Proportional Minimum Wage

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Proportional Minimum Wage

Postby jewish_scientist » Wed Mar 06, 2019 9:40 pm UTC

This is an idea I had for a new minimum wage law.

Minimum wage = Gross/ (100 * # of employess)

The 100 is an arbitrary constant. I estimated that value right based on no data or personal experience at all. You may also want to add a constant just to make sure people working for a large company that has made little money do not end up working for pennies. What do you think? Has this been tried before?

Edit: When I said 'gross'g, I mean the amount of money the company made before anything is payed for. If that is not the right word, then please let me know what correct word actually is.
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Re: Proportional Minimum Wage

Postby Paranoid__Android » Wed Mar 06, 2019 9:56 pm UTC

I think a base minimum wage is always healthy to insure no-one gets abused. But I think the labour market is too complicated and this kind of solution might cause problems for specific business sectors.

Unions are a much more powerful tool for keeping wages healthy, though they come with their own sets of problems.
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Re: Proportional Minimum Wage

Postby Leovan » Wed Mar 06, 2019 10:05 pm UTC

Switzerland had a vote on a similar proposal a few years ago. The idea was that the minimum wage of a worker was tied to a factor of the maximum wage in a company. So the lowest paid worker would have to earn at least 1/20th of the salary of the highest paid worker. The hope was you'd depress high salaries and/or raise low salaries. One of the workarounds we discussed:
Low wage workers would be farmed out to a separate company. So the janitorial staff for example would be employees of an external 'janitor' company, the factory floor staff would be hired from a factory worker company etc until the lowest paid worker in the company would be the engineer, who already earns more than 5% of the CEO, so the company is compliant. You end up increasing the overhead a little bit, but would probably save on benefits. Actually, many companies already do this for support staff like janitors anyway. It ends up being more efficient in most cases, at least financially.
You could do something similar here, where McDonalds would farm its kitchen workers out to a separate company that makes little to no profit. Everyone makes around the same wage, so really they could make the proportion of gross income/employee to wages nearly 100%. This is really nothing new, companies do this all the time for tax reasons for example.

Edit: What is your gross based on? Last year's number where you had a surprise windfall/really bad year? Or do you have to adjust salary on a monthly basis?
Last edited by Leovan on Wed Mar 06, 2019 10:07 pm UTC, edited 1 time in total.

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Re: Proportional Minimum Wage

Postby Zohar » Wed Mar 06, 2019 10:07 pm UTC

It doesn't make a lot of sense if a company has very small profit margins, or when it's losing money. It would also mean you'll have to change people's salaries all the time based solely on the company's performance and not on the cost of living. A maximum wage where max_wage <= 15 * lowest_wage_in_company or something would be a lot more valuable to help promote motivated employees that are able make a living (without going into shenanigans like outsourcing every single low-earning employee).

Why do you think your idea has merit? What's valuable about it?

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Re: Proportional Minimum Wage

Postby LaserGuy » Thu Mar 07, 2019 6:42 am UTC

Would this actually have any effect?

Walmart, say, has 1.4 million employees and revenues of $514 billion in 2018. Using your formula that works out to a minimum wage of $3671/year. Amazon has 600,000 employees and revenues of $232 billion, giving it a minimum wage of $3866. This is well below the current minimum wage. I checked a few other companies of various sizes and I just don't think the effect is very large. Now, obviously you can mess with the formula a bit, but I think that this is probably mistargeted---e.g. it isn't going to make a difference to a company with a huge number of low paid employees, but, if anything, may end up driving up wages at companies with a smaller number of, probably higher-skilled, higher-paid employees.

I think indexing minimum wage to at least inflation, or better yet, local cost of living, plus making it easier and more desirable to unionize, and closing the loophole that allows companies to make "independent contractors" of people who clearly ought to be salaried employees would probably be better solutions.

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Re: Proportional Minimum Wage

Postby SecondTalon » Thu Mar 07, 2019 1:43 pm UTC

There's also non-profits. They quite obviously pay their workers, but they also take whatever funds they generate and put them in to whatever work it is they're doing as a non-profit. Think of something like a non-shitty Kormen foundation where hats and T-shirts and whatever are sold, workers get paid, and everything else goes in to cancer research leaving the end of the day with a profit of 0.

