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jackZOPA
When two people are negotiating, they both have an implicit limit on what they're willing to accept. That limit may be a good one or a bad one depending how good your other options are (your "Best Alternative to Negotiated Settlement").
Between those two limits, the worst one person A will accept, and the worst one person B will accept is the range of possible agreements they can come to. In an ideal negotiation, there's a good range which is still very beneficial to both parties, and it's not important exactly where they split the difference, they're both better off.
In a modern society, we rarely actually negotiate -- buying mass produced goods at a fixed price is much more common. So when we do negotiate (a new job, a new house, or a new car), we're often stressed and unsure, and feel like there should be an objective "fair" price we can turn to.
Inequalities of negotiating position
Normally the fair price is "somewhere in the middle". If you're a statesman or a used-car salesman, you may have to spend a lot of effort shifting the potential agreement around within the ZOPA, which is necessary to your job, but ultimately useless to society.
If you're an idealist or a geek, you may avoid thinking about it and hope for the best -- if person A and person B founded google.com together, it would be unfair if one got 99% of the profit and one got 1% of the profit, but they're still millions of times better off than walking away and getting 50% of somethingelse.com.
But the unfairness is sometimes really obvious. The "fair" wage for a job is somewhere between "the minimum people will do it for" and "the most the company can afford to pay". It's not one or the other. But if there's a small number of companies and many potential employees, the company can ignore "what it can afford to pay" and just make the wage the least people will still work for. If there's one national union and a small number of companies, the wage may be "the most the company can afford to pay", or even more.
You can't say "this value is right", but you can often say "this value is wrong", if one party gets almost all the benefit out of the deal.
This is why people who say "if you agreed to something, it was by definition fair" are so tragically wrong. If the bargaining power is approximately equal, fairness will often emerge (sometimes with a helping hand). If the bargaining power is unequal, the result will usually be unfair.
Minimum Wage
This is basically what minimum wage does. People who paid less than minimum wage are typically in a bad bargaining position, so the proportion of the value they bring to the company which is reflected in their salary is prone to being "the least people will accept" and nowhere near "the most the company can afford to pay" (unless, by coincidence, those are identical, but there's no reason they should be).
Theoretically, the minimum wage should restore the equity to a position closer to what the free market would have found if the inequality of bargaining position hadn't distorted it (without waiting until people are desperate enough for general strikes and revolution).
If minimum wage were equal or more than the salary people bring to the business (with a small safety margin), then the naysayers would be right -- companies would literally be unable to afford employees and would shrink or go bust, or abroad, or employ people under the table.
So, the minimum wage should be somewhere in that range. I and many people think it could be higher. Other people think it's already too high. I've heard people describe a minimum wage which is too high, not in money, but in job security, and the bad result was that most people had temporary unofficial jobs outside the regular system. But in order to argue that, I think someone has to point specifically to those sort of problems, not just offer vague platitudes.
When two people are negotiating, they both have an implicit limit on what they're willing to accept. That limit may be a good one or a bad one depending how good your other options are (your "Best Alternative to Negotiated Settlement").
Between those two limits, the worst one person A will accept, and the worst one person B will accept is the range of possible agreements they can come to. In an ideal negotiation, there's a good range which is still very beneficial to both parties, and it's not important exactly where they split the difference, they're both better off.
In a modern society, we rarely actually negotiate -- buying mass produced goods at a fixed price is much more common. So when we do negotiate (a new job, a new house, or a new car), we're often stressed and unsure, and feel like there should be an objective "fair" price we can turn to.
Inequalities of negotiating position
Normally the fair price is "somewhere in the middle". If you're a statesman or a used-car salesman, you may have to spend a lot of effort shifting the potential agreement around within the ZOPA, which is necessary to your job, but ultimately useless to society.
If you're an idealist or a geek, you may avoid thinking about it and hope for the best -- if person A and person B founded google.com together, it would be unfair if one got 99% of the profit and one got 1% of the profit, but they're still millions of times better off than walking away and getting 50% of somethingelse.com.
But the unfairness is sometimes really obvious. The "fair" wage for a job is somewhere between "the minimum people will do it for" and "the most the company can afford to pay". It's not one or the other. But if there's a small number of companies and many potential employees, the company can ignore "what it can afford to pay" and just make the wage the least people will still work for. If there's one national union and a small number of companies, the wage may be "the most the company can afford to pay", or even more.
You can't say "this value is right", but you can often say "this value is wrong", if one party gets almost all the benefit out of the deal.
This is why people who say "if you agreed to something, it was by definition fair" are so tragically wrong. If the bargaining power is approximately equal, fairness will often emerge (sometimes with a helping hand). If the bargaining power is unequal, the result will usually be unfair.
Minimum Wage
This is basically what minimum wage does. People who paid less than minimum wage are typically in a bad bargaining position, so the proportion of the value they bring to the company which is reflected in their salary is prone to being "the least people will accept" and nowhere near "the most the company can afford to pay" (unless, by coincidence, those are identical, but there's no reason they should be).
Theoretically, the minimum wage should restore the equity to a position closer to what the free market would have found if the inequality of bargaining position hadn't distorted it (without waiting until people are desperate enough for general strikes and revolution).
