Saturday, 15 November 2014

How to Circumvent the Minimum Wage (Maybe)

Would it make a difference if the government were to command employers to pay nothing or more to their employees, as compared to a situation when the government did not order anyone about? The former might be annoying; akin to someone telling you over lunch not to stick your fork in the eye and turn (and threatening punishment if you do anyway), but aside from the nuisance of useless advice, maybe there would be no effect?

Perhaps somebody were prepared to pay for the "privilege" of working for someone else. Then the government's command would destroy a valuable opportunity. But the fact that a person is willing to pay to work somewhere indicates to me that it is really the "employer" who provides the service. Thus, the roles are reversed: employer is now employee and employee is employer, as "the present now will later be past, for the times they are a-changin'". Problem solved.

Which leads me to wonder, why do not prospective employees who would like to be working for the minimum wage but cannot because their work is not valuable enough simply hire their employers? The employers would do some sinecure such as guarding a wristwatch. This is easily done, since they might just carry it around, looking at it occasionally, say when wondering what time it is. The wage would be the minimum one and the wage paid to the previously unemployed fellow would be the minimum wage plus what little money his labour is worth. He is paid on net an amount less than the minimum wage.

A concrete example: suppose the minimum wage is $5.00. The worker's labour is valued at $3.50, so he hires his boss at the minimum wage to carry a watch around. The boss hires the worker at a wage of $8.50 to do some proper work. On net, the boss pays the worker $3.50 and it is all legal (and perfectly morally acceptable - if not why not?).

I am ignorant, but I hope to better myself by asking questions. So, is there a law against this or what is the reason these relationships do not exist? Maybe there are fixed costs to hiring someone, or maybe the additional income to the employer working for the minimum wage would be taxed fairly steeply, but then the otherwise unemployed could settle for less instead. If the transaction costs are too great, why not outsource the matching process to a third party that hires the employers on behalf of the workers, paying them the minimum wage ($5.00), and hires the workers on behalf of the employers, paying them $8.50. Such a middle-man could charge $5.01 and $8.51, respectively, for its services.

As far as I can tell, the data on who makes minimum wages show no wristwatch-carrying employers, so I am pretty sure this way of circumventing minimum wage legislation is not legion. But if even I can think of ways to get around idiotic price floors, then others should have developed much more sophisticated techniques. Maybe this is part of the reason why researchers ever and anon fail to find disemployment effects of increases in the minimum wage.

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