Thursday, January 04, 2007

Will: Set Minimum Wage at $0

Now that a federal minimum wage increase is a fait accompli, senior pundit George Will has assembled everything that anyone needs to know about it. In sum, if you want to create greater economic inequality among states, discourage the completion of high school, ignore the majority of the "working poor," and put more money in the hands of middle-class teenagers, all while summoning the moral high ground of the depression-prolonging New Deal of the 1930s, you should raise the federal minimum wage.

Will, who earns more than the federal minimum wage, supplies facts, figures, historical perspective, and lean erudition. We, who blog for free, commend him to gentle readers.

11 comments:

JB in CA said...

Here's a better idea: exchange American CEOs for their foreign counterparts. That should free up more than enough money to give everyone else a handsome raise. Think not? Consider these statistics. American CEOs make
23 times as much as CEOs in China,
10 times as much as CEOs in India,
9 times as much as CEOs in Taiwan,
5 times as much as CEOs in Japan,
4 times as much as CEOs in Spain,
3 times as much as CEOs in the United Kingdom, France, Italy, and the Netherlands, and
2 times as much as CEOs in Germany and Switzerland.

Anonymous said...

Why stop with CEO's? Why not athletes, actors, and doctors?

JB in CA said...

Because CEOs are the ones ultimately responsible for employee wages.

RIV said...

Not true,
The market is responsible for the worker's wages...or at least it should be. If a CEO has the chance to hire one of 2 men with equal skills and qualifications and Man A is willing to work for $1/hr. less than Man B, which man should the CEO hire? This is not a trick question.

Jim Shoes said...

I hear this all the time. In absolute terms (i.e. apart from comparisons) the remuneration of Fortune 500 CEOs takes my breath away. But for comparative purposes, I'd like to know a couple of other things.

One is American CEO remuneration as a percentage of corporate capitalization in comparison to other country's CEO's. Could it be that American corporations are on average twice as big as German and Swiss counterparts?

Another is the actual financial impact of a reduction in the CEO salary at any given corporation. If the CEO of an American corporation were paid 50% less, how far would that money go if distributed to all the employees. Or should it go to shareholders? Or should it reduce prices to increase sales? (These aren't trick questions, but they're tricky.)

It seems to me that American corporate boards and their shareholders would probably like to restrain executive salaries. But no one wants to go first. The one who goes first loses all the best executives to other corporations with still-fabulous salaries. This may require legislation to empower the SEC to set guidelines so that the playing field is level.

Of course, that will in turn empower an army of lawyers who will find the loopholes in the laws and regulations.

Anonymous said...

...and CEOs don't force people into their profession of choice, or to work in their companies.
Ultimately, people need to take responsibility for their careers by choosing an employable, high-wage skill, and work hard to develop it. Moreover, they should be willing to walk away from a job or career if the horizon is dark (due to outsourcing trends or whatever)... to abandon ship before it sinks.

CEOs are subject to shareholders and corporate boards for the policies they enjoin. Paying employees more than they're willing to work for might be strategic to improve retention and morale (and thus improve the quality of work), but simply to pay more just to pay more doesn't make sense. Most consumers desire to pay as little as possible. Why should corporate consumers be any different?

Anonymous said...

...and CEOs don't force people into their profession of choice, or to work in their companies.
Ultimately, people need to take responsibility for their careers by choosing an employable, high-wage skill, and work hard to develop it. Moreover, they should be willing to walk away from a job or career if the horizon is dark (due to outsourcing trends or whatever)... to abandon ship before it sinks.

CEOs are subject to shareholders and corporate boards for the policies they enjoin. Paying employees more than they're willing to work for might be strategic to improve retention and morale (and thus improve the quality of work), but simply to pay more just to pay more doesn't make sense. Most consumers desire to pay as little as possible. Why should corporate consumers be any different?

JB in CA said...

RIV: Note that I said CEOs are the ones "ultimately" responsible for employee wages. The market doesn't sign anyone's paycheck. If a CEO decides to redistribute salaries more equitably, then salaries will be redistributed more equitably.

