Many people decry, rightly, the low paying wages which illegal immigrants and foreign factory workers earn. Granted it’s not very much, but I think you’d be hard pressed to find anyone willing to accept the alternative. Understand that I’m not suggesting that anyone be forced into what we might call slave-wage jobs — which is not the same as minimum wage jobs.
I am referring to hard labor jobs $2-3 per hour which exploit the illegal status of the workers picking fruits and vegetables. Or perhaps the pennies per hour of foreign factory workers who assemble our highly coveted smart phones, tablets, running shoes, etc.
Of course we object to these conditions, but are we also willing to accept what would naturally follow? If you think $120 for Nikes or $600 for iPhones and iPads is steep, try paying $1200. Do you like $1.29 per pound peaches and apples, what about if they were $8 per pound?
Economics for Morons makes the same point succinctly that I’ve been making for years.
Have you ever heard speak of those who are “doing work that American’s won’t do”? This usually refers to migrant farm workers… kind of like cotton pickers on old plantations…. Hearing those words for the first time made my head cock like a sheep dog seeing a three-headed man for the first time. What an odd statement.
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Would you pick lettuce for two hundred grand a year… with benefits? I would… and I’m an American. So the question isn’t whether or not Americans will do that job, but rather can illegals, read the modern equivalent of slaves, be imported to do it for a price that makes Americans happy with their salad… and their “compassion”?
The next question, that even the economic moron understands is: “What would paying lettuce-pickers $200,000 a year do to the price of lettuce?” But buried in that question is an assertion, which is: “I want my salad for the price I’m use to paying, and I’m willing to enslave the less fortunate to get it”, or, put differently, “we might as well face it, the world needs slavery”.
Know that I’m not trying to put anyone on the spot, but have you considered what would happen if these workers were paid comparable wages, or *gasp* union wages? Imagine what would happen to the price of commodities and electronics. Could you afford the increased prices?
We unfortunately live in a world where our standard of living has been built on exploited workers earning “slave wages”. Is there a feasible alternative, or are we stuck?
Sifting Reality 
This is something I have thought of before, and struggled with before, especially as someone who likes technology. In order to increase the standard of living for everyone, we ultimately have to decrease our own standard of living somewhat. In theory this shouldn’t be this hard: generally we have a very high standard of living to start with.
The real question is… where do we start? I’m sure a lot of people would be happy to lower their standard of living somewhat. For example, a compromise some people may be willing to make would be to pay less for a smartphone and make it last longer than 2 years if it meant more justice for the underpaid. Some people would be happy to lower their standard of living even more, some less.
I’m not an economist, but to me the biggest problem would be: increase the wages of all underpaid workers will obviously increase the cost of the product they assist in getting to you, however not as many people will buy the product as it’s become too expensive and they will look for alternatives, and then there’s no work for the workers. How do we solve this problem? What do we have to do, and where do we have to start, to make a fairer world? Unfortunately the solution will probably not be good for the cash flow of big businesses and will need big businesses to make changes in the way they work – something I’m guessing few would want.
I did jobs like this when I was a kid, along side my parents when they did not have work, the sad thing is that American children are not able to take advantage of opportunities like this anymore, not even on family farms. And yet the unemployment rate for young teens, especially black teens is way too high. It is not that Americans won’t do these jobs so much as they are discouraged from doing them or in the case of the young, denied because of rules and regulations. We should not have slave labor of any sort and yet we are ruling and regulating our children out of any opportunity to learn the skills needed to provide for themselves along with the opportunity to get themselves out of the slavery that government aid puts them into. God bless and great post!
I’m not an economist, but I think “slave wages” is not good policy. This practice has been in use for years and we haven’t obtained economical improvement but an economical crysis instead.
The point is that lowering the wages reduces product costs but also reduces consumers adquisitive power on the whole, much more at national level if production is carried away to a foreign country.
“The GOP supported business generally, hard money (i.e., the gold standard), high tariffs to promote economic growth, high wages and high profits,”
http://en.wikipedia.org/wiki/Republican_Party_%28United_States%29
Companies look for the lowest cost for materials and manufacturing and the get the highest payment in return from the consumer who has to be willing to pay for it. That’s the way our capitalistic system works and it’s based on opportunism. People will always point out anything they consider “unfair”.
If companies like Nike, Apple and Exxon-Mobil would be satisfied with a bit less in overall profit, I’m sure a happy medium could be found – but that’s not what capitalism means.
After all, the shareholders are expecting a return and company CEOs have to get paid.
Unfortunately, as the gap between the owners and the workers gets larger it doesn’t bode well for the future of this country.
Z
So are we stuck? What do you see happening over a 20 year period?
Well, that depends on the greed of the wealthy and the tolerance of the poor. Eventually, those who feel as though they’ve got nothing else to lose will revolt and the system will collapse into anarchy. There are way too many folks out there living on the edge as it is right now and everyone loves pointing fingers, but the underlying cause remains. My feeling is that the prognosis is not good. Anyone considered too well off will become a target – literally.
