By Catherine Rampell
New York Times, Economix, July 23, 2009
Introductory economics generally teaches that the goal of all companies is to maximize their individual profits, all other greater social, moral and economic consequences be damned. But clearly the events of the last year have caused many people to question Econ 101 — including the idea that businesses shouldn’t care about anything besides the near-term bottom line.
It was in this context that I wrote on Wednesday about a somewhat surprising petition, in which employers — who are usually considered predictable opponents of government-mandated pay increases, which could reduce profits — supported tomorrow’s federal minimum wage increase.
In response, some of the employers wrote me to explain their somewhat atypical views on this issue. Most of their e-mail messages were about the challenge to simultaneously “do good” and “do well.”
Excerpts of their comments are below.
Richard L. Schaper, president and principal of WealthSteward Consulting, Mill Valley, Calif.:
The increased economic polarization in recent decades contradicts American values, violates canons of justice and threatens social stability. Financial excess has brought hardship for the many who had no hand in causing it. The ship needs to be righted and increasing the wage paid to those at the bottom is an essential part of this.
John Mitchell, principal, Interaction Law, Washington:
“‘Doing the right thing’ by making the business act with human values creates a huge competitive disadvantage on price. The ‘free market’ will always obligate corporate managers to race to the bottom on treatment of humans.”
I’m one of those businesses that supports a so-called living wage and refuses to pay less than $12 an hour, but in all honesty, having left a mega law firm, I am now a sole practitioner, and my hiring tends to be just for occasional temporary short-term labor. But you are right — for a company for which low-wage labor is a significant cost, paying $12 an hour when a competitor is paying 30 percent less is sure to create competitive pressures when it comes to pricing the resulting product or service. That is the primary reason we need a higher minimum wage. I’ll explain.
For-profit corporations (let’s focus on publicly traded ones here, where “management” and “ownership” are in separate hands) have an obligation to shareholders to make as much money as possible. “Voluntarily” paying wages higher than the minimum is pretty much illegal, unless done for a profit-making purpose. That is, management is effectively spoiling the stockholders’ dividends if they pay higher wages than necessary just to be nice.
Smaller private corporations and sole proprietorships, on the other hand, where the owner and manager may be the same, can afford the luxury of allowing a human’s conscience to dictate corporate behavior that would be unlawful for the public corporation manager. Yet, “doing the right thing” by making the business act with human values creates a huge competitive disadvantage on price. The “free market” will always obligate corporate managers to race to the bottom on treatment of humans.
It’s strange, isn’t it, how “corporations,” which are, fundamentally nothing more than property owned by other corporations or human beings, have an obligation to act without human emotion toward humans. They have an obligation to look out for their owners’ economic interests without regard to the impact on other humans (unless obligated, by law, to have regard for it).
Thus, you are right, that we cannot generally expect publicly traded for-profit corporations to support an increase in the minimum wage so long as they see some other competitor — perhaps in a developing nation or repressive society — able to pay less for labor. Labor is nothing more than a commodity — something on the ledger sheet. Some, with management able to look beyond the basics, might support a higher minimum wage — perhaps because they are in a service industry that cannot be replaced with cheaper foreign workers, but perhaps because they look beyond the next quarter’s bonus to the long-term health of the corporation; health spurred on by happier, healthier employees and a happier and healthier consumer base. But the visionaries are still facing daily price pressures. And here is why many would support a higher minimum wage: Even if 25 percent of companies favored an increase in the minimum wage, voluntarily increasing the lowest wages by 30 to 40 percent might be suicidal. The only way they can afford to do it and remain competitive is if all of their competitors are forced to.
