The U.S. Secretary of Labor Thomas E. Perez wants to raise the minimum wage.
the vast majority of Americans -- 91 percent of Democrats, but also 76
percent of Independents and even 58 percent of Republicans -- are in
favor of raising the minimum wage.
This is an
understandable position. After all, the gap between richest and poorest
has grown very wide in recent years. But in my view, minimum wage laws
are not good laws at all. That’s not out of lack of compassion for
low-wage earners, or because I like inequality. That is because I think
that there is a better way to achieve a decent standard of living for
the poorest in society.
The minimum wage is a factor in creating unemployment. Despite what's often said to the contrary, it's true: Countries with no minimum wage tend to have much lower unemployment. Right now, America is suffering a serious deficit of jobs, with over three jobseekers for every available job. We need all the jobs we can get.
So how does
the minimum wage create unemployment? Minimum wage laws are a price
control. They dictate the minimum level that a company can pay a worker.
If the minimum wage is $10, and a company wants to take on a new
employee that they determine will be worth $8 an hour, they have a
choice -- either pay $10 an hour, or not hire the employee. Sometimes,
the company will accept a hit to their profit margin, and pay the
employee $10 an hour.
Sometimes they will just not
hire a new employee at all. Or, increasingly, sometimes they will go
overseas and hire an employee elsewhere -- like China -- where wages are
far lower. This is a particularly cruel scenario because it
discriminates most against the poorest and youngest workers in society.
the minimum wage has failed to reach its goal of ensuring a fair wage
for low wage workers. Worker productivity in America has risen and
risen, yet the minimum wage has not.
I propose abolishing the minimum wage, and replacing it with a basic income policy, a version of which was first advocated in America by Thomas Paine.
Individuals would be able to work for whatever wage they can secure,
meaning that low-skilled individuals -- especially the young, who currently face a particularly high rate of employment
-- would have an easier time finding work. And the level of basic
income could be tied to the level of productivity, to reduce inequality.
are two kinds of basic income policy. The first is a negative income
tax -- if an individual’s income level falls beneath a certain threshold
(say, $1,500 a month) the government makes up the difference. Funds for
this could be accessed by consolidating existing welfare programs like
state-run pension schemes and unemployment benefits, and by closing tax
loopholes and raising taxes on corporate profits and high-income earners. Germany has enacted a similar policy -- called the"Kurzabeit"
-- and it's been credited with shielding the German labor force from
the worst of the recession and keeping their unemployment rate low
The second is a universal income policy, where
everyone receives a payment irrespective of their income. This would
obviously require more funds -- meaning higher taxes -- but in a future
where corporations are making larger and larger profits while requiring
fewer and fewer workers due to automation, such policies may become increasingly feasible. There are already very serious proposals to initiate such a scheme in Switzerland.
*** [12/18/13 Cramer on the minimum wage]
When I first broke in at Goldman Sachs (GS +2.55%)
in the early 1980s, I was in charge of tabulating turnover in what was
then known as the Securities Sales Department. It was my job to keep
track of who stayed and who went, and to be sure I knew the details of
each departure. I was told that, historically, Goldman Sachs tried hard
not to lose anyone it wanted to keep, even as it was willing to see the
others depart -- and, for the time when I did the tallying, the
division's record was perfect on that score.
When I was
first assigned the project, I had no idea why it was so important to
keep track of how few people actually left the firm, other than for
boasting rights vs. the competition, which always seemed to be losing
people left and right.
But once I was in the fold, I
realized the reason Goldman closely observed this number had to do with
the tremendous cost of training people, and how departures -- any
departures, of good people -- meant a total loss on an important
In the division in which I
worked, Goldman Sachs aspired for zero turnover because the firm spent,
on average, six months teaching associates how to do their job -- and,
during that period, these trainees were dead-weight losses to the firm.
Trainees were sunk costs; you couldn't afford to lose the good ones. It
could really hurt your firm's P&L, or profit and loss statement.
issues could be more bedeviling to profitability than turnover, and
Goldman Sachs did everything it could to discourage it, including paying
people more, teaching people better and offering them more benefits
than you could get elsewhere.
It worked. The firm was by
far the most lucrative investment house on Wall Street then, and to a
large extent it still is now, perhaps because it maintains an excellence
Now fast-forward to Tuesday's interview with John Mackey and Walter Robb, co-CEOs of Whole Foods (WFM +0.44%), at the opening of their Brooklyn store.
execs spoke intently and intensely about how turnover is the bane of
their existence because it hurts all stakeholders, the remaining
associates and managers left behind, the customers and the shareholders.
In their opinion, paying people much more than the minimum wage, while
offering them some of the best perks and benefits in the retail world,
has led to a remarkable cost advantage -- not disadvantage -- vs.
many retailers, where the goal seems to be to squeeze as much out of
their workers as possible. Mackey and Robb know there's a big cost to
the firm when people leave. They know that turnover is a killer to the