Using a formula like that - one that pays a pre-set percentage of income to wages - would be working against the entire point of the enterprise (to maximize funding for cancer research) and help create negative press for their organization as well (I know a guy there who works as a janitor, cleans three bathrooms, two breakrooms and empties a dozen garbage cans, doesn't even work 4 hours in a day - makes $458,000. There's just no way that charity is any good if they pay the janitor that much)
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Re: Proportional Minimum Wage

Postby jgh » Thu Mar 07, 2019 2:26 pm UTC

What you're almost proposing is the John Lewis Partnership. All employees are partners in the business, and on top of their wages they get a share of the profits. This year partners got 5% on top of their wages from profit sharing.

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Re: Proportional Minimum Wage

Postby Zamfir » Thu Mar 07, 2019 6:16 pm UTC

jewish_scientist wrote:
Edit: When I said 'gross'g, I mean the amount of money the company made before anything is payed for. If that is not the right word, then please let me know what correct word actually is.

I think the term you are looking for is 'revenue'. There is gross revenue and net revenue, but the difference is not very important in most businesses. Sometimes people shorten 'gross revenue' to 'gross'.

Revenue can be good measure of the size of a company within a sector, but it is extremely misleading across sectors. I think that disqualifies it for your purposes.

As example: imagine a manufacturing firm that buys fairly raw inputs and produces 100.000 end-user-ready widgets. Now compare it to a wholesaler that buys 100.000 of those widgets and sells them on (with a mark-up) to retailers. The wholesaler has a larger revenue than the manufacturer, even though it might be little more than a warehouse and an admin office. Your formula would be pretty nice for the people in that admin office...

A better concept for you might be 'total value added'. Roughly spoken, that's revenue minus the cost of supplies. Or the other way round, it's the combined income of its employees and its investors, plus taxes.

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Re: Proportional Minimum Wage

Postby jewish_scientist » Wed Mar 13, 2019 7:41 am UTC

Zohar wrote:Why do you think your idea has merit? What's valuable about it?

One of the main arguments against raising the minimum wage is that doing so puts a lot of strain on small businesses. This minimum wage is built to minimize that effect. It also rewards "job creators."

This is my revised equation:
Minimum wage = 7 + Gross/ (1,000 + # of employess)2
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Re: Proportional Minimum Wage

Postby Zohar » Wed Mar 13, 2019 2:34 pm UTC

You're gonna have to do better than that. Why does this equation solve this problem? How does it reward job creators? Why does it solve the problem you're trying to solve?
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Re: Proportional Minimum Wage

Postby jewish_scientist » Wed Mar 13, 2019 9:50 pm UTC

This would be easier on small businesses, because for any business making less than $7,250,000 a year, this is actually a decrease in minimum wage. It rewards "job creators," because the more jobs they create, the lower their minimum wage will be.
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Re: Proportional Minimum Wage

Postby Angua » Wed Mar 13, 2019 10:04 pm UTC

You realise that a lower minimum wage is bad from the perspective it doesn't achieve the purpose of a minimum wage, which is supposed to ensure that workers are able to earn enough to live (I realise that with inflation this ideal hasn't kept up with the times, but that was the intent, and why a lot of people now advocate for a 'living wage').
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Re: Proportional Minimum Wage

Postby PAstrychef » Wed Mar 13, 2019 11:09 pm UTC

Indeed, the very existence of a mandated minimum wage was to ensure that workers had enough money to live on in some comfort and security.
And it increases the disparity between workers and owners, because the better the business is doing, the less it pays its workers. Which is kind of a disincentive to the workforce, wouldn’t you say?
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Re: Proportional Minimum Wage

Postby jewish_scientist » Thu Mar 14, 2019 12:30 am UTC

Angua wrote:You realise that a lower minimum wage is bad from the perspective it doesn't achieve the purpose of a minimum wage, which is supposed to ensure that workers are able to earn enough to live (I realise that with inflation this ideal hasn't kept up with the times, but that was the intent, and why a lot of people now advocate for a 'living wage').

