Economic Thought Question
What if every worker received minimum wage?
by Marshall Brain
Here is the thought question for today:
What if every worker in the United States got paid minimum wage for the work they do?
It doesn't matter who you are or what you do. Whether you are working in McDonald's mopping the floor or you are the CEO of McDonald's. Whether you deliver the mail for the President or you are the President of the United States. No matter who you are, you make $5.15 an hour for the work you do, and everyone's total income is capped at $11,000 per year. What would happen if we did that?
The reason why we might choose to do that is because the wages of most workers are headed in that direction anyway. Corporations all over the nation have been pushing worker wages down to the minimum wage level:
We all know about the burger places. They have created a burger assembly line where millions of restaurant workers now make minimum wage.
In the 1990s, HMOs started pushing the wages paid to physicians downward for the first time ever. Minimum wage can't be far away for doctors.
Southwest Airlines built a new discount travel model by paying pilots and flight attendants less than industry norms for the work they do. Now the whole industry is following Southwest's lead because they have no choice if they want to compete. Wages across the airline industry are falling. Once that becomes the norm, someone else will come along to beat Southwest and cut wages again. Many commuter airline pilots make near minimum wage already. It's just a matter of time before everyone in the airline industry is making minimum wage.
Wal-Mart took away business from the small town downtown and hired all those store owners for minimum wage.
Wages everywhere are under pressure and headed toward minimum wage anyway. Why don't we simply short circuit the process and take everyone down to minimum wage now, in one fell swoop? It would be a lot less painful that way. And let's include CEOs, executives and politicians in the process. If a major corporation cannot afford to pay a clerk more than minimum wage because of pressure from competitors, then there is certainly no way the same corporation can afford to pay the CEO and other executives $10 million a year. The practicalities and realities of our business environment should apply to every part of the business, not just to one segment of the workers. Everyone, from the CEO on down, should make minimum wage to maximize the corporation's competitiveness.
No one is spared: The president of the United States, all the politicians and bureaucrats, CEOs and executives, business owners, lawyers, doctors and dentists… everyone. If you get a paycheck, you get minimum wage. No exceptions.
What would happen if we did that?
Perhaps most importantly, it would save the economy a lot of money. According to the New York Times Almanac, businesses hire 105 million people per year and pay them just over $3 trillion per year (the figure does not include government employees), for an average wage of roughly $30,000 per year. At $5.15 an hour and 40 hours a week, all 105 million of these employees would start making a uniform $10,700 per year at minimum wage. By doing that, the $3 trillion figure would fall to $1 trillion. The economy would save $2 trillion every year. The drop in prices would be spectacular, because $2 trillion represents $20,000 per U.S. household. Something that costs $10 today might see its price drop to $4.00 or less. Even though we would all be making minimum wage, that wage would buy far more in the economy than it does today. Everyone in the country would be able to live a comfortable middle class lifestyle.
What would happen to highly paid people like TV/movie stars, corporate executives, sports stars, radio personalities and so on? Their salaries would go from millions of dollars a year to $10,700 a year. Would it be a catastrophe? No. In all likelihood, absolutely nothing would happen. Is Rush Limbaugh going to give up his soapbox if he got paid less? Probably not. I imagine he likes the fame and influence his show gives him. He is going nowhere. Are Peter Jennings, Dan Rather and Tom Brockaw going to quit? Probably not. They like the fame too. The stars of popular TV shows? No… they cannot get into the best restaurants, have adoring fans or get Emmy awards unless they appear on their shows.
But if they do quit, it is not a problem. Johnny Carson left the Tonight Show, and we got Jay Leno. It was not a catastrophe. If Dave Letterman leaves Late Night because he does not like the pay, we'd get another host. It would be OK. There are thousands and thousands of people who would love to have Dave's, Rush's or Jay's jobs.
Would CEOs leave? Maybe. But if they are good CEOs, they love what they are doing building companies and leading people. If they don't want to do it unless they get paid $15 million a year, that probably tells us something about them. We probably don't want them leading a company anyway if they are only in it for the money. If we replace them with people who actually care about the job and the company, we would all be better off. We could have completely avoided Enron, Worldcom, etc. and the resulting stock market collapse if we had had good, honest people filling the CEO roles in those companies.
As you start to think about this new minimum wage reality, you begin to realize something. Most people -- especially the ones who are highly paid today -- would stay in their current jobs. The perks of fame and power would keep them there. So here's the question: Why isn't supply and demand governing the pay of CEOs, TV celebrities, sports stars and supermodels, driving their wages down just like everyone else?
