More on the employment impact of raising the minimum wage

by Jehu

Tweep  asked some good questions about my last blog post:

“I read your blog post about Seattle’s $15 minimum wage and I had a question. You did say that we should not tie wages to employment so maybe this question will break that rule. While I agree with the premise that if hours are cut, there is no need to cut employment, what if there is a replacement of workers with machines? Are we assuming that hours cut and wages paid are balance each other out and that the business is paying no more than they had before? If so, won’t the workers still be suffering due to having the same paycheck as before?”

First, I want to emphatically reiterate that we should not under any circumstance consider a higher minimum wage in the context of employment. The purpose of the higher minimum wage is that our subsistence is dependent on the sale of our labor power and this wage should be adequate no matter the level of employment.

Whether at this new minimum wage capitals will be profitable for capitalist firms is not our concern. It is the concern of the companies that now rely on substandard wages to make a profit.

Using unemployment to drive down wages

Today when the profit rate falls owing to the operation of the economy, the state steps in with deficit spending and reducing interest rates to increase “aggregate demand”. It is assumed that by increasing aggregate demand companies will hire more workers, thus reducing unemployment.

However, what economists never admit is that this method of maintaining so-called full employment implicitly relies on rising unemployment to force down wages during recessions.

This is unacceptable. In a society where most people live by selling their labor power, we should no longer accept policies designed to increase employment by surreptitiously using unemployment to reduce wages. Unemployment is not necessary if individual hours of labor are adjusted simply by reducing hours of labor in a crisis, just as today spending and interest rates are adjusted.

This is the only way unemployment should be addressed. It has already been tried in Germany, although its use there is very limited and only temporary. There is no reason why a reduction must be temporary, especially if it results from increasing wages to a level consistent with the complete elimination of poverty.

All a higher minimum wage says is that companies that are not profitable cannot continue to operate at our expense. If you can’t make a profit when workers receive a decent wage, you are out of luck and will have to go get a real job.

We should make it clear in no uncertain terms that we don’t care that businesses will go bankrupt because of higher wages.

Yes, businesses will respond by shedding workers

Businesses can respond to this threat in two ways: first, they can simply declare bankruptcy, close their doors and go out of business. Second, they can introduce improved machinery, technology, organization, etc. and become more productive of surplus value. If they do the latter, they might avoid bankruptcy — might.

I say “might” because their competitors will also be trying to increase their own productivity. And the increase in productivity will increase competition among capitals for a share in the market. Since they are only ever sharing the surplus value we create, we should not care who survives this competition. Ten capitalists may start out trying to improve productivity, but only one or two might survive. I see nothing wrong with this. Let the capitalists destroy each other in their scramble to survive.

You have to think this way for two reasons:

  1. In a society where almost everyone lives by wages, wages shouldn’t be a factor in employment. If you start to let employment determine wages, you start down a slippery slope that ends in disaster.
  2. Wages don’t determine employment, profits do. Whether a capitalist firm hires or not is determined by whether it can make a profit.

Increasing wages puts the onus on the capitalist to raise productivity in order to remain profitable. Companies like Apple and Exxon-Mobil are sitting on piles of cash they aren’t investing because they have no use for it. Aggressively raising wages will force this idle capital into circulation for capital investment to raise the rate of profit.

Might a higher minimum wage lead to replacement of workers by machines? Absolutely.

This is not a defect of a $40 an hour minimum wage, it is also a goal: we want people to have a decent life AND less work. You can only get less work if those who control investment decisions are forced to invest in improved machinery that can do the work that previously required ten or twenty workers. We need that sort of improved productivity if we are ever to get away from a society where people must sell their labor power to survive.

Aggressively raising the minimum wage prevents companies from using cheap labor to avoid investing in improved machinery. Raise wages high enough and capitals will be forced to transition to entirely automated production. We are already on the cusp of this development and only low wages keep it from becoming a reality. Technically, there is no reason for any human labor in production today, but human labor is cheaper than investing in new machines. Women in South Asia are producing clothes by hand because their labor power is cheaper than machines. We must change this.

Will a reduction of hours of labor simply balance out an increase in wages so that there is no net increase in income?

This is a good question.

Someone who earns $10 an hour today might earn $40 an hour tomorrow, but her hours may also have fall from 40 hours to 10 hours. In either case she is only making $400 a week. This doesn’t seem very fair, right? But think about it: the worker previously had to work 40 hours for $400, now she only has to work 10 hours for the same $400. Instead of working 5 eight hour days, she can get by with as little as 1 ten hours day or 2 five hour days. Her total paycheck has not changed, but how much she has to work to earn that paycheck has fallen by 75%.

Assuming her hours exactly offset her wage increase she has seen no change in her paycheck, but, if she is not satisfied with this she can get four jobs paying $400 for the same 40 hours she worked previously. Instead of earning $400 for 40 hours of labor, she can now earn $1600 for the same amount of labor.

But, honestly, is this the point? Is our entire goal just to earn more money by selling our labor power? To reproduce ourselves as workers? If the worker ca now earn a full week’s wage in just one day, what might she be able to do with the remaining six days? Find a cure for cancer? Design the next generation space station? Create a quantum computer on her days off? Instigate and recovery lost artifacts of a long dead language?

In other words, do all the things formerly limited to the very wealthy in society, who, because they enjoyed free disposable time, were alone able to do.

Replacing wage labor with self-development

Now most of her life consists of time she can devote to her own development as a fully-rounded human being and no longer a mere worker. She has shed her primitive husk as a proletarian and become a human being who spends most of her time in free exercise of productive power.

The entire point of raising the minimum wage to $40 is to free the working class from struggling on the edge of existence. Having access to all the abundance of social wealth, she is no longer limited to being just a worker who pinches pennies to eat.

To be honest, the worker will still suffer to have the same paycheck as before, but she will only suffer one day, not five. On the remaining six days, she will not suffer. And, in time, she will not even suffer one day of labor, because she will be free to abolish all need for labor.