You do realize that there is a significant political faction in America that does not want to raise the minimum wage, arguing that doing so would hurt small businesses. If we try to raise the minimum wage in a way such that small businesses actually have lower minimum wages, then these people will support us.
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Re: Proportional Minimum Wage

Postby Pfhorrest » Thu Mar 14, 2019 12:39 am UTC

If big businesses have higher minimum wages than small ones, then people will be less incentivized to work for small businesses, which is bad for small businesses. Small businesses would love to pay less, sure, but if all the big businesses still have to pay more, then small businesses can't actually get away with paying less.

The real solution to all of this, of course, is to make sure everyone has a guaranteed basic income level, and then eliminate minimum wage entirely. Jobs nobody wants to do will have to pay more when people can walk away from them and still survive, and jobs that currently don't exist because they don't generate enough value to be worth the cost of paying someone to do them can come into existence again because people could afford to take them.
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Re: Proportional Minimum Wage

Postby ucim » Thu Mar 14, 2019 4:23 am UTC

Pfhorrest wrote:...small businesses can't actually get away with paying less.
Supply/demand works both ways. Not everyone can get a job at {place-that-pays-a-lot}. Small business could pay the prevailing wage (and get better workers) or pay less (an option not presently available) and draw from a smaller pool. But at least it's an option. Also, money is not the only reason to pick one job over another. Less money for a better boss is often better than more money for a bad boss.

The real issue is that the system can be gamed by large corporations farming work out to "small" companies that are just shells.

Pfhorrest wrote:[with a UBI] jobs that currently don't exist because they don't generate enough value to be worth the cost of paying someone to do them...
...would then be able to force people to pay for them anyway. That's what a UBI is - a way to force (other) people to pay for you to do (or even not do) jobs that aren't worth doing in the first place. Because the UBI isn't created out of magic.
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It's worth considering just what "money" is to begin with. Gold-backed money is essentially gold - a precious metal of limited supply. How do you keep giving people gold? Where do you get it from? And fiat currency can be thought of a bit like stock. Stock is a piece of a company. It's valuable because the company is viable, functioning, profitable, and all that. Fiat currency is a piece of an entire economy. It's valuable because the economy is healthy, productive, and all that good stuff (which is why some country's currency isn't as valuable as others' - there economy is less healthy, less productive, and less all-that-good-stuff. In a fiat currency world, you can print "money", but that just dilutes the value of existing currency, to no net gain. To actually create money, you have to create actual value and inject it into the economy somehow. How do you do that if people are either not working, or working at jobs that weren't worth doing in the first place?

Yes, I can see the personal value of a UBI for any given individual. But for an economy? I see too much magical thinking and too little real analysis.
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Re: Proportional Minimum Wage

Postby EdgarJPublius » Thu Mar 14, 2019 6:25 am UTC

Just because no one is willing to pay you (enough to make a living/survive) to do something, doesn't mean that doing that thing wouldn't create enough value to society as to justify paying someone well to do it. Human capital is frequently undervalued.

You could try individually identifying every case in which the undervaluation of labor creates a gap or shortage and try to correct each I guess.

Oh! Oh! If fiat currency is analogous to 'shares' in a country's economy, doesn't that make capitalists the activist investors trying to force short term revenue growth at the expense of long term viability?
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Re: Proportional Minimum Wage

Postby Pfhorrest » Thu Mar 14, 2019 7:29 am UTC

Jose, you realize any sane UBI would not be printing money, but paying money raised from taxes, right? And here's where you freak out about how much taxes would have to be raised to fund that, while ignoring that the taxes and the UBI cancel out in total, to various degrees per person, such that average incomes pay about nothing and get about nothing, the further below average your income the more you get in net, and the further above average the more you pay in net.

E.g. an UBI of about $1000/mo per person could be funded by about a 25% per capita income tax, and for the 75% of the population whose personal income is below the mean personal income, they would see a net gain from that, while most of the 25% above the mean personal income would see only a small tax increase because most of them don't make far above the mean, and only the tiny fraction of people who make astronomically far above the mean would see a significant tax increase.

There's nothing magical about it. You're not printing money, you're not pulling gold out of your ass. You're just making the super-rich make sure nobody's completely destitute. The slightly-rich help out a bit too, and the variably-struggling majority all get a variable degree of help out too. While statistically average people see no difference at all.

