Let's do some math, because it's fun, and sometimes it reveals something about the universe. And frankly, I'm motivated to talk about this, after seeing support for a $15 an hour wage get countered with "well, why not a million bucks an hour?" And that's actually a good question; I know it's not meant to be, but it really is kind of good. So let's do some math.
We'll keep the math simple. Suppose Bob make widgets, it takes him an hour to make a widget, and he works a standard 8-hour day. Each widget sells for $30, and it costs him $10 in raw materials to make it.
How much can Bob make in a day? Here's the math I was warning you about. There are 8 widgets a day. $30 sale price, minus $10 each materials. 8*($30 - $10) = $160. One hundred sixty bucks profit. Everyone still with me?
Who should get that $160? I'd say Bob. Let's leave discussion of taxes, and other stuff like that, for another day. But I think even the most liberal minded person would be pretty comfortable with Bob putting the money in his pocket. Go Bob! You rock! Thanks for the widget!
Hypothetical Fun Time
And now, let's make life a little more tricky. Suppose the market for widgets takes off, and Bob can sell a heck of a lot more of them. More than he can make himself. He needs help. So let’s bring in Charlie, a fellow looking for a job, and he's willing to make widgets (and he's quite good at it -- even better than Bob). Charlie is able to make two widgets every hour, and there are customers waiting eagerly, with dollars in hand.
So, the philosophical question.... How much should Charlie be paid to make widgets? An important point -- there's no simple mathematical answer. And before you start maligning the character of either Bob or Charlie, let me stress that they’re both hypothetical characters, designed to illustrate a mathematical concept. Relax, this is just a thought experiment. I don’t need to hear about the failings of either of them, how Charlie is shiftless and lazy, how Bob doesn't recycle his garbage, or how either of them deserve what’s coming to them.
Enter Capitalism
Every single hour, with Charlie putting in the effort, there are two widgets produced. Each widget brings in $20 more than it costs for the materials, so there's $40 of profit to be divided up. Charlie shows up for work, and the dough starts rolling in. Charlie is like a printing press for money.
Why not have the minimum wage be a million bucks an hour? Well, there's not enough money, right? Easy answer. No way the hourly rate could be above $40, because then Bob would be losing money, and it would make zero sense for him to hire Charlie. And Charlie probably isn’t asking for a million bucks an hour; that would an insanely high amount to make, it’s not like he’s a CEO of a multinational corporation or a basketball player.
But should Charlie make $5 an hour? $10 an hour? $15? Suppose we say that the wage is $15 per hour, and Bob has a tantrum. He says he's going to fire Charlie.... But that doesn't make any business sense. Even at $15, Bob is putting $25 in his pocket every single hour, and not even doing any work. Bob can be having a martini in the club, he can be bribing a senator, he can be hunting an endangered animal in Africa -- and he gets $25 (or more) an hour, any way you slice it. He'd be a fool to fire Charlie.
So, what's all of Bob's bluster about? It's to drive down Charlie's wage. If Charlie makes $10 an hour, Bob gets $30. If Charlie makes $15 an hour, Bob gets $25. Every dollar that goes into Charlie’s pocket is a dollar that does not go into Bob’s pocket. When the job market is tight, Charlie might not have options — and Bob has a lot of leverage. If there are lots of job openings, then Charlie can turn the tables, and demand more from Bob.
And that's a short bit on algebra and economics. How much should someone make an hour? Tricky question. No single right answer. There’s a lot of negotiation that goes on, and Bob and Charlie have different objectives.
Not So Hypothetical
So I’ve got a few friends who see themselves as Conservatives, Capitalists, maybe even Libertarians. Or at least something other than a tree hugging tie-die hippie free peace leftist liberal freak such as myself. The little math blurb above will (hopefully) make a point that I think ought to be made.
There are many companies that are making a very good profit. The management at Wal-Mart is wealthy beyond belief. The McDonalds execs can jet-set around, as can many others in the top 1%. I don’t think it’s a stretch to say that there are some people in our society who are not hurting at all for cash.
Where did all their wealth come from? Did they pull an extra shift, make more widgets, put in long hours? No, of course not. They’re “Bob” run amuck, lifting dollars out the paychecks of all the people that work for them. These dollars never make it into Charlie’s pocket — Bob grabs it before Charlie ever sees it (and it’s in Bob’s best interest if Charlie has no idea how much money he’s really bringing in to the company).
While Bob might pat himself on the back, and crow about how hard he’s working — it’s Charlie that actually makes stuff and creates the wealth. Bob has just managed to wrangle a good portion of the value that Charlie creates.
When the Koch brothers bellow like sea lions about how it will be the end of the world if companies have to pay a living wage — come on, let’s be real about this. The fear is that they’ll have to go from four private jets down to three. And if Charlie is able to put a little money in the bank, rather than living paycheck-to-paycheck — he might be able to start a business of his own, and compete head-to-head with Bob.
All the hubbub about minimum wage? I’m not looking for Charlie to get a hand-out. Charlie should do some work if he wants to get paid. I’m not opposed to Bob making a living either; capitalism can be a good thing. But there needs to be some sort of balance. And with the widening gap between the insanely rich, and everyone else — I’d argue that the balance needs to be shifted to reward the working poor.