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Sunday, April 26, 2015 10:47 PM

Reader Question: Is the Minimum Wage Really a Maximum Wage?

A reader asked me if I ever hired someone for the minimum wage. He also believes the minimum wage is really a maximum wage.

From Drew ...

Mish, I’m curious if you have ever had to actually pay someone minimum wage to work for you week in, week out, year after year?

I’ve signed plenty of paychecks myself, and honestly, I could never employ someone and pay the minimum wage knowing it was not enough for that person to live on, regardless of whether or not the “market” says I could hire them for that price. I have willingly paid more, and they always very much appreciated it, and I also felt like I got more effort since they knew I was paying them more. But I know that’s not how large corporations work.

I believe you would argue whether or not the minimum is enough on which to live is irrelevant and not the concern of the employer.

If that is correct, then what bothers me is that we have so many businesses whose profitability relies on keeping these wages as low as possible, for as long as possible, no matter how it affects them, no matter how many are on food stamps, subsidized housing, subsidized daycare, subsidized transportation (bus and train passes), all of which are costs not borne by the business but still must be paid in order for that employee to work for minimum wage.

I believe there must be an ethical or moral argument that for a business to be considered profitable it must be profitable for the various entities that rely on that business to produce its profits. The supplier won’t deliver the goods if they are not making a profit, and when Wal-Mart demands a few cents off each pallet next year, it’s the lowest guy on the pyramid that ends up paying for it.

Strangely enough, according to the history of the minimum wage it began with King Edward III setting a maximum wage for laborers in 1348 after the Black Plague.

The minimum wage law we have now is really a maximum wage for unskilled labor, since according to the theory the wage paid would fall below the minimum set if not fixed by law. How Orwellian they have managed to turn it around and make it sound good by calling it a minimum when it really is a maximum wage. This can easily be seen by the mega-corporations that rely on paying minimum wage, and your earlier contention that every dollar increase in the minimum wage would mean marginal locations closing and fewer jobs for unskilled workers.

If they called it a maximum wage, how much easier it might be to organize labor?

Well, I wish I had figured this out a long time ago. At least now I know the truth.


Questions First

First, let's address Drew's question: I have not employed anyone, at any wage, other than myself (self-employed).

Minimum Equal Maximum?

Drew is wrong about minimum being maximum and proof is voluntary pay hikes by Walmart and McDonald's.

Living Wage Nonsense

The one thing Drew is correct about is that I would indeed argue "whether or not the minimum is enough on which to live is irrelevant and not the concern of the employer".

The primary concern of the employer is to make enough profit to stay in business. The primary concern of a public business is to maximize shareholder returns.

It must be that way. If the goal of businesses was hiring people rather than to make a profit, no one would bother!

There are numerous businesses that could not make a profit at $15 an hour. I wonder how many independently owned McDonald's franchises would go under at a $15 minimum wage.

In theory, businesses could raise prices. In fact, they would have to.

But how many people think fast-food is already overpriced? It's a given that the higher the minimum wage the lower the employment if for no other reason than the drop in customer demand.

 I have seen studies that attempt to disprove that statement. Such studies are nonsense. Because of population growth and saturation of stores, employment tends to go up over time in spite of minimum wage hikes, not because of them.

Government Subsidies

Someone asked me the other day "Why is it OK for Walmart and McDonald's to pay wages so low the employees have to be subsidized by the government?"

I responded with four questions:

  1. Would we be better off if Walmart hired no one?
  2. Who sets subsidies?
  3. Are subsidies too high?
  4. How many people on fixed income want and need low prices they would not get if everything had a higher price?

The only way to pay people more is to hike prices or accept lower profit. That sponsors still more questions.

  1. What does higher prices do to those on fixed income with little savings?
  2. Do we throw retirees under the bus like Bernanke did for the benefit of a marginal number of people who get higher wages?

Many people are not worth the minimum wage. Some businesses have so little profit they can only afford minimum wage

If McDonald's workers don't want to work there, why don't they quit? Why don't they find another job or start their own business?

Make the minimum wage $15 and I 100% guarantee you there will be fewer stores and lower overall employment.

Blame the Fed

If money went further, no one would be upset at the current minimum wage. In fact, if money went far enough, people would be thrilled by the current minimum wage.

The problem is not lack of a "living wage". The problem is the Fed demanding higher prices in a deflationary world.

Businesses are not to blame for higher prices and income inequality. Those protesting Walmart and McDonald's ought to be picketing the Fed.

Mike "Mish" Shedlock

Saturday, April 25, 2015 10:20 PM

Greece Boils Over; No Rules, Just Right; German Rabbits

The inevitable in Greece gets closer and closer. Looking back, I wonder how many rabbits in the hat there were. More importantly, how many still remain?