And back on topic, you're freeing workers and employers up to actually negotiate what a job is really worth, without anybody having to worry about dying if it doesn't go their way.
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Re: Proportional Minimum Wage

Postby PAstrychef » Thu Mar 14, 2019 8:52 am UTC

How do you define a job as being not worth doing? If entrepreneurship is valuable, then having people protected from total collapse when trying new businesses is great because more people will try more things. Who knew that playing around with electronics in the garage would lead to apple? Who knew that a blanket wth sleeves developed for people in wheelchairs would be worth millions? People malign fast-food workers, but McDs serves millions of customers every day. It would seem that burger flipping is a job lots of folks want done, but that doesn’t translate into good job conditions.
Artists, historians, philosophers, they are all good things for society to have that have a hard time being seen as “worth doing” in terms of getting paid. What your argument sounds like is “I don’t want my money spent on that!”, forgetting that all governmental spending is a matter of compromise.
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Re: Proportional Minimum Wage

Postby jewish_scientist » Wed Mar 20, 2019 8:24 pm UTC

Pfhorrest wrote:If big businesses have higher minimum wages than small ones, then people will be less incentivized to work for small businesses, which is bad for small businesses. Small businesses would love to pay less, sure, but if all the big businesses still have to pay more, then small businesses can't actually get away with paying less.

Lets say that the market value for a certain job is $15/hour, John's small business has a minimum wage of $10/hour, and Jane's big business has a minimum wage of $20/hour. Workers prefer to work for Jane because she is forced to pay above the market value. This would cause the market value of that job to increase, but other factors (flooded markets, low demand, etc.) that cause the value to decrease could exist such that the market value of $15/hour remains stable. Jane always pays more than the market value. This means that, all things being equal, Jane's business will shrink until the minimum wage she must pay equals the market value. John pays people less than the market value of their labor. This means that, all things being equal, his business will grow until the minimum wage he must pay equals the market value. John and Jane started with unequally sized businesses, but ended with equally sized businesses do to a 'stabilizing pressure' created by this minimum wage system. If John's business does not grow or Jane's business does not shrink, then the assumption that all things between them are equal must be wrong. In other words, if John's business does not grow it is because some factor is working against the 'stabilizing pressure' to hurt John and if Jane's business does not shrink it is because some factor is working against the 'stabilizing pressure' to support Jane. If the factors working against the 'stabilizing pressure' are the skills of John and Jane, then I believe that I have created a minimum wage system that satisfies Rawl's difference principle.

Is everything I wrote above correct, or did I make a mistake somewhere?

P.S. My new equation is [Minimum wage = I(7) + Gross/ (1,000 + # of employess)2], where I(x) is a function that adjusts the value x for inflation.
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Re: Proportional Minimum Wage

Postby ucim » Wed Mar 20, 2019 9:08 pm UTC

EdgarJPublius wrote:Just because no one is willing to pay you (enough to make a living/survive) to do something, doesn't mean that doing that thing wouldn't create enough value to society as to justify paying someone well to do it.
This is correct. There are certainly things that benefit society as a whole, but don't benefit specific individuals (enough) to get them to cough up the dough. However, it doesn't follow that people, left to their own devices, would do those things of their own accord.
EdgarJPublius wrote:Oh! Oh! If fiat currency is analogous to 'shares' in a country's economy, doesn't that make capitalists the activist investors trying to force short term revenue growth at the expense of long term viability?
I guess that would be up to the CEO of the country. Not all businesses are run for short term profit, neither do all investors seek those kinds of returns. And in any case the analogy only works to the extent that "shares" in a country can be bought and sold. Changing citizenship is a bigger deal than selling IBM.

Pfhorrest wrote:Jose, you realize any sane UBI would not be printing money, but paying money raised from taxes, right?
Yes, I do. But there is the fallacy of all things being considered equal, also known as Le Chatelier's principle
Spoiler:
...which strictly speaking only refers to chemistry, but which I have found to be a general principle in pretty much all systems with equilibrium.
A UBI would alter social equilibrium to the effect that low-end jobs will not be performed. Does anybody really want to have to flip burgers or sweep floors? People do it for the money, and when money is no longer (as) interesting, the jobs will languish too. When society responds to this, the assumptions under which the UBI was created will no longer be valid. I foresee this leading to inflation, and the devaluation of education and skills training.