If minimum wage were equal or more than the salary people bring to the business (with a small safety margin), then the naysayers would be right -- companies would literally be unable to afford employees and would shrink or go bust, or abroad, or employ people under the table.
So, the minimum wage should be somewhere in that range. I and many people think it could be higher. Other people think it's already too high. I've heard people describe a minimum wage which is too high, not in money, but in job security, and the bad result was that most people had temporary unofficial jobs outside the regular system. But in order to argue that, I think someone has to point specifically to those sort of problems, not just offer vague platitudes.
no subject
Date: 2013-04-16 03:09 pm (UTC)Suppose I want to own a townhouse in Mayfair, i.e. something extremely scarce and in high demand. My bargaining power is far weaker than the seller's; I'm going to end up paying through the nose. The two statements seem inextricably linked.
Moreover, nobody buys or sells anything in a vacuum. If inflation rises, employees will demand more money; if suppliers increase their prices, manufacturers will try to keep wages down. One bargain is contingent on the next, in cycles, throughout the economy.
Fundamentally, the problem with the minimum wage is that there is no lower bound on the value of work someone might be capable of. There are certainly plenty of jobs — answering the phone, for example, or checking out my purchases in the supermarket — that a decade ago were done by people and are now done by machines. How does the minimum wage interact with the adoption rate of automated checkouts?
Also, minimum wages are national, where a lot of jobs can easily be shunted from one country to another.
I think the minimum wage is the wrong solution: let employees and employers negotiate, then have the welfare state support those who aren't earning a living wage. But make sure nobody behaves monopolistically in the labour market.
no subject
Date: 2013-04-16 05:13 pm (UTC)Consider someone on less-than-living wages; if the government tops up their pay until they can afford to live, what incentive do they have to try to get a pay rise? If they get paid more, the government will just take some support away, leaving them exactly where they are, unless they can get paid _enough_ more to be over the minimum living sum...
And generally it's assumed you should have workers who have an incentive to want a pay rise, because then they will work harder in order to impress their employers enough to justify a pay increase.
no subject
Date: 2013-04-16 06:04 pm (UTC)Currently, unemployment benefit is a smidgen under £4,000 a year. So say someone who earns nothing gets that. Above that, earnings are taxed at 50% until they reach £8,000 a year, so someone who earns £1,000 a year gets to take home £4,500 and sees a definite benefit from their earnings. At £8,000 a year, they take home exactly £8,000 a year.
Then, at some level above that, income tax starts to bite progressively so people take home less than they earn.
The precise numbers and percentages could of course be tweaked in all sorts of ways.
no subject
Date: 2013-04-17 11:13 am (UTC)I'm not sure I'm right, and certainly I don't have a complete definition of bargaining power, but I don't think it's empty.
You agree that monopolies have the effect of being able to charge a higher price for something, even if the demand is the same? If all the widget sellers get together and double prices, then you can either pay twice as much or do without widgets. And if they're smart, they'll set the price just below the "better to do without" point. Even if the amount of widget-demand and the amount of widget-manufacture are the same?
That's something like what I mean by "bargaining power" although I'm sure there's a more precise term. That in addition to how scarce/valuable/etc the commodity is, the price fluctuates according to the people negotiating -- how much time they're willing to spend, how much effort they're willing to spend developing alternatives, how urgent it is for them, how much they know, etc, etc. And many of those are unavoidable, but some can be manipulated, and as some level of manipulation it causes a problem.
I'm not sure that's right, does it make sense?
I think the minimum wage is the wrong solution
Yeah, it seems good to me, but I'd happily consider alternatives, I'm not sure which would work best.
no subject
Date: 2013-04-17 11:22 am (UTC)They're illegal, but they do happen anyway. When they do, they're a source of unfair bargaining power.
no subject
Date: 2013-04-17 04:03 pm (UTC)I think forming a monopoly is one very prominent way of "unfairly" increasing bargaining power, but there are others too. (Of course, exactly what counts as unfair is up for debate, but I think _some_ tactics are unfair, and bad for everyone in the long run if they shift competition from "be effective and offer a better service" towards "manipulate people into using your service even if it's bad").
I assumed everyone would agree cartels are bad. (And that it's still effectively a cartel if companies choose not to disturb the status quo on prices even if they don't explicitly communicate about it, which I think is much more accepted in modern society.) I do think that, but wasn't the point I was trying to make.
I'm not sure exactly what I was trying to say now, but I think it was that "companies employing people on minimum wage may function as a (effective) cartel on wages for low-paying jobs".
no subject
Date: 2013-04-17 03:46 pm (UTC)If you're talking about the problem that there are fewer employers than employees and so there's a bargaining power mismatch, then this sounds like the problem that trade unions are intended to fix.
no subject
Date: 2013-04-17 03:54 pm (UTC)There are logistical difficulties to persuading "everyone in Birmingham earning minimum wage" to form a union and negotiate as a unit[1], and it would be especially prone to people not already in the union undercutting the "union" wage. Legislation seems to solve the same problem more directly (if you don't think it's likely to be set too high).
[1] In fact, are you even _allowed_ to have unions across a whole swathe of unrelated jobs?