Jim Shoes: All good comments, to which I'll offer only a few responses. (1) Though it could be that American corporations, on average, are twice as large as their German and Swiss counterparts (I don't know), I seriously doubt that they are, on average, five times as large as their Japanese counterparts (but, again, I don't know). (2) From 1980 to 2003, CEO pay, on average, increased 480 percent (from $1.4 million to $8.1 million), whereas full-time, non-supervisory worker pay, on average, increased only $159 (from $31,769 in 1980 to $31,928 in 2003)--about the price a CEO spends on a dress shirt. (No doubt he'd say this proves he's given his employees the shirt off his back.) In the same period, worker productivity increased 61 percent. If both CEO and worker pay had increased at the rate of worker productivity, CEOs, on average, would have made $2.3 million (as opposed to $8.1 million) in 2003, and workers, on average, would have made $51,148 (as opposed to $31,928). I think these numbers (which, by the way, have been adjusted for inflation) are both telling and sobering--and not the least insignificant. (3) I think you're right that some sort of legislative initiative is probably needed to reverse the trend, but I agree with SWNID (and George Will) that a minimum wage is not the solution. I prefer what economists refer to as maximining. Index a corporation's highest employee compensation to its lowest and allow the highest to increase only if there's a corresponding increase in the lowest. Not only would such an arrangement preserve a sense of fairness, it would also promote employee morale and foster a healthy work ethic since average wages would be more closely tied to employee production.

Anonymous #2: (1) Not everyone can be a professional. Some simply don't have the aptitude. Besides, who then would dig the trenches, haul the lumber, work the cash registers, etc.? (2) I'm not talking about paying employees more than they're willing to work for. Americans, by and large, are not willing to work for extremely low wages. That's the real reason why they don't want unskilled jobs (contrary to the President's claim that they just don't want to do that kind of work) and why our economy is being flooded with illegal workers. It seems to me that the ones who are really being paid more than they're willing to work for are the CEOs.

Anonymous said...
This comment has been removed by a blog administrator.
Jon A. Alfred E. Michael J. Wile E. SWNID said...

Attention, gentle readers: we have deleted an anonymous post that we deemed insulting to a non-anonymous poster. The only figures who can fairly be insulted in the comments are SWNID and public figures. We will also delete posts insulting to anonymous posters, even if signed.

We were particularly galled by the post that we deleted because we know it to be a complete mischaracterization of the person to whom it was directed. Sadly, by this ignorant post, the anonymous poster probably said more about him or herself than the person to whom it was directed, who is actually quite the opposite of the characterization.

This is not the first time we have taken this step. Nor will it be the last. But we thank our gentle readers that it has been a step that we have taken remarkably few times--no more than three times in a year and a half, as we recall. We are grateful for your civility in the midst of all this sarcastic blather.

Jim Shoes said...

Anonymous says that CEOs are subject to board members and shareholders. True enough, but the case can be made that currently corporate boards are so dominated by likeminded executive types and shareholders' meetings so dominated by likeminded institutional fund managers that "accountability" in terms of controlling CEO pay is almost gone.

Since a lot of CCU people read this blog, they may recall that one of the problems in the Disciples of Christ in the early 20th century was that boards of various missionary societies were viturally all the same people, so those people's excesses became the excesses of all the societies. So it is for the Fortune 500.

Further, as long as most corporations pay CEOs excessively, all corporations will hesitate to step out of line for fear of becoming unable to attract the best talent.

Markets are still overall the best way to manage supply and demand, but sometimes markets become distorted so that things cost way more than they're actually worth. That's true whether we're talking about tulip bulbs, crude oil, or CEOs.

But the problem is also that artificial price controls are often even more ineffective than unregulated markets. Any move to control CEO pay had better be taken gradually, to avoid stupid consequences.

And let's remember that it won't do to regulate pay at the bottom rung as a porportion of the top rung. If the CEO of Dole makes X and the government says that Dole's agricultural laborers have to make a specific fraction of X, the result will be that supermarkets will turn to overseas suppliers for what they used to buy from Dole, thereby negating the considerable natural and infrastructural advantages of growing fruits and veggies in California. And if the government puts an embargo on imported produce to protect Dole, then Americans will give up fruit and veggies because they're too expensive. And if the corporation takes the step of adhering to such a regulation by reducing executive pay, they will do so with the help of an army of lawyers who will find a loophole to get the Dole executives back on the executive dole.

But if overseas corporations genuinely have a competitive advantage, i.e. substantially lower expenses, in paying their CEOs less, then that advantage should chip away at American corporations' profits, driving CEO pay back toward global norms. And if not, one can argue that the CEOs are worth what they're paid.

We shall see.