What’s Wrong With Our Debate Over Higher Wages

What’s Wrong With Our Debate Over Higher Wages Photo (cc) by Annette Bernhardt

Two recent stories about America’s underpaid workers and the effort to give them a break remind me just how much more we need to talk about class warfare, and propaganda, and economics … but most of all, what’s going on at dinner tables around the country. (That’s the point of The Restless Project.)

A quick review:

  1. A bartender was left a “Why I don’t tip in Seattle” note after a dinner by a patron railing against that city’s new $15 minimum wage law.
  2. A Seattle company CEO decided to pay all his employees at least $70,000 after learning the true cost of housing nearby. Then, The New York Times reported the company, which processes credit card transactions, had begun to struggle. Some cheered the news as new evidence that workers need incentives to perform well.

America has a very real and very serious economic problem. Wages have essentially been stagnant for years — decades, arguably, since a man first walked on the moon. Really.

Young people can’t afford homes, and they aren’t buying them, instead choosing to live with their parents well into their 30s. Really.

In an economy that’s two-thirds consumer spending, this is a ticking time bomb. People need more money. There’s only three ways to get them that money — the government can give it to them, or they can work for it, or we can lower prices on everything. I’m sure we all agree that No. 2 is better than No. 1, and it’s a whole lot better than No. 3.

The problem is it’s going to be very hard to get people higher wages in an environment that has become so toxic to the idea.

Just to put the numbers out there for anyone who hasn’t done the math (and don’t feel bad if you haven’t. During a recent discussion a smart friend of mine who makes about $60,000 a year, said $15/hour was more than she made. It’s not. Not even close).

Assuming a minimum wage worker scores 40 hours at a job, that’s $600 a week, and $2,400 for four weeks. Pretax. Guess what the average rent is in Seattle? $1,500 for a one-bedroom apartment.

Remember, this is for the new wage that Seattle workers must be paid by 2021 (for smaller businesses that allow tipping). So that fellow who left that note instead of a tip?He failed to tip a worker who hadn’t actually gotten a law-required raise yet.

Hold that thought for a moment (I promise a happy ending) as we move to the sad story of Seattle payments firm Gravity and CEO Dan Price, who decided to create his own internal minimum wage at $70,000 annually. The raises are to be phased in during the next three years — a web developer who earned $41,000 was bumped up to $50,000, for example. Sounds like a good employee retention plan to me.

But The New York Times found a couple of 20-somethings who seemed to vaguely think there was something wrong about this, and you have an Internet sensation of a story. Three months after the announcement, Gravity is in trouble. And as you might imagine, folks who seem to dislike higher wages jumped at the Internet chum.

“Note to all CEOs everywhere: Don’t make a move like Price’s without first consulting Hayek, Von Mises, or Friedman,” said Investors.com smugly. I’m sure your Facebook news feed is full of even more glib comments about why paying workers more makes them lazy.

Price’s poorly executed publicity stunt no doubt ruffled feathers. Mind you, it also got him a few hundred more clients, which seems to be lost in all the chatter. His real problem, however, is his brother, who is a part-owner. He hates the wage idea and is now suing.

So what’s the important lesson here: Don’t pay workers more, or don’t change your entire compensation structure without getting buy-in from ownership?

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