- When fast-food workers staged protests this summer to demand the federal minimum wage be raised from $7.25 to $15 an hour, even sympathetic observers weren’t optimistic about the prospects. There seems to be a ready supply of people who will work for low wages. And higher wages could lead to higher prices, which few so far seem willing to pay; my colleague Venessa Wong figured that if fast-food wages doubled and companies did not reduce other costs, the price of a Big Mac could increase by $1 to offset the increase.
Thought experiment: Suppose you are a factory foreman. You have an annual budget of $50,000 to hire additional labor. You interview candidates and find two or three who are well-qualified for the position and willing to work for $50,000 per year. While evaluating their applications, you receive two more. These two candidates are just as well-qualified as the others, but they are willing to work for $25,000 per year. You consider that you could get a lot more utility from two full-time employees than one, without making much difference to your costs. What do you do?
I'd ask the two who claim that they'll work full-time for $25k/year how they think they'll be able to survive on that wage. If they think they can because they're also holding another job, I'd suspect they won't be able to work well because of fatigue. If it's because they're squatting in an abandoned house, then I'd suspect they'll either have legal problems which will interfere with their work, or they'll be living on the streets soon, which would cause any number of problems which will also interfere with their work. If they simply can't count, then I'd suspect they'll be gone as soon as they realize their mistake. No matter which way you look at it, you're going to have problems if you don't pay your employees a living wage. Some businesses don't care and just accept that they'll be hiring, re-hiring, and re-hiring over and over again. Smart businesses won't wish to waste time and resources doing that.
Interesting, and pragmatic, response, thanks. I note that evidence that an applicant may be in more acute need of a salary, and therefore plausibly more motivated to ensure that he not give you reason to dismiss him, actually counts against him. I can also imagine reasons people would be willing to work for less that don't necessarily mean "you're going to have problems" if you hire them. - He is a retiree who doesn't need the money so much but wants to stay busy and feel responsible rather than sit around at home. - He has a physical disability that does not affect his ability to work at your factory but puts him at a disadvantage elsewhere. - He is a minority or an immigrant or a woman or was a woman and has difficulty finding work due to discrimination. - He has a criminal record for drug offences. Don't forget that, unless the two squatters are roommates, it's not very likely that both of them would fall apart at the same time. Even if you have to dismiss one due to performance, you are still getting the work you would have gotten from the $50,000 employee, now for half the price. That could offset some of the inconvenience and cost of turnover. There is risk that they will both be unreliable, but that risk exists with the $50,000 candidates as well.
You can't motivate someone by underpaying him. That's a disincentive, not an incentive. And it doesn't matter if you're making $40k/yr. or $140k/yr., you're still going to worry about losing your job. As far as paying the elderly and crippled starvation wages ... I'm sorry, but I'm going to have to drop my management training for a moment and ask if you're serious. If you are, then you should know that there are laws that specifically protect these people. Even if you don't care, you don't want your business to make the papers because it's getting sued for that sort of thing. Most of the people who take these starvation-wage jobs are temporary workers. They're students who are working part time to supplement other means of support. They'll be gone when summer break comes. They're migrant workers who are living in crowded, unsafe, gray-market housing. They'll be taking their money back home as soon as the busy season is over. They're people who have been laid-off and are trying to burn through their savings more slowly. They'll be gone as soon as they can find a job in their old industry. If you want those employees you've hired and trained to stick around, you have to pay at least a living wage. If you're smart, you'll pay more and find other ways to make your business more attractive to workers than the other businesses in your industry. Every employee that leaves is leaving for a competitor. Let the dumb managers driver away their trained employees. You want to make sure the good ones are working for you.
If it means something else, then the question is "underpaying, compared to what?" But it is good news that the EEOC exists, so discrimination against these people doesn't, so they already have jobs elsewhere and don't belong in this thought experiment. But there is still the guy with the drug conviction. U.S. federal law does not protect him from discrimination, and state law varies. He is willing to take $25,000 per year. That suggests that he doesn't have a better option. You can hire him at $50K, but you have equally qualified applicants at that price without the additional worry that this guy's past might bring you. If you do not offer him the "starvation wage" of $25,000, he will necessarily take the next best option, which will perforce be worse. If your workplace has a budget for management training, it may be a high-skill, established operation in which churn is inefficient and wasteful. But this won't be true if you're running a car wash or Burger King or some other business that operates on very narrow margins with low-skilled staff. It may make sense to save on salary and put up with more churn. The motivation of this thought experiment is to answer the question "is it inherently unethical to pay an employee less ... ?" Less than what, I'm not sure. There is always some variety in the salaries of my coworkers; that's no big deal. There seems to be a line, though, beyond which people start talking about "starvation wage" and prefer to condemn job hunters to their next best option rather than seeing them paid at that level. I would like to understand that line.You can't motivate someone by underpaying him.