Pfhorrest wrote:And back on topic, you're freeing workers and employers up to actually negotiate what a job is really worth...
What is a job really worth? How should this be measured?

PAstrychef wrote:If entrepreneurship is valuable, then having people protected from total collapse when trying new businesses is great because more people will try more things.
Insurance is a good thing. It's also a bad thing. Insurance (the concept of insulation from risk) is what caused the banking collapse, and arguably in the bailouts we doubled down on the mistake. If there is no penalty for failure, there is no reason to succeed.
PAstrychen wrote:Artists, historians, philosophers, they are all good things for society to have that have a hard time being seen as “worth doing” in terms of getting paid.
I agree fully. I am just not convinced that a UBI is a good answer. And ditto robots taking all our jobs (and with it in many cases, our sense of worth).

Yes, it's a nice dream to think that a tiny fraction of Elon Musk's net worth could be shaved off to end poverty worldwide. But the numbers don't convince me that it could work, especially after society adjusts to the new normal.

It's a worthwhile discussion. It's probably worth doing experiments like the ones being done (being mindful of their extremely limited nature so as not to oversell the results). But I'm not sold on it.

It seems to me also that a minimum wage of any sort also distorts the playing field. It acts as a steady push upwards to wages, which pushes prices up, which pushes wages up... the end result is that an hour of work ends up being worth the purchasing power of an hour of work used to be. But it takes more ink to do the books. Inflation based on the pie getting bigger is a good thing. But a minimum wage does not make the pie get bigger. It makes people happy now , at the expense of the future, when the new minimum wage is then not enough again.

It confuses the questions "how much is the job worth?" with "how much are you worth?". And that's the distinction we should bear in mind when discussing any kind of minimum wage schema.

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Re: Proportional Minimum Wage

Postby elasto » Wed Mar 20, 2019 9:48 pm UTC

ucim wrote:I agree fully. I am just not convinced that a UBI is a good answer. And ditto robots taking all our jobs (and with it in many cases, our sense of worth).

I just don't know what the answer is if UBI isn't it. AI and robots are going to dominate the workforce, and we have to find an answer to that.

It seems to me also that a minimum wage of any sort also distorts the playing field. It acts as a steady push upwards to wages, which pushes prices up, which pushes wages up... the end result is that an hour of work ends up being worth the purchasing power of an hour of work used to be.

I am no expert on the minimum wage, but surely it depends on where the money comes from within the company.

If it comes from reducing wages paid to senior staff and management, then it can represent greater fairness in remuneration without being inflationary. Likewise if it comes from reducing stock buy-backs and dividends etc..

Any money paid to minimum wage staff is much more useful to the local economy than money that goes directly abroad, into tax havens, into tax avoidance schemes like fine art and empty property and so on. Yes, it'll probably still end up going to China in the end, but it may circulate a few extra times locally first...

In addition, if wages for minimum wage staff rise, but the products they produce are bought by above minimum wage consumers, then there is a redistributionary effect rather than a strictly inflationary effect, which, again, might result in more fairness (depending on your definition of fairness).

Ultimately a minimum wage is a mechanism seeking to effect a social goal, and should be judged on those merits rather than purely in economic terms - just as we judge, say, universal healthcare, in terms of social goods rather than purely in economic terms.

It may well be that companies offering jobs paying a dollar an hour would be economically productive, but, as a society, we may judge the psychic cost of such jobs to be too great - that we'd rather be a little poorer overall as a country but with a little more dignity...

