What would happen if employers were allowed to pay workers 5 dollars an hour?

Sure, employers should have that freedom. No one would work for them and the company would go out of business.

Why would an employer deliberately be uncompetitive? For ideological reasons? If he doesn’t have employees, he has no business.

And what sort of an employee would seek out and agree to a job that doesn’t pay a living wage? How is the employee going to pay rent and buy gas and food? Those will still cost the same – it’s the idiot employee who would be underselling his services.

This sounds like another one of those conservative purist people who has no idea about life in the real world.

I can’t imagine anyone agreeing to work for 5.00 an hour unless they were getting tips along with that amount. In today’s economy, it would be very difficult to live on that salary.

@rockfan Why stop at $5.00? Why not 10 cents/hour? For that matter, why pay them ata ll? Just call them slaves. You can feed them and have them live in squalid conditions.

It creates a race to the bottom when the unskilled labor market has no floor—especially in a monopsonistic labor market like we have today. This reduces tax revenue, which limits the government’s ability to invest in improving the productivity of the labor pool via education and meeting basic needs. People that could be market drivers and innovators end up picking potatoes in a field somewhere. It creates a rot from the inside out and destroys potential value.

Unemployment is currenty at 3.6%, and businesses can’t fill open jobs at $19 an hour at places like Starbucks and McDonalds.

Maybe you could pay someone $5 an hour as long as you paid them for 40 hours but they got to come in whenever they wanted.

They should have every right to put themselves out of business. $5/hr is not even worth showing up for so who would? The only way that wage would fly is if it’s something people would do for free anyway. That would not affect the economy. $5/hr is a laugh in their face offer from even the most unskilled workers.

If everyone was doing it, every employee would have to work, but would have to work 3 jobs. The rich would get richer, the poor would get poorer. What choice would one have but to comply with the system?

It’s the sort of “let them eat cake” mindset that allows you to walk through life oblivious to the hardships of others. And you can bet your ass that the idea will only will only be endorsed by those who’ve never attempted to live on $5 an hour. Other “creative” solutions will pop up if you proffer any argument countering such a proposal as outrageous. If you mention that no one can live on 5 bucks an hour, the conservative solution is that the starvation wage is good for the employee because it allows the employer the “flexibility” to hire the worker’s 6 and 10 year old kids as well, thereby employing the entire family and elevating its standard of living.

McDonald’s Big Mac would be $0.49 not $6.00.

@Tropical_Willie What percent of the cost of a Big Mac is the labor, vs. the ingredients? energy to transport, heat, refrigerate said ingredients, the energy cost to air-condition/heat the restaurant, rent, repairs and maintenance, depreciation of the computers/furniture/equipment, business insurance, franchise fees, marketing, taxes, etc.?

A percentage of the work force would only be paid $5.00. Probably a small percentage, but it would be happening in some places.

@gorillapaws and let’s not neglect the requisite advertising, lobbying/bribery/pr budgeting.

“Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they lose their jobs or fail to find jobs when they enter the labor force. Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount—and, if it is not, that worker is unlikely to be employed.”

-Thomas Sowell

1. Lower wages -> more jobs.
2. Less consumption -> less jobs.
3. Cheaper labor -> less investment in productivity.
4. Greater profits -> more investment in productivity.
5. Less total money going to the poor, because some people with the new jobs would lose benefits and the people with existing jobs would lose wages.
6. Because of #5 and fewer stay-at-home parents, worse childhood and educational outcomes.
7. Because of #1, better opportunities for on-the-job training.

Overall bad. If we had better government benefits, good.

@capet But lower wages force government benefits. The same folks decrying government handouts are exactly those claiming enforcement of a living wage, heavy handed government interference.

This is the age old argument between those that believe in Capitalism and those that do not. Your work has value and that value is set by skills, education, or other measurable criteria. If the wage is too high, other means of accomplishing the work are employed. If the wage is too low no one is willing to accept the job. It is only when the value of the work and the compensation for it are in balance, that the economy flourishes. The minimum wage artificially disrupts that balance.

Here is a list of minimum wage by country. It’s not totally apples to apples, because the wealth and economies of countries around the world and the value of the money varies, but part of the variation is the difference in wages. Countries become wealthier and more prosperous when wages are high enough that the middle grows to be a very significant group in the economic strata. Look at the list, which countries do you want to live in?

Wages are partly determined by market forces, but sometimes an employer has an immense amount of power and takes advantage of it.

Both extremes are bad in my opinion. No minimum is out of the question to me. Too low of a minimum still not good. Too high, also not good.

A minimum can make it easier for employers who want to pay more to pay more, because then all of their competition has to pay the better wage also.

@capet “Overall bad. If we had better government benefits, good.”

So you believe in the Walmart model of paying wages, i.e, have others subsidize the wages through medicaid and food stamps.

This thread is an excellent discussion of why unions are necessary.

@Tropical_Willie “McDonald’s Big Mac would be $0.49 not $6.00.” Not true. If our society has proven anything, it’s that businesses do not pass on savings to consumers. They keep it in their grubby greedy little hands.

@rockfan Low wages mean less spending. Less spending means fewer profits for all businesses. Businesses will start to fold with small businesses falling first. Crime will rise. Homelessness will rise. The government will have less money to give to social programs that help the poor, more jails will open and eventually our economy and the market will collapse. There is an old saying, you have to spend money to make money. You get what you pay for. A crap wage will get you a boat load of crap.

Nothing. People are free to contract for anything that isn’t illegal. If it isn’t illegal to pay $5/hour no problem. The market would work to bring this in line with what is customary for the work and the area.

