Last August, the Los Angeles Times published an article on the minimum wage by a college intern from Duke University named Caroline Petro-Cohen. The article took California Republican gubernatorial candidate Larry Elder to task for calling for an abolition of the minimum wage.
Petro-Cohen said that if employers aren’t forced to pay a minimum wage, they will end up paying their workers subsistence wages, or worse. To support her position, she quoted a labor economist at Berkeley named Sylvia Allegretto: “It will be a race to the bottom like we’ve never seen before.” Allegretto added that desperate workers would be forced to accept unlivable wages.
I wrote a response to Petro-Cohen’s piece in which I expressed sorrow for college students whose parents pay a lot of money for their kids to be taught this type of economic nonsense. I pointed out that the minimum wage actually locks out of the labor market everyone whose labor is valued in the marketplace at less than the minimum wage.
But at least Petro-Cohen has an excuse — she’s a college student. The op-ed editor at the LA Times does’t have that excuse. By this time in life, he or she should know better. Not only did the op-ed editor accept Petro-Cohen’s piece for publication, he or she left it prominently displayed on the paper’s website for around two or three weeks after publication.
Today, two major nationwide companies, Starbucks and and Costco, are coming forward and demonstrating how silly and fallacious Petro-Cohen’s article is.
Costco announced that it is raising its nationwide hourly wage to $17. Starbucks is raising its nationwide hourly wage to $15.
How can this be? According to Petro-Cohen, with no mandatory minimum wage, employers would be paying subsistence wages to their workers. If that’s true, then the most we should be expecting Costco and Starbucks to pay is what the government-mandated minimum wage is. The last thing we would expect to see is any company paying more than the government-mandated minimum.
Yet, here we have two major companies that are doing precisely that. They are paying their workers more than the state-mandated minimum. What’s up with that? Maybe Petro-Cohen can write a supplemental op-ed explaining how that can be reconciled with the thesis of her op-ed.
Petro-Cohen points out that employers will always have more bargaining power than their workers. She writes, “The individual selling their labor will always have less leverage than their employer.” Quoting UC Berkeley’s Michael Reich, an economist, she points out that “it’s a very uneven playing field.”
Well, those statements certainly apply to Costco and Starbucks, both of which obviously have a lot more money than their individual workers. And yet, there it is — both companies violating Petro-Cohen’s entire thesis.
What Petro-Cohen doesn’t understand is that wages are established by supply and demand. If there is a limited supply of workers and a huge demand for workers, wages will be bid up by employers. It doesn’t matter that employers would like to pay lower wages. If they want workers, the market forces them to pay higher wages. If they don’t, they don’t get the workers for their businesses.
That explains why Costco and Starbucks are paying wages that are higher than the state-mandated minimum. According to an article on NPR.org, “Restaurants and stores have been facing an unprecedented labor crunch. As of August, retailers had 1.2 million unfilled jobs, while restaurants and hotels had 1.5 million. Workers have been quitting at record levels, often citing low wages, which are now rising for the first time after decades of stagnation.”
There is another factor to consider, one to which Petro-Cohen is obviously blind: the importance of capital in the production of higher wages.
The more production there is, the higher wages will be. That’s because employers now have more money to pay higher wages.
How can we be sure that employers will use some of that additional revenue to pay higher wages? No, we don’t have to depend on the generosity of employers. To ensure that they have workers, they have to pay higher wages or risk losing their workers to other firms that are offering higher wages.
How do workers become more productive? Through better tools and equipment — i.e. capital.
How does capital come into existence? Through savings.
Thus, when the state is confiscating massive amounts of people’s income, they have less to save. That means less capital, which means lower productivity, which means lower wages than what would be the case if people were free to keep everything they earn.
Thus, progressives have it all wrong when it comes to economics: By seizing massive amounts of capital to fund their socialist programs, they lower people’s standard of living. They then make the situation worse by enacting minimum-wage laws that throw certain people into unemployment. They then adopt welfare programs for the unemployed, which necessarily means taxing people to pay for such programs, which means less savings, less capital, and lower standards of living.
If only Petro-Cohen was studying “Austrian” or free-market economics, she would be a lot better off. I recommend starting with Economics in One Lesson by Henry Hazlitt and Economic Policy by Ludwig von Mises.