A man named Chris Oliver, someone I do not know at all, made the following statement on someone’s Facebook page:
Employers don’t pay employees what they can afford to pay, they pay what they can get away with paying.
My reaction is yes, so what?
The only thing I know about Mr. Oliver is that he supports a higher minimum wage and he made this statement in an attempt to refute the standard argument economists make against the minimum wage, namely that it hurts the most vulnerable unskilled workers because it tends to price them out of the employment market. It thereby creates unemployment among the very workers who will have the most difficulty overcoming it.
Without knowing Mr. Oliver, I think his statement says a lot about him. First, he doesn’t understand how a competitive economy works and second, he doesn’t understand human nature very well. If he owned a business that employed others he would pay them the least that he could get away with paying them, no less than any other employer.
Here I assume the reader is familiar with the economists’ argument that in a free-market economy where employers are permitted to fire workers and workers are free to take advantage of the best opportunities they can find, the amount that an employer pays its workers will invariably reflect the productivity of those workers, and that will be the minimum the employer “can get away with” paying them.
Mr. Oliver is disturbed that employers are greedy and do not act with benevolence toward their employees. Adam Smith warned us in 1776 that we cannot look to the benevolence of anyone else for our sustenance, but in a free-market economy we can look to their regard for their own interest to provide us with a cornucopia of goods and services at prices determined by the free market. A job is obtained in the same way, by looking not to a prospective employer’s benevolence but to his regard for his own interest.
Mr. Oliver is perhaps a very fine man in every respect, but in this matter he is engaging in child-like thinking about human nature and world reality. He imagines that he knows what someone else can afford to pay a worker and that it has no relation to that worker’s skill and productivity. If he really cares about the plight of the least skilled among us he should vigorously support ending the minimum wage altogether. If the minimum wage were abolished tomorrow new avenues of employment would open up for low-skilled workers, enabling them to gain the job skills they will need to obtain more lucrative employment in the future. Anyone who began working at a young age in unskilled endeavors knows that it is always easier to get a better job if you already have a job.
Here is a real world example: Several years ago I hired a lady to make regular checks on my house when I’m away, and to feed my beloved two cats. That task includes cleaning cat boxes. I asked how much she would charge and she said ten dollars per trip to my house. I knew that to be below the current market for such services, so I replied that I would be paying her $15 per stop at my house. She was grateful. Nothing here had the slightest thing to do with any benevolence on my part. I knew that even though I might get her cheaply, it would not last because she would easily figure out that she was being exploited and then I’d lose her. I offered the higher payment because I knew it was the least I could get away with.
Now several years later she’s still taking care of my house and my cats when I’m out of town. The least I can get away with paying her has risen considerably, and I’ve always got out in front of that because she is too valuable to lose. It’s the least I can do, really.