If this means that you can't entice someone to take a job while offering less than they are willing to accept, then this problem solves itself.As far as paying the elderly and crippled starvation wages...
Yikes. I'm just trying to make some widgets.you have to pay at least a living wage
I see the advantage of preferring long-term workers and providing compensation that is good for retention. But there is a cost too -- additional salary and benefits aren't free. I have to recover that cost from my customers. If I lose market share to the competition because I give richer compensation, I might end up having to lay people off.
The "next best option" is worse, by definition. If he had a better option he wouldn't be asking you for a job. I am still unclear on how giving someone a job they want is noble at one salary level but shameful at another. This guy wants to work. He doesn't want to depend on public-assistance programs. He has a mark on his record which makes it tough to get hired. He is willing to work for $25,000. He doesn't have a better option. He looks like he will be as good a worker as your other applicants. How can it be better to deny him an income than to give him an income?
Are you sure you're replying to my comments? Because, if you would actually read my comments, you will discover they suggested the following: You pay whoever you believe to be qualified at least a living wage, not a starvation wage. Comment 1. Comment 2. Comment 3. You do this because if you don't, your employee will either fail or require public assistance which you will pay for anyhow with increased taxes. Comment 1. Comment 3. If you're too short-sighted to do this, poverty will increase to the point that civil disturbances are likely to arise and lawmakers will be forced to require you to pay a living wage no matter how funny you think paying a starvation wage is. Comment 3.
I have read the whole conversation carefully. Thanks for summing up your comments. They do not address my question: "How can it be better to deny him an income than to give him an income?" (I also don't see a response to "underpaying, compared to what?" If the salary is too low for the applicant to accept, they don't take the job. If they do accept it, what makes it "underpaying"?) Certainly, if you hire someone at 25K they might end up in trouble. If you do not hire them at 25K, they will have to take Plan B, either a different job with lower pay, or continuing unemployed, both of which seem all the more likely to land them in trouble. Do you believe that something else will happen? You assume that anyone working for $25,000 per year is on the road to ruin, even though 48% of American workers earn at that level or below, very few of them starving. If someone wants to take a job paying 25K, they demonstrate that they believe they will be better off with that job than without it. Why do you believe you know better?
Sorry, NotPhil, I think I've upset you. I am here to learn. If I talk to people I agree with, I probably won't learn much. Talking to someone I don't agree with gives me a chance to see things from a different perspective. For example, you made me recognize a way in which equal opportunity law can make things harder for those it is intended to help. Talking to people I disagree with is the best way I know to find out where I am wrong, so I can correct my misapprehensions and improve my ideas. In this case neither of us convinced the other, but I still enjoyed the interaction and appreciate your contributions.Are you trolling?
This question is totally unrelated to the subject we were discussing, but I am happy to respond to it.
That's great, but someone should tell you that if you act willfully obtuse and repeatedly try to change the subject whenever someone says something you don't agree with, few people will wish to talk to you about anything of significance and you won't learn much about their perspectives.If I talk to people I agree with, I probably won't learn much. Talking to someone I don't agree with gives me a chance to see things from a different perspective.
Hey hubski, is there an arbitration feature? I don't feel I have been obtuse. I will admit to being stubborn and a smartass. I didn't say so until later, but my interest is in the ethics of paying employees low wages. This is relevant to policy issues like minimum wage, as well as the much-discussed "sweatshop" phenomenon. My original question, about hiring someone at $25,000, was "What do you do?" NotPhil gave a utilitarian answer based on his belief that anyone who would accept this rate would not be a reliable long-term employee, so hiring them would be bad for business (and, eventually, society). That's fine, but it didn't get to my interest in the ethics of the situation. I thought that not every candidate would be unreliable just because of their willingness to work for that salary. I provided four examples of such people. NotPhil gave another utilitarian answer about how hiring three of these people would expose the employer to legal risk. That's fine too, and was an interesting point. Still hoping to explore the ethical angle, I asked about the fourth example, the one which was not subject to the practical issue of legal liability. I don't see any response to this case. NotPhil has repeated his belief that you should not hire at a low salary because "your employee will either fail or require public assistance which you will pay for anyhow with increased taxes." That can happen ... but what if it doesn't? Millions of people work at or below the salary we are talking about. They are not all failing or on welfare. I felt the thought experiment would be more interesting, but here's the real question: "Is it inherently unethical to pay an employee a low salary?" What perplexes me most is the idea that hiring someone at a low salary is bad because it will cause bad outcomes, presumably because the employee is not as well-off as he would be with a higher salary. But in my view, the result of not hiring them at a low rate is that they will be worse off than they would be making the low salary, so the bad outcomes are even more likely.
