called 'Reaganomics' in the USA) created an environment in which both unemployment AND poverty could exist simultaneously.

Unemployment isn't a bad thing. Poverty is; But unemployment isn't. And it's quite easy for rich nations in the post-industrial and post-automation era to have unemployment without poverty.

 

[DBT]

If a company is unable to meet its running costs, stock, upkeep, etc, it probably shouldn't be in business. Workers shouldn't be expected to subsidize a non profitable company by working for sub standard wages.

If there were better jobs out there such companies would have zero employees. The fact that they have employees proves there are not such jobs out there.

Thus the question is really whether "substandard" wages is better than no wages. You're saying no wages is better.

There are companies that fail for any number of reasons, bad management, too much competition, market saturation, etc, so they fail. The suppliers expect to be paid, they are not going to subsidize a failing company, the service providers expect to be paid, they are not going to subsidize a failing company....yet workers are supposed to work for unsustainable rates because its 'better than nothing?'' Like workers have no real value? Having no real value in your eyes, they should take whatever crap they are given and be satisfied?

 

[Rhea]

Rhea's OP question to her political opponents was

Wat a strange reading of my OP.
Well, the question was not for my political opponents. It was for everyone. People who may align with me on many things may nevertheless have a different solution on this. I am interested to hear them. The Little People (I apologize for the clumsy euphemism, but couldn’t make my brain work to say it better) exist for every ideology. ALL of us make a decision on what we think should happen to them.

"What do you want to do with the little people?". That was a fair question.

I am glad you are willing to engage. I am interested in your answer.
What is your answer?

The people who a minimum wage sacrifices in the lower right yellow triangle are the littlest people on the chart: the people with the least wealth and the least prospect of getting an income. So the question for anyone who wants to increase the minimum wage is: What do you want to do with the little people?

It’s a question for those who don’t want to raise the minumum wage, also.

There will ALWAYS be people who have trouble with the complex and lucrative jobs. These include very kind and good people who simply do not have the capacity for skilled labor. They CAN’T. They are good people, and human.

There will also ALWAYS be people who can’t hold down a job. They lack something. Stick-to-it-iveness, drive, attention span. Maybe responsibilities to others that keep interrupting proper work dependability. For whaever reason, they will only ever be able to market themselves to the unskilled labor jobs.

There will also ALWAYS be people who can’t figure out what is needed for the good jobs. They’re smart enough, but something always seems to happen. Maybe their parents and school never taught them how to make a workplace work. Many of them are perplexed why they aren’t making it, but they can’t see what to do differently. It all seems like “bad luck” to them.

And there will also always be people who are lazy. That’s a pretty tiny number, though.

What does your ideology do with all those people?
I’m curious. I want to hear the various ideas. That’s all.

 

[Rhea]

On the topic of knowing how much a worker contributes, I am well aware of the difference between profits and costs. I made it clear in my second sentence.

It turns out that my team has a running requirement to keep track of our individual IMPACT on the company’s bottom line as we work. So we actually chase down the numbers to calculate it on every project we work. What did we innovate, what did we accelerate, what did we create or improve. What was the total value of the project and what was our personal contribution in that total. $X in sales with y% margin over N years in M size market.

We can also calculate what the line workers are contributing. What does the presence of that person do for the bottom line of the company. There’s a margin on that, too. Moreover, having looked at this for a number of years, we can see how it has changed over time.

It’s not rocket surgery, really.

So do I think minimum wage earners are contributing NO MORE to the profits than they were 20 years ago in constant dollars?
I can see that they ARE contributing more. They are making more widgets at lower cost and corporate profits are going up. They are working faster, they are working smarter. They are learning new tools of automation and process control. They are discerning more in their inspections, and operating more complex measurement equipment. This allows the company to make a higher margin. Earn more money - more profit.

They are adding more value than they did 20 years before. But the minimum wage has not gone up.
So my answer was that the worker has delivered a value worth $15 at least (usually much more) to the pockets of the CEO and the shareholders, But the CEO and the shareholders are taking that increased productivity and pocketing it - not becuase the CEO and the shareholders worked harder, but because the line worker did.

 

[Rhea]

But that discussion of whether they deserve a higher minumum wage is acually not the point of this thread.

What I really am interested to hear, is what should society do with the people who are in this minumum wage - the current one that doesn’t pay a living. And futher - what should society do with those who can’t even seem to earn that?

Say you’re right, bomb20 and there’s no value about $10/hr. Since those people can’t live on that amount, what do you want to do with them?

Do you like a model where they lose ground and end up on the street? And then you just drive past them?
Do you like a model where you given them welfare - it sucks but it keeps them content enough to not rob others?
Serious question. What DO you want to do with them ?

 

[Loren Pechtel]

If a company is unable to meet its running costs, stock, upkeep, etc, it probably shouldn't be in business. Workers shouldn't be expected to subsidize a non profitable company by working for sub standard wages.

If there were better jobs out there such companies would have zero employees. The fact that they have employees proves there are not such jobs out there.

Thus the question is really whether "substandard" wages is better than no wages. You're saying no wages is better.

There are companies that fail for any number of reasons, bad management, too much competition, market saturation, etc, so they fail. The suppliers expect to be paid, they are not going to subsidize a failing company, the service providers expect to be paid, they are not going to subsidize a failing company....yet workers are supposed to work for unsustainable rates because its 'better than nothing?'' Like workers have no real value? Having no real value in your eyes, they should take whatever crap they are given and be satisfied?

Nothing in your response addresses my point. The better jobs you envision don't exist, you're driving them out of the labor market entirely.