Oops, I think I forgot the link. https://en.m.wikipedia.org/wiki/List_of_countries_by_minimum_wage

In a truly capitalistic world, offering $5/hr would have a couple results. If starting from pay in today’s world, this company could not entice workers to go to work for them. BUT, if they could stay in business for any length of time, their competitors might start lowering wages as a way to maximize profits. Eventually all companies could be offering $5/hr and that would be what the wages were. This would drive the cost of everything down by necessity. People making $5/hr could not afford all the prices of today’s world. So sales on everything would take a hit causing prices to come down to tempt people to buy. Eventually we would hit a new standard that would slowly start going up again. Companies, in an effort to entice better workers, might start offering $6 or $7/hr. That would slowly start things moving in the other direction.

The problem with this question is that employers couldn’t afford to just drop pay that much all at once. The most likely outcome would be that company going under. But if minimum wage was suddenly reduced to $2.50/hr, you might see a massive move to lower pay and costs of services/goods as a way to gain more customers with less output.

Many moons ago, the minimum wage was $2.75/hr. At that time I was making $6.50/hr. I was able to rent a small apartment for myself, put gas in my tank, pay for college classes without a student loan, put food on my table and have electricity and water/sewer. The only way you will ever see that again is if the entire economy tanks, we all go through the mayhem of that collapse, and then, as we come out the other side, things will start over again.

@seawulf575 “Eventually all companies could be offering $5/hr and that would be what the wages were.”

Correct. There would be a race to the bottom.

”...This would drive the cost of everything down by necessity…”

Nope. Here’s where you go offtrack. This is only true if companies pass on those cost savings to their customers. Furthermore, the cost of labor is only a fraction of the total cost of a good or service, so if wages plummet by 50%, prices will not drop by an equivalent amount.

”...People making $5/hr could not afford all the prices of today’s world. So sales on everything would take a hit…”

True. Sales would plummet. which leads us to:

”...causing prices to come down to tempt people to buy.”

No. In some instances good and services are very inelastic and price changes won’t affect demand much, and likewise with other goods and services, they are elastic and will respond to price changes. The problem is in such a scenario, people who are laid off, ONLY buy the necessities. No amount of discounting will entice buyers. And the savings from cheaper labor doesn’t come close to making up the reductions in revenue you’re predicting.

What you end up with when you have a negative demand shock like that is LAYOFFS.

monopsonistic Wow – learn something new every day. Thanks @gorillapaws!

Deflation would ideally counteract the lowering of pay, and everything would balance out. Lemonade stands would close. Unless they would charge $5 a cup. Business owners and entrepreneurs would do the work of the whole business from mopping floors and serving customers. Only contract or outside hires would survive, as they don’t have to pay minimum wage.

Relative pay would be an issue. Also people would leave the workforce in droves to places and industries that pay more competitively, or quit the workforce entirely and move back home.

I have only been in a minimum wager job. It was at video rental business, and I was fired after the first month.

The opposite is true for having a higher than average living wage. Employers would still do most to all of the work in the business.

Too low a pay then few would apply for the jobs, as Too high a pay would disincentives hiring of new employees. What we need is a healthy middle. Not too low and not too high.

@gorillapaws I don’t believe I was off base where you think. ” This is only true if companies pass on those cost savings to their customers. ” That is a true story…and it would have to happen. If people were making $5/hr and the companies are trying to charge like they are making $15/hr, no one will buy their products. Competition would drive the price down. Because business A wants to charge more, business B would try to undercut them. Since production costs have gone down, they can afford to. Everyone starts buying the cheaper B products, A would have to drop prices to keep competitive.

You continue trying to apply current pricing and costs to the hypothetical to disprove it. “In some instances good and services are very inelastic and price changes won’t affect demand much” Which ones? Remember, manufacturing costs have gone down. Just in wages alone they have gone down, but that is across the board for all costs. Because everyone in this hypothetical is making less, all costs of production have gone down so the price of goods used in services will likewise go down, reducing the costs of these goods and services you say are inelastic even more.

The flaw in the entire thing is human greed. We could not suddenly go back to reduced wages. If you allowed the lowest end of workers…the entry level person…to suddenly take a wage hit, it wouldn’t work. ALL workers would have to take a similar cut. That is top to bottom in every company. And that wouldn’t happen. The only way it could happen is if you could wave a magic wand and have all the wages drop all at once. You’d also have to drop other prices as well…things that have already been bought but are not paid for in particular. Houses and cars comes to mind. They are things that many people own and owe on. If you already bought a house that was based on one wage and then suddenly took a huge pay cut, you would likely not be able to keep up payments.

@seawulf575 wrote a long expose above. Surprisingly. I agree with mich of what he said.

I’ll summarize it in 4 words.

It will never happen

@seawulf575 Many moons ago, the minimum wage was $2.75/hr. At that time I was making $6.50/hr.

Ib today’s dollars that would be a minimum wage of $12.35/hour and you would be making the equivalent of $29.18/hr. That sounds about right for a person with more than entry level skills and experience.

@Strauss That may be true, but my point was that the world worked just fine with a minimum wage of $2.75/hr, so making $5/hr is possible. But it is harder to go backwards with pay than it is to go up.

@seawulf575 @Strauss Is on point here. It’s actually worse considering inflation numbers are manipulated into looking much better than they really are. That’s not even really debated anymore, it’s a matter of fact.

@Blackwater_Park The point is not the $/hr…it is inflation. Inflation is more and more dollars chasing less and less product. If we stopped the printing presses running non-stop and dropped the number of dollars out there, each one would be worth more. That is why we have to convert what was with what is. If you started paying everyone $5/hr as a starting wage, it would mean there were less dollars chasing the same amount of product. The cost of the product would have to come down and that highly elevated inflated number @Strauss gives (which is probably fairly accurate) would also come down. But as I previously stated, it could not happen without other artificial changes taking place at the same time. And those won’t happen.