The reality is that many of the products that we purchase could be produced with “living wages”, or even beyond that standard, and still give a tidy profit to the manufacturer. There are many examples of this, and there are few to any products that you can name that do not have a domestic labour (and GASP, even unionized!) manufactured equivalent at a relatively comparable price. The reality, as Z said, is that corporations are driven by shareholder profits- and any way to maximize profits will almost invariably be taken.
If we had a global “living wage”- that is to say that every person working for an international company was paid a wage that affords them a clean and maintained two bedroom living space and enough for reasonable day-to-day expenses plus 10%, our consumer goods would not cost that much more than they do today.
This would mean that someone living in my country might have to be paid about $14.50 per hour in order to have that amount of money after deductions, or $10.25 per hour to have that amount of gross income. (Mystically, my Provincial government has a mandated minimum wage of $10.25)
It might mean that a Chinese labourer gets paid the equivalent of $4.55US/hour, someone in Ecuador might only need 2.90US/hour. Not only does this make moral sense, it also means that there are more consumers with more disposable income, and more emerging markets for corporations to sell their goods. The problem lies in the fact that corporate profits and global economies are driven by short term dividends at the cost of long term sustainability.
I doubt there are many products that exist that could not be manufactured with even domestic “living wage” labour- let alone developing world “living wage” labour- at a sticker price within 2% of current norms while still affording the companies and their shareholders tidy and worthwhile returns.
Can you think of any?
fast food, clothing, are two examples. I just dont see how quadrupling (or more) the wages would barely affect the pricepoint. If labor costs increase by 400, 500, or 800%, how does the price point move only 2%
On a side note, it doesn’t seem like the issue is a “living wage”. The people already live on the wages as evidenced by a lack of corpses. What it seems like we’re talking about is elevating the comfort of the employees. Am I wrong?
In the case of fast food, you are only talking about the cost of labour as a percentage of the total cost of a product. If the labour cost of a Big Mac is 25% of the total cost (reference 1) and the cost of a Big Mac averages $4.33 in America in 2013 (reference 2) that means that labour accounts for about $1.08 per Big Mac sold. If we were to assume that every employee working at McDonalds makes minimum wage (totally not the case) and the US federal minimum wage is $7.25/hour (reference 3), and I am suggesting raising this to a “living wage” of $10.25, this means that minimum wage raises by 41%, and labour cost should rise accordingly. That means that the cost of labour per Big Mac would rise to $1.52, and if you assumed that all of that cost (again, likely not the case) was transferred onto the consumer, a Big Mac would cost $4.77, which would be a 10% increase in price.
This seems to imply that you are correct, but it doesn’t factor in the fact that McDonald’s employs people at higher than the minimum wage like managers (who would already be making more than a living wage) and that McDonalds would download all the costs onto consumers- which they would not. It also doesn’t factor in the fact that people who make more money spend more money at McDonalds, and that this would increase their sales volume as well.
I honestly believe that a rise in wages would only cause an increase of 2% in fast food, and perhaps a 5% increase in the cost of smaller “mom and pop” style food service. Why do I think this? In Canada the average cost of a Big Mac is $3.89 (ibid “reference 2”) and our lowest minimum wage- they are set Provincially, not Federally- is $9.75/hour (reference 4). How is it possible that I pay less than you for the same product when labour costs are higher? Are materials costs that much lower in Canada? Are our corporate taxes that much lower (hint: they are, but not the effective corporate tax rate)? What is the reason for the discrepancy in price?
George
Thats a great answer. I haven’t looked so far into it to develop an opinion beyond what it seems would be the case. Theres a good chance youre right about the increases.
What I do know is corporations dont simply absorb costs. If we raised the pay from $7 to 10 that will translate into 1 or 2 lost jobs per location. Thats why we might not even see an increase. Im not even saying theyd fire someone, they just wouldnt restaff attrition.
I think in the end I oppose the interference.
To your point about “living wage” meaning “people not dying”- I think you know (or hope you know) the difference between paying people a wage that allows “survival” versus allowing “self-sustaining”. The burden for much of the people living on the cusp of survival rests on social programs and charity. If you increase the average standard of living, you decrease the burden placed on social programs and charities.
People aren’t dying because we have food stamps, and food banks, and welfare, and medicare, and medicaid, and social security and soup kitchens, and The Salvation Army, and Goodwill. I don’t know why you think placing the burden for these people on charities and your taxes is better than placing some of it on the corporations that make billions upon billions of dollars off of our economy. I’m not suggesting that corporations bear the entire burden of our economy, but they ought to at least bear the opportunity cost of their profits and not have their profits subsidized on the backs of society.
I don’t even know that it is the case that some companies would shrink labour by attrition. Since we live in an economy that is driven by corporate profits and share values, many of these companies (certainly the largest ones) have already found the size of a workforce that maximizes returns. If you decrease staff beyond that point, you actually have a net loss in returns. To further this point, if you have more people with more disposable income, you likely also have more demand and more customers for your product- and understaffing becomes an even greater issue.
Economics is complicated and multifaceted- and I think that people on both the Conservative and Liberal side of the divide tend to treat economics in the simplest possible terms- as though everything is ridiculously easy to “fix” if we just did “x” or “y”. Every possible answer has positive and negative consequences, and the best balance is one that factors in both current opportunities and future opportunity costs with a mind to a sustainable and growing economy.