No. Personally, I don't think that finding people that agree with an argument (or the method) means that it is any more correct. IMO you both make good points. My opinion on the matter falls somewhere in the middle, and you conversation has provided good food for thought for me. That wouldn't change if an arbitrator weighed in. The reader can take away what he/she wishes.
I shall remain a fly on the wall though :)Hey hubski, is there an arbitration feature?
Nope. NotPhil's suggestion of #askhubski is not a bad one though if you wish to continue getting feedback. I'll say that I've enjoyed being a fly on the wall for this discussion. It was a good one.
What perplexes me most is the idea that hiring someone at a low salary is bad because it will cause bad outcomes, presumably because the employee is not as well-off as he would be with a higher salary. But in my view, the result of not hiring them at a low rate is that they will be worse off than they would be making the low salary, so the bad outcomes are even more likely. You could create a post asking this question and use the #askhubski tag. And, just to be clear, I did not suggest the $25k/yr. interviewees not be hired, I merely pointed out that, depending on how they answered the questions, they may end up being problems. You can avoid some of these problems by hiring any candidate, including some of the ones asking for a starvation wage, at a living wage. If you interpreted it otherwise and this was what caused you to run off on the "denying someone a wage" track, then I probably should have been more clear."Is it inherently unethical to pay an employee a low salary?"
Thanks for clarifying. I concluded that you would not hire them when you said
Sorry for jumping to conclusions. So, what would you do? mk and thenewgreen refer to this conversation in the past tense, and if you feel it has run its course, please feel free to say so. I will consider askinghubski, though I am wary of the amount of effort it might take to understand a lot of different people's positions. I haven't even gotten clarity on the terms "living wage" and "starvation wage" which you use as black and white categories. Here are the definitions you linked to: So there is some ambiguity about who will be able to meet basic needs with a given wage. The worker, or the worker and family? Consider this scenario: Alice and Bob work in the same office, with the same role, at the same level, with similar performance and seniority. As one would expect, their salaries are very similar. Bob is married to a doctor and lives in a paid-off single family home. They have a dog but no kids, and enjoy spending time in their vacation condo. They have no debt. Alice is a single mother of three. She lives in a rented townhouse. She has student loans outstanding as well as significant credit card debt because of chronic bad luck with the used cars she buys. Alice is thinking about declaring bankruptcy. Bob is thinking about buying a Maserati. As I said, their salaries are similar. Is it a living wage or a starvation wage? Since public assistance in the United States is typically means-tested on a household basis, there should be nothing immoral about an employer hiring Bob at any salary while he is living comfortably. But if his circumstances change, say following a divorce, he may start qualifying for public assistance. Nothing has changed in his relationship with his employer; is the employer now acting unethically?I did not suggest the $25k/yr. interviewees not be hired, I merely pointed out that, depending on how they answered the questions, they may end up being problems.
No matter which way you look at it, you're going to have problems if you don't pay your employees a living wage.
That allows a family to meet its basic needs, and provides it with some ability to deal with emergencies, without resorting to welfare or other public assistance.
money paid to workers that is not enough to pay for the things (such as food and shelter) that are needed to live
I am not a business administrator or economist. I have a liberal arts degree. Utilitarian arguments are interesting, but I would like to explore the ethics of low-wage employment. I see I left out a feature of Alice and Bob's situation you need to know before answering my question. Let's say that the particular area they live in is average, so the cost of living is about $37,000 a year. Is their salary a living wage or a starvation wage?
Still probably a starvation wage, even though it might be easier to live on $37k in rural Alabama than in NYC. I base this mainly on the fact that wages are lowest in the Deep South, and (surprise, surprise) they also have the highest proportion of people on Medicaid and welfare. We can argue about the virtues and vices of free market economic all day, but the fact of the matter is that there is empirical evidence, the absolute, scientific gold standard of what actually happens in the world that shows that low wages are bad for everyone.
If they really are both equally as qualified and will give equal output, then yes of course I would. I might throw in an incentive that any additional output beyond what you would have expected with 1 employee will result in some sort of revenue share for them. Maybe a profit sharing model where they get a payout per whatever % the company is up over last year etc. This way you win and they can potentially get beyond that $50k with the bonus system.
I like this approach. More people benefit; possibly needier people benefit, everyone wins. But NotPhil makes a very good point that I hadn't considered. The ADA and EEOC will kick your ass if you make the mistake of hiring a minority, old, female or disabled person at a discount. Make damn sure you only hire young healthy white men.
Also similar: Wal-Mart's low wages cost taxpayers $1 million per year.