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Re: Proportional Minimum Wage

Postby PAstrychef » Wed Mar 20, 2019 9:50 pm UTC

Jose-
For an owner, the job is worth as little as can be gotten away with. Damn few owners (and fewer stockholders) are paying a living wage or more because they want to.With no mandated minimum, wages would be crappier than they are now. The idea that the market will ever NOT exploit workers for profit is laughable. Manufacturing jobs were moved overseas exactly because labor costs were lower. When I see people shopping at dollar stores or Walmart I want to ask them how they think it’s possible to sell those items for so little money. But folks are uninterested in hearing that their cheap goods are made by basically slave labor in horrible working environments.
As for jobs like burger flipping-if Burgerland wants to continue selling billions of burgers then it will need people to cook them. They will have to make the job appealing enough to attract workers. Better perks, high enough wages to get people in the door, change to automation-whatever it takes. The same goes for public sanitation jobs. Also, a UBI is a basic income. People will want to earn extra cash. More unpleasant jobs would be done part-time. A shift or two a week could be a nice break from being an artist. Or if you want to travel, or buy a new car.
Here’s a quote about the first minimum wage-
President Franklin D. Roosevelt noted that “no business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”

“By ‘business’ I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls; and by living wages I mean more than a bare subsistence level — I mean the wages of decent living,” he stated.

A federal minimum wage wouldn’t be permanently mandated until 1938 under the Fair Labor Standards Act, the same bill which prohibited child labor and limited the workweek to 44 hours. Even then, the idea was the same: ensure that businesses have to a) pay people for the work that they do, and b) that the payment is at least enough to live on.

“Without question,” explained FDR, “[the minimum wage] starts us toward a better standard of living and increases purchasing power to buy the products of farm and factory.”
The idea was that paying people enough to live on, not in poverty, would allow them to afford the goods and services being offered in the marketplace.
If an owner is going to rent someone’s skill set for most of their available time, that person should be able to live on the resulting payment. If you think that is unfair to owners, tough.
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Re: Proportional Minimum Wage

Postby Pfhorrest » Wed Mar 20, 2019 9:57 pm UTC

ucim wrote:A UBI would alter social equilibrium to the effect that low-end jobs will not be performed.

...unless they pay more, which means that low-end jobs that didn't really need doing may not be performed, and those that did need doing will be paid better, in proportion to how much they're really needed.

That cost will be passed up the line, sure, the employers will have to charge more for their products to afford to pay those higher wages, but while most (poor) people will end up with more money to spend and so be able to pay those higher prices, so the market price will rise, which you want to call "inflation", still other (rich) people won't be getting more money and so won't be as willing to pay those higher prices, putting breaks on the "inflation".

If you give everyone more money, the price of everything will go up proportionally, and that's inflation. But if you give or take money inversely proportional to how much of it they were already getting, there isn't any more money to go around, so the market won't just absorb arbitrary price increases, and to the extent that prices do increase, for most people (at the bottom) that's more than offset by their increased income. Rich consumers have to pay more, and employers have to narrow profit margins, but the vast majority of people see their incomes increase more than they see their costs increase.

Conversely stated: right now rich consumers and employers are benefiting from getting cheap shit at the expense of paying everybody else so little that they can barely even afford cheap shit. Paying everybody else more will make the shit less cheap, but all those people getting paid more don't mind; the cost is only borne by those who were exploiting their underpaid labor to begin with.

What is a job really worth? How should this be measured?

A part of the process of figuring that out should involve negotiations between people with equal power. How much would you have to pay Elon Musk to clean Jeff Bezos' bathroom? A lot more than you'd have to pay Random Mexican Woman, for sure. Because Random Mexican Woman is desperate for work and will take what she can get for whatever she can do, while Elon doesn't need the job and so will only do the ugly work if the pay is actually worth it, in his non-desperate estimation.

An UBI makes it so everybody is less desperate and so on more equal footing and so makes negotiations better reflect what a job is really worth. (Also, eliminating minimum wage means the jobs that are really only worth less than what's currently minimum wage can be offered for that much, in case anyone should be willing to do the work for that, instead of not offered at all).
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Re: Proportional Minimum Wage

Postby EdgarJPublius » Thu Mar 21, 2019 2:12 am UTC

ucim wrote: However, it doesn't follow that people, left to their own devices, would do those things of their own accord.


Not from that no, but it does follow from ten thousand years or so of human history.
Roosevelt wrote:
I wrote:Does Space Teddy Roosevelt wrestle Space Bears and fight the Space Spanish-American War with his band of Space-volunteers the Space Rough Riders?

Yes.

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