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Saturday, May 24, 2014


If poverty were a consequence of the character defects of the poor, then we [which is to say, we who are affluent or downright rich, and therefore manifestly do not have those debilitating character defects] could have an enlightening, self-satisfied conversation among ourselves about just what steps the undeserving poor ought to take to clean up their act and enter the great Middle Class.  And if poverty were a consequence of the failure of the poor to acquire the appropriate educational credentials,  then we [which is to say we who have those educational credentials] could have an uplifting, self-satisfied conversation among ourselves about how to persuade the poor to stay in school, gather up degrees, and waltz into the great Middle Class.

But a lack of character is not the explanation for the poverty of the poor, and a lack of degrees is not the explanation for the poverty of the poor.  The explanation is that there are not enough jobs that pay well enough to allow the people who hold those jobs to live decent lives -- never mind about getting into the Middle Class.  What on earth can be done about that? 

Well, after long study and deep cogitation, I have discovered the answer.  It is, I am aware, too complicated for most commentators in the public sphere to grasp, requiring as it does a profound conceptual transformation -- an entirely new weltanschauung, one might say.  Fortunately, however, the answer can be stated in ten words, only two of which have more than one syllable.  Here it is:

Pay poor people more money for the jobs they have.

You see, if you pay someone $8.89 an hour for making burgers at McDonald's, then he or she will only make $18,491.20 in a year, working fifty-two weeks, forty hours a week.  And those are poverty wages.  But if you pay the same person $15 an hour for the same work, then that person will make $31,200 a year, and that is enough to get by, if not to buy anything that most of us would recognize as a middle class life.

But how on earth can you pay someone fifteen dollars an hour for doing exactly the same work he or she was doing for less than nine dollars an hour?  The money has to come from somewhere, so it looks as though it is going to have to come out of the profits of the McDonald Corporation.  Can McDonald's afford that?  Well, it is a little hard to come by exact numbers, but here is an example of an attempt to work out the calculations.  It looks as though that sort of  corporation-wide salary raise might cost the company half of its annual profits.

What on earth would persuade any corporation to raise the wages of its employees so much that its profits are cut in half?  The answer is as obvious as the question:  a debilitating strike by a labor union of its employees.  This is not rocket science, folks.  It is not even advanced economics.  Absolutely all of the current discussions about how to end poverty in America proceed from the unacknowledged refusal to consider this answer.  Do America's corporations make enough profit each year to fund an economy-wide rise in the wages paid to America's poorest workers?  Yup.  Will they do so if not compelled?  Nope. 

This is so simple that I feel like an idiot repeating myself, but we really need to keep certain elementary facts clearly in mind.  McDonald's pays poverty wages to a great many of the 300,000 or so men and women who work for the corporation or for one of its franchisees.  Most of those people do not have college degrees [some do, of course].  If by some miracle -- a Great Religious Awakening, perhaps -- every single McDonald's employee somehow managed to earn a Bachelor's Degree, McDonald would still employ 300,000 people, and the same number would still earn poverty wages.  Even if all of those newly minted college grads went off and snagged better jobs, thereby displacing an equal number of people from those better jobs, McDonald's would still be paying poverty wages to the same number of people.  Economy-wide, while the nametags on the workers would change, the distribution of low, middle, and high wage jobs would remain absolutely unchanged.

There is more than enough money being earned in profits each year to pay all of America's low-wage workers significantly better wages.  The solution to poverty is what it has always been:




1 comment:

Unknown said...

I have followed these posts with interest. This is a very important topic. I am surprised though that in your analysis there is no mention of a guaranteed annual income as a means of addressing inequality. I think this idea deserves more attention than it gets and that it compares favourably with unions as a solution to the problem.

The chief problem that I see with unions is that they are hostage to market forces at various levels. At the level of the industry or specific plant, they are hostage to the cycles that affect that industry. When business is booming you may get a better deal than you do when things are slow, and when a nice long strike might be quite welcome as far as the bosses are concerned. But where is the justice in that? At a more macro level there is only so far that you can push wages for certain kinds of unskilled or low skilled labour before you start to affect employment, either because the employer passes through the higher cost, reducing demand, or goes offshore, or sees profits reduced to the point where the business shuts down in whole or in part. (Of course, small gains, like the one that you were proposing for employees at McDonalds, are unlikely to have this effect. But that’s the point, your proposed salary is hardly a princely income, especially for a family with kids.)

Your example of McDonalds is instructive. The firm is highly profitable, they are probably as capital intensive as they can be right now (therefore, few ways to replace front end staff with machines), and they can't send the front end jobs to India or some other low wage venue. This is as good as it gets. So, it is probably true that McDonalds workers can appropriate some of the return on capital for themselves, without really affecting employment or demand. But I stress: this is only good for MCDONALDS workers and for workers at firms like McDonalds. What if the firm is not so profitable, or what if there is a lot more room to replace American workers with machines or with low wage workers offshore?

This points to an aspect of unions that is often overlooked. An effective union has a monopoly on the supply of labour to the firm. This creates a kind of partial property right, or claim, on the capital of the firm. The higher union wage can be seen, as in your example, as the workers being given "a piece of the action." I think that this explains why the great union success stories of the past were all in monopolistic or oligopolistic industries, like automobiles or steel: there was plenty of profit to go around, and smart employers bought peace by paying their workers middle class wages. But as those industries faced greater competition, well...we see the result. Today, only government offers unionised workers the kind of monopoly position that seems to be necessary to deliver a middle class lifestyle. (Although as you point out in an earlier post, with your school teacher and policeman, what we think of as middle class and the reality are two very different things. These are such simple insights, but so rarely made. I wonder how many tenured Marxist professors have ever made this calculation or ever realised that they are in the 5%!)

To sum up, my concern with unions as a solution to the problem are that they are too hostage to market forces and, where they are successful, it is usually because they are simply sharing in monopoly profits--an unsavoury prospect to say the least.

I am running out of time and probably space, but I do see the guaranteed annual income as a better solution, far less subject to market forces and benefitting from the ability to average out costs and benefits across the entire economy.