Think about the President of the United States. We pay him $400,000 a year. Thousands would kill for that position, so why pay the president anything? Will the winner of the presidential election reject the job just because the pay is only $10,700 a year? Of course not. Most people would gladly take the role of "most powerful person in the world" regardless of the pay. The same goes for members of the Senate and House -- why don't we pay them minimum wage now? Thousands would love to take their places in Congress. There is infinite supply and little demand, so why do we keep boosting their pay?
We use this "supply and demand" logic to force worker pay down to minimum wage -- why not apply supply and demand to the upper echelon too?
No one wants to scrub toilets or take out the trash at McDonald's. On the other hand, lots of people would LOVE to have the upper echelon jobs, so why are their salaries any more than minimum wage?
Here is the fascinating side effect that a purely minimum wage economy would have. It is subtle, but it is something to consider. If all the jobs paid the same, many people would go do things they've always wanted to do. For example, some people would love to teach, but they can't stomach the fact that teachers make such low amounts of money. Now the stigma would be gone -- teaching would pay just as much as everything else. A minimum wage economy would give people a lot more freedom in choosing their career paths, and might lead to a lot more job satisfaction.
Which brings you to a funny point… Think about what would happen. If all jobs in the U.S. paid minimum wage, the President, politicians, bureaucrats, CEOs and executives would stay in their seats. They'd never give up the power. So would all the TV, movie and sports stars. They'd never give up the fame. So would all the scientists, engineers, writers, photographers and so on. They aren't doing it for the money anyway -- they love being creative. In fact, in all likelihood nothing would change except for one thing.
No one working in the worst, most disgusting jobs would stay in those jobs. The garbage men. The people scrubbing the toilets at the fast food restaurants. Things like that. Those are the jobs that you would really have trouble filling. In fact, you might have to create a special exemption to the universal minimum wage law. Certain jobs that are minimum wage jobs now -- they would actually have to pay more than minimum wage to get anyone to take these jobs. The entire pay hierarchy that we see today would flip over, and the jobs that pay the worst today would start paying the most.
It is fascinating actually. It shows you how strange the economy has become. If supply and demand were truly regulating wages, the people with the best jobs would get paid the least, and the people with the worst jobs would get paid the most. So why is it the other way around? The only reason the rich get paid any more than the rest of us is because they are in the position to write themselves checks. They are handing money to themselves in ever-increasing amounts. This process is concentrating wealth at an ever increasing rate. The only reason that the people with the most boring, most disgusting jobs get paid the least is because the economy as it works today uses the power of economic coercion to force them into those jobs.
Our world might actually work much better if we all got paid minimum wage.
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Let's continue this thought experiment one step further. Imagine that we have created a nation where everyone is getting paid the same wage. The nation has settled into this new reality and it is working surprisingly well.
Now a person stands up and says, "I am more ____ than everyone else, so I deserve more. I deserve a 30,000 square foot house in the nicest location, and I want a private plane to fly me wherever I need to go, and I want my own private vacation areas so I don't have to mingle with the riff raff." The blank could be filled in with almost anything:
"I am more intelligent than everyone else, so I deserve more."
"I am more beautiful than everyone else, so I deserve more."
"I am more talented than everyone else, so I deserve more."
That is the norm today, but under this new reality we would look at such a person in a completely different light. What, exactly, do you do with a person who is acting like conceited bore?
If a person were to say, "I am white and you are black, so I deserve more than you," we would automatically recognize that statement as ridiculous. It was not always that way, however -- there was a time when we accepted that statement as a fundamental truth, and we built our society around it. We once enslaved millions of people simply because of skin color. Today we recognize slavery as an abomination, and we understand that skin color is meaningless.
Extrapolating from that example, consider this. Why do we accept a statement like, "I am beautiful and you are not, so I deserve more than you," or, "I am smart and you are not, so I deserve more than you," or "I can sing and you can't, so I deserve more than you," or "I am articulate and you are not, so I deserve more than you."? How are these other genetic variations different from skin color?
Think about the American Declaration of Independence:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
Can the majority of people have liberty and pursue happiness if the richest 20% of the population makes half the income and the richest 10% of the population owns half the stock market?
We all understand that some people work harder than others, and therefore they tend to get paid more. That's not what is happening today, however. Today we have CEOs paying themselves thousands of times more than rank and file workers for no reason other than the fact that the CEOs control the check book. It is a pathological concentration of wealth.
Concentrated wealth of this magnitude tends to destroy liberty for the population as a whole. The wealthy gain the ability to have a much larger voice in the media than anyone else because they can buy ad space and media access. The wealthy gain the ability to have a much larger voice in court than anyone else by hiring large groups of the best lawyers. The wealthy gain the ability to have a much larger voice with the government than anyone else through large campaign contributions and lobbyists. Extreme wealth corrupts the democratic system. Wealth gives a small group of people the power to disrupt the lives of many others.