Raising the
Minimum Wage and Consumption
Part 1
I was having a friendly argument the other day with someone
in response to San Francisco raising its minimum wage to $15/hr. It was the
classic liberal-conservative argument; me arguing that companies should share
more of their profits with their employees as opposed to excessive pay for
executives, she questioning why we should pay someone flipping burgers $15 an
hour and arguing that many small businesses would cut back employees, or shut
down completely, because they cannot afford to pay the higher wage. Neither of
us budging from our stance.
I don’t dare say this out loud but my response to her
argument is that I have little sympathy for companies that are based on a
business model that requires low wage workers.
You might think I am awfully crass to criticize small business owners
who are just trying to make a living in their own right. After all, they are
just trying to survive in a market system that often requires prices to be as
low as possible, right? In trying to make sense of my own turmoil about my
insensitivity, I started to think more about the issue of a business model
based on low cost inputs (labor, materials, whatever).
Americans, generally speaking, prefer paying less for
something if we have the option. This is a no brainer, right? The largest
employer in the US, Walmart, has thrived on selling products on the cheap. The largest online retailer, Amazon, has
beaten the competition doing the same. Box stores have thrived because they can
offer hardware, or paper, or stuffed animals at lower prices than smaller
businesses. Given this economic climate, it makes sense that companies would
want to maintain low wages in order to be competitive with lower prices,
because Americans value lower prices! But what if we valued something else, why
do we need to pay the lowest possible price on the goods and services we buy?
You might be reading this thinking, “this is common sense,
of course I want to pay less for what I buy, what kind of moron would spend
more for something if he didn’t have to.” Yet, often times we choose to do the
opposite. I might go to a gas station near my house that charges a little more,
versus one further away, for the convenience. Many people spend more on organic
food even though outwardly, and sometimes even in taste, there is little
difference. People choose to pay significantly more for name brand jeans even
though there isn’t any functional difference to their generic brand
counterpart. In each of these cases we value something other than getting the
lowest price. Finding the lowest price isn’t as inherent in our decision making
process as we might think.
Next: The story behind paying less..
