Saturday, September 6, 2014

Minimum Wage: YOU determine your OWN fate

B from A Path to Forever Financial Freedom wrote me a comment in response to my previous post, so I thought I'd share my thoughts and have this as my post of today.

 I think minimum wage will decrease productivity in the long run, increase costs for the business and a competitive side to the already demand driven economy.

Not sure how it will.helps throughout.

Hi B (and other readers),

I think the productivity effect on minimum wage to businesses will be similar to the effect of other rising costs of businesses, like transportation and land costs. Reps of the government have said that they will not protect businesses from these costs because it will force out low-value industries and push them up the value chain. If they are not able to survive the rising costs and create enough value for themselves, their industry should die out in Singapore. This is why we don't have low value industries like simple agriculture. Other than public goods like education and civil services, our private sector is largely unprotected from the world. This is not a bad thing.

Similar to how transport fleets are downsized and better managed, and secondary premises/outlets are shut down or combined together, I see a similar effect on low-wage workers if a blanket minimum wage is to be implemented. Total workers will be cut down, and the remaining workers will be forced to handle the same total volume of work, but with divided between less people.

While vehicles may be scrapped and land give way to more productive uses, there is nothing to cry about. However, unemployment creates a social issues that threaten the livelihood of people and creates instability in our society. Minimum wage legally creates unemployment at the margins, to the people who are in most desperate need to earn an income with their limited skills.

In the cleaning industry, I must admit that I am an outsider, but I don't believe that there is much extra productivity to be squeezed out from those already working. Now, those that are left working will be forced to perform and delivery what their wages ought to justify. If they are not able to deliver the output, there will always be an immediate replacement with the exact same costs and willing to produce closer to the output required.

One of the few comedy news that I like to watch is John Oliver. He reports on deeply serious social and international issues, and puts in a comedic spin to keep viewers involved. I respect his work because he is delivering these important news content to otherwise ignorant people. I usually agree with most of his views and opinions about many things, except for his take on the minimum wage:

Businesses are not required or expected to share their profits with employees. The employee provides labour and salary is the exchange for that. Expecting companies to share its profits with employees or the rest of society is downright, blatant socialism. Unlike governments and the public sector, the private sector NEEDS to turn a profit, or it would cease to exist. A company that doesn't make profits, will not continue in business. No business = no jobs. Proponents of this minimum wage socialism fallacy have a very narrow view on this issue.

So what if McDonalds made $5.5 billion? Minimum wage should be increased because they made a profit? So, would the current minimum wage would be okay if they broke even? Should minimum wage be DECREASED if they made a loss? They will of course say no. This is a selfish illogical argument. They want all the upside with none of the downside. Sorry hunny, welcome to the real world.

Businesses are not the problem. The problem is the employee's expectation. Labour cost should be the amount that any person is willing to work for in exchange for salary. If there is always someone out there in the job market willing to work for less than you and deliver the same quality output, then they deserve the job. You do not deserve that job. What makes you think you are entitled to it?

The only way to stay ahead of the labour curve as an individual is to learn, progress and keep running faster than everyone else to keep the advantage you have. The Red Queen Theory.

While the idea of socialism is great, rainbows, unicorns and all, it has failed time and time and time and time again. The capitalist model is definitely not perfect, but it is stable and less crappy than the other models that civilization have tried out in the past.

We should work towards improving this current model that we have, not trying out a previous model again. If you want to fail, all you have to do is to keep doing what you have been doing. If you want to succeed, you have to do it differently.


  1. Hi

    Thanks for the thorough response.

    I think it does make sense what you are trying to present here. It is interesting that the min wage law is designed to protect those unskilled low wage labour but yet you think it will harm them otherwise.

    I used to work as a part time labor in the US while studying and how I love those wages paid to me. In the event where demand outcry the supply those low skilled labor could be squeezed very badly indeed.

    1. Hi B,

      Sorry, I had a lot of on my chest about this issue because I was discussing it with my friend, hence the long reply that went OT.

      Wow B, I never knew that. Just curious, but as an "insider", were there always vacancies for jobs or did they have to turn away people?

      Yes, hopefully the government's push towards skills upgrading can really move us into higher value jobs so that the demand for jobs will shift up the value chain and not cause oversupply of low-skilled labour. This will benefit the individuals that upgrade in increased wages and society's in reducing structural unemployment.

      I hope the (overly dramatized doomsday) negative scenario that I painted does not happen, since it is the livelihood of our citizens at stake. Hopefully the cleaning industry wages really have been suppressed that this wage increase is entirely justified and does not have the negative impacts I imagine.


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