Originally Posted by YelloJeep
I keep hearing your idea for paying based on the "poverty rate" and I must say it is an interesting idea. Interesting, but I still am not sure how comfortable I would be with the meddling with supply and demand.
The Tragedy of the Commons shows us one example of how a completely free market will strangle itself. The tragedy is usually illustrated as 4 ranchers sharing a common grazing land. When each rancher is completely unencumbered (when the market is completely free) or insufficiently regulated at any level of government (whether a simple pact between the ranchers; a federal-level law; or anything in between) the "commons" will be destroyed.
Regulation isn't always a bad thing.
The problem with the commons is a matter of perception. The perception is that any gain (fattened cow) will be earned by the individual rancher, but any loss (depleted grazing land) will be shared by all 4 ranchers. No rancher can control the actions of the other 3 ranchers (free market) so any losses the other three create for him are out of the rancher's control, and he "Just deals" with them. For each cow he fattens on the grazing land, he attributes 1 cow worth of meat gained, and 1/4 cow worth of pasture depleted. The best option for any one of these ranchers is to put as many cattle on the land as possible, get the maximum amount of benefit possible. Whether 1 rancher or all 4 subscribe to this philosophy, the commons are destroyed quickly.
Regulation isn't always a bad thing.
A good regulation does nothing more than shift the full detriment of putting a cow on the land to the rancher doing it, instead of distributing it among all of them. Instead of hiding 3/4 of the damage he causes in things outside of the control of others, create a system where the rancher will be responsible for one full cow worth of pasture depletion for every cow he puts on the land. A usage fee, for example. Charge each rancher some amount, say $100, for each head of cattle he puts on the land. Throw that money in a pot. Periodically empty that pot, distributing it evenly among the 4 ranchers. If every rancher puts the same number of cattle on the land, no money changes hands. But, as the land becomes depleted, the cattle aren't fattened as much, they're worth marginally less, and one rancher may choose to reduce his herd and collect his share of the usage fee instead. Fewer cattle on the common land means less depletion.
Is it stupid that he's being paid for not working? Is it stupid to be paid for allowing someone else to use your land?
Anyway, the point is that an intelligent regulation does nothing more than ensure one is taking full responsibility for their actions, rather than hiding the negative effects of their actions on others. Companies that increase the poverty rate also increase the demands for public assistance, for instance. They contribute to ALL of the effects of poverty, including increased crime rate, decreased educational opportunities, increased insurance rates, decreased property values...
So far, I've focused on the stick, but there is also a carrot. Any company that beats the poverty rate is a net benefit to society, a net benefit to the economy. I see no reason why a company that hires 100% of its employees above the poverty rate should be forced to pay the same amount of taxes earmarked for public assistance as a company that only meets the poverty rate, or a company that increases the poverty rate. Give them a tax break.
Anyway, I have always had a problem with the whole "poverty rate" number generated for the country. The cost of living is MUCH different across the country. Someone living in NYC living below the povery line is going to have quite a different quality of life than someone living in South Carolina (for instance). I have had family from the New England area come and visit and they are amazed at how much house you can get for even $150k. Apparently, you can hardly get a shack for that price up there. That is just an example. I think that is one of the issues with basing anything on the poverty rate.
Minimum wage is incredibly sensitive. A penny difference, multiplied times 40 hours a week times every full-time job in the US is a huge chunk of change. Any mistake made in deciding minimum wage is going to be multiplied drastically and have huge and immediate effects on the economy.
This "poverty level" guideline isn't very sensitive to the actual number for the poverty line. (The line is the dollar amount per unit time. $18,000/yr, $20,000/yr, $8.65/hr, etc) The reason for this is that the poverty line and the poverty rate (the percentage of people living below the poverty line) are intrinsically linked. When you arbitrarily adjust the line, you also adjust the rate. When you raise the line, you increase the number of people living below it. When you lower it, you decrease that number. Since businesses are not being asked to pay everyone at least the LINE, but rather, to meet or beat the RATE, the predominant factor employers need to concern themselves with is not the regulation itself, but market conditions. A mistake of a few dollars, or a few hundred dollars, in the poverty line is offset by the effect it has on the poverty rate.
I suppose we *could* run this system at the national level, but calculating the poverty line and rate at a local level offers huge benefits for businesses, poverty-stricken regions, and the poor.
Suppose that Ableville and Bakersfield have a similar distribution of people by income levels. Suppose 20% of the population of each is earning less than 22k/year. Suppose 10% of the population is earning less than 18k/year.
Ableville sets their poverty line at 18k/year. Bakersfield sets theirs at 22k/year. Any large company in Ableville must pay at least 90% of their employees at least 18k/year. The other 10% can earn as low as minimum wage and be compliant. If they hire people to perform 4000 man-hours of work (100 full-time employees or 200 half-time employees) at least 3600 hours must be at or above the poverty line, and 400 hours (10 full-time or 20 half-time workers) may be paid as low as minimum wage.
Any large company in Bakersfield must pay at least 80% of their employees at least 22k/year. The other 20% can earn as low as minimum wage and be compliant. If they hire people to perform 4000 man-hours of work (100 full-time employees or 200 half-time employees) at least 3200 hours must be at or above the poverty line, and 800 hours (20 full-time or 40 half-time workers) may be paid as low as minimum wage.
In practice, the total labor costs at either company are likely to be quite similar. You give even your menial laborers periodic pay raises, because as cheap as it is to hire a new menial laborer, it's cheaper to hold on to the ones who know what they are doing and have proven themselves willing to do it.
In either case, any company that can meet these standards is a net benefit to the economy, and any large company that can't meet these standards is a net detriment, creating additional burdens in the form of welfare, etc.
Let's remember: MOST businesses already pay the vast majority of their employees well above poverty wages. Most businesses will have no problem meeting this objective. It's the few exploitative businesses that will have a problem with this.
But I do agree with you, the poverty level is not currently defined well enough to make this work. At the national level, I would define poverty in terms of a "basket of goods" - the products and services that can be expected to be consumed over unit time. I'd leave it to state and/or local government to actually fill that basket and determine the local poverty level, and corresponding rate.
Also, just out of curiosity which businesses in particular are you talking about? is it Wal Mart?
Walmart is one of the most well-known offenders, but it's hard to assign blame to any one company. Remember, the competitors of the exploitative companies are forced to do the same thing to stay in business. At that point, they become exploitative themselves. Walmart tends to get the lion's share of the blame because they are generally the most successful in their field.
There are a number of other highly profitable large companies who tend to increase the number of people in a region living in poverty rather than decrease it. Large companies that compete with those businesses, large and small, who would be willing to pay above poverty wages. Most places that rely heavily on unskilled, menial labor are currently guilty of this to some extent or another. Not all.