I believe the answer to the latter question is zero.

Yet, I also point out the propensity of German chancellor Angela Merkel to prolong the "not on my watch" inevitable. Meanwhile, the pot is far more advanced than "simmering".

Greece Boils Over

The Financial Times reports EU Frustration Over Greece Boils Over at Eurogroup Meeting.

Months of mounting tensions between Greece and its creditors boiled over at a high-level EU meeting on Friday with eurozone finance ministers angrily accusing their Greek counterpart of backtracking on commitments and failing to grasp the deep differences that still divide them.

Athens is running desperately short of cash and many eurozone officials fear that, without an agreement to release some of the remaining €7.2bn in its bailout programme, the government could default as early as mid-May.

Eurozone officials briefed on the closed-door, three-hour meeting said Yanis Varoufakis, the Greek finance minister, specifically warned that cash was so tight that government coffers might run dry in a matter of weeks.

The antagonism between Mr Varoufakis and other ministers became so severe during the eurogroup session that Slovenia’s finance minister suggested if bailout talks did not progress more quickly the eurozone should prepare a “Plan B” to deal with a Greek default.

The contentious session undermined claims by Greek officials that a Thursday meeting in Brussels between Alexis Tsipras, the Greek prime minister, and Angela Merkel, his German counterpart, had narrowed the differences. The claims briefly sent the euro rallying in morning trading, but those gains evaporated after news of the differences emerged.
Default Necessary but Grexit Not?

Financial Times writer Wolfgang Münchau says Default Necessary but Grexit Not.
Until last week, discussions with Greece did not go well. That changed when the circus of international financial diplomacy moved to Washington for the spring meetings of the International Monetary Fund and the World Bank. Then it became worse.

My hunch is that this show will go on for quite a while. The Greeks want to merge the talks on the extension of the current, second, loan programme with the talks on the new third one. For that to work they will require temporary bridging finance to get through the summer. This sounds like somebody has a plan. But this is not my impression. I have never seen European finance officials so much at a loss.

The big question — whether Greece will leave the eurozone or not — remains unanswerable. But I am now fairly certain it will default.

My understanding is that some eurozone officials are at least contemplating the possibility of a Greek default but without Grexit. The complexity is severe, and they may not have had the time to work it out. But it may be the only way to avert utter disaster.

On whom could, or should, Greece default? It could default on its citizens by not paying public-sector wages or pensions. That would be morally repugnant and politically suicidal for the Syriza-led government. In theory, it could default on the two loans it received from its EU partners, though it is not due to start repaying the first of those until 2020, and the second in 2023. It could also default on the remaining private-sector bondholders but that would not be a good idea. Greece might need private sector investors later.

It could also default on the IMF and the European Central Bank. The IMF is expecting a series of repayments. The ECB wants its money back in the next few months on debt it holds on its books. Defaulting on the IMF and ECB is the only option that would bring genuine financial relief in the short term. Nobody has ever done that. It might trigger Grexit.

Then again, it might not. Default is not synonymous with exit. There is no EU ruling that says you have to leave the eurozone when you default on your debt.
No Rules, Just Right

There is no "rule" that says "Default is synonymous with exit".

There is common sense. If Greece does not run a primary account surplus (ability to meet funding needs except for debt interest and debt repayments), then how the hell is Greece going to meet those needs?

IMF? US? Russia? ECB? Man in the Moon?

The answers are no, no, no, no, and no.

In French, it's non, non, non, non, et non.

German Rabbits

All that's left is a rabbit in a German hat.
Or not.

Mike "Mish" Shedlock

Friday, April 24, 2015 9:26 PM

New Problem, Old Tracks

The San Francisco Bay Area Region Transportation system (BART) has a major problem: aging tracks that border on unsafe.

The San Francisco Chronicle details the problem in BART has New Problem: Old Tracks.

The nearly half-century-old system needs to replace its worn steel rails and cross ties. The problem has produced derailments, a drop in train speed in several trouble spots, and a repair schedule that will close the tracks in Oakland over an estimated 11 weekends.

Track maintenance is nothing new for transit systems as equipment and track wear out. But the scale of the problem and BART’s essential role in carting nearly 400,000 daily riders to work, school and appointments make the task important. It’s imperative that the system focus on improving service as quickly as it can — or risk public concerns about safety and reliability.
Rail Refresher Solution

The following video sent by reader Justin is the exact solution. Meet the "Rail Refresher"

That is one of the most amazing pieces of equipment I have ever seen.
How many workers will it replace?

Mike "Mish" Shedlock

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