In short, for us humans, paying a fair wage for an honest day’s work is second nature, but for profit-making fictional people — corporations — it is not only unnatural to do so, but may even be unlawful if shareholders can claim waste. All corporations benefit from a well-educated, healthy and happy work force, but it proves too tempting to shift that responsibility to the shoulders of the public unless forced to contribute. It is high time we stopped allowing fictional persons (mere property, with no greater reason for living than an office chair) to use real people’s lives as something to be “consumed” for the benefit of shareholders. Since corporations are creatures of law, the simplest and most elegant solution is that the same lawmakers who enabled their creation condition their continued life on a minimum level of treating humans — a level that serves to 1) level the playing field with their competitors, so there is no competition to pay the least for labor; 2) stop free-riding off of the expectation that the public will continue to provide cheap labor to replace humans who have become too “used up” to work (while the public shoulders the cost of rehabilitating the corporate “waste” of human illness); and 3) ensure that those who profit from human labor will contribute their fare share to the well-being of humans, starting with the well-being of the humans they employ.
Corporations were made for humans, not humans made for corporations. At bottom there is no need whatsoever to ask the corporation (the property) what wages humans should be paid. We should be asking humans what a fair wage is, and any corporation unable or unwilling to pay it has no right to get away with less. Humans have rights a corporation should not go near.
Anthony Tsang Yee, president, Eng & Yee Designs, Inc., Manhattan:
The general public and specifically those on the lowest rung of the work day pay deserve a living wage for their efforts. At present day standards this should be pegged at $10 per hour and likely to rise.
All politicians, all corporations, all enterprises that hire illegal aliens have too long exacerbated this situation for decades now. It is high time that this situation be remedied. We as a society stand to gain on all fronts if wage earners and their families would be enabled to enjoy the fruits of their labors. Medical care would not be an unnecessary nightmare. Homeownership would become a reality and not a distant fantasy. Education would not be a dream deferred.
Richard Ketring, president, VHS Commercial Services, Ashland, Wis.:
“The focus of a business should be on service, quality, customer care and employee relations and not on the bottom line.”
I have always paid above minimum wage. The employees of my company are the backbone of the business. Without them there is no business. The more an employee is able to take home to meet their personal and family needs, the better able they will be to come to work ready to work. The cost of high turnover that those that pay minimum wage is often not factored in to their business model. The focus of a business should be on service, quality, customer care and employee relations and not on the bottom line. You should write for The Wall Street Journal. Your cynicism would be a better fit there.
Rohit Millstein, Millstein Advisors, Jacksonville, Fla.:
I’m a small-business owner but don’t have any minimum wage employees, nor would I ever. So in that sense, the mandate doesn’t matter. Minimum wage employees are also unlikely to be my customers. But they are members of my community. As such, even $7.25 an hour is unconscionable.
“I have a degree in economics from the University of Chicago. … it appears that most of what I learned was not all that correct.”
Thirty years ago when I was in college, the minimum wage was about $3 an hour, and that’s what I was paid for various typing and research assistant jobs around campus. In real terms, today’s minimum wage is nowhere near as much. …
Apparently most local governments have also come to the conclusion that the feds are way behind and impose higher local wages anyway.
That any business group would object “especially in times of recession” to this increase is for that group to reveal a breathtaking ignorance of the readily available data. …
Turns out I have a degree in economics from the University of Chicago, 1977. Even with honors. Although I still value the training in how to be analytical, it appears that most of what I learned was not all that correct.
Marianne Dickinson, co-owner, No Place Like Home, Albuquerque, N.M.:
I’ve always paid my workers, even unskilled laborers, more than minimum wage for two reasons:
1) I can recruit and retain good workers and expect high productivity from them, and 2) no human can live decently on the minimum wage in this country — been there, tried to do that.
If that makes me a liberal, so be it. I think it just makes me a patriotic American who believes everyone deserves to make a better life for themselves — and that my making a better life for myself should not be at the expense or exploitation of others. There are plenty of resources to go around.
As for other small businesses here in “poor” New Mexico, most of the independent owners I know also pay higher than minimum, pretty much for the same reasons.
Copyright 2009 New York Times Company
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