Proportional Minimum Wage

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jewish_scientist
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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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