The Tragedy of Minimum Wage
Tuesday, December 2nd, 2008I read Fast Food Nation by Eric Schlosser over three years ago, but I still vividly remember the story of Kenny Dobbins, told on just a few pages near the middle of the book. Kenny, uneducated and unskilled, started working at the Monfort slaughterhouse when he was twenty-four. Kenny felt very loyal to the Monfort company, and he even protested labor unions after his supervisors told him that they were bad. One day, a heavy box fell on Kenny and he was pushed into a conveyor belt. A piece of metal pierced his back. He took only a few days off work but had severe pain when he returned. He had back surgery, but it was ineffective. The stressful situation ruined his marriage. About a year after surgery, he returned to work. The company made Kenny do strenuous physical labor to try to make him quit his job. He was completely unaware and thought the best of his employers. One Saturday, Kenny was called in to disinfect the slaughterhouse buildings. He was not given proper protective clothing and suffered severe chemical burns in his lungs and on his skin. After spending time in the hospital, he returned to work with sensitive lungs. One night, he was driving a company truck. He stepped out of the truck and was hit by a train. Another time, Kenny broke his leg walking on the uneven slaughterhouse floor. Monfort continued to give him strenuous work, including carrying bags of knives up and down several flights of stairs. About sixteen years after beginning employment at Monfort, Kenny had a heart attack at work. While on leave after the heart attack, he was fired. However, no one called to inform him. He only found out because some of his checks were returned. He did not get a pension, so he filed for a law suit. The money he won was used to pay for his lawyer. (The full excerpt can be read here. Scroll to p186. It includes more tragic details and describes one notable act of bravery by Kenny.)
The story of Kenny is a memorable, real-life example of how many low-wage American employees are disposable to large corporations. Kenny was a loyal, hard-working and trustworthy employee to a company that simply traded him in for more efficient labor. He was disregarded as a human being. His courage and reliability earned him very little respect. Instead, when Kenny was injured several times (on the job) and his efficiency dropped, he was fired with no compensation. From the impersonal perspective of the large company, there were many people ready and willing to take Kenny’s job. Kenny as a person was less important than the potential for increased profit from a more viable worker. It is possible for companies to disregard current employees and easily hire new workers because there is an excess supply of workers. There are more people who want jobs than there are jobs available.
Part of what creates this excess supply of labor is the minimum wage. From an economic perspective, the minimum wage draws a line across the supply and demand curves. Because the minimum wage is above the market wage (essentially the wage that would exist without government regulation), the minimum wage creates a situation where companies supply less jobs than they would at the market wage and more workers are willing to take the jobs. The graph below helps represent this concept.
The blue line is considered the supply curve. It represents the supply of workers to the job market. The horizontal axis (L) represents labor. The vertical axis (W) represents wage. As wage increases, the supply of labor (blue line) increases. In other words, as the salary of a job increases, more workers are willing to take that job.
The red line is considered the demand curve. It represents the demand for workers by companies in the job market. As wage increases, the demand for labor decreases. In other words, as companies pay each employee a higher salary, they offer less jobs. If companies pay lower wages, they have money to offer more jobs.
The market wage (W0) appears where the supply curve intersects the demand curve. This represents the wage at which the number of jobs being offered is equal the number of people willing to work for that wage. There is neither an excess of jobs nor an excess of workers. L0 is equivalent the value of labor demanded and the value of labor supplied.
A minimum wage puts a “floor” in the graph. The dotted line Wmin represents a minimum wage that is greater than the market wage. Companies are not allowed to pay less than this wage. Looking at the intersection of the red demand curve and the dotted minimum wage line, the labor demanded is L1. If companies must pay a minimum wage, they only demand L1 of labor, which is less than L0. Companies demand less workers at minimum wage rates than they do at market wage rates.
The minimum wage has the opposite effect on the supply of labor. Workers want more jobs at the minimum wage than they do at the market wage (L2). With companies demanding less jobs, and workers supplying more labor, there is an excess supply of labor. This is considered unemployment.
People like Kenny are not valuable to companies when there is an excess supply of labor. If one worker is injured, he can easily be replaced because there are many unemployed people willing to work at the minimum wage rate. Without a minimum wage, companies would demand more employees (provide more jobs). The number of jobs provided would be closer to the number of employees willing to work at the wage rate, and unemployment would decrease. Individual employees would be more valuable to companies because they could not be so easily replaced.
I do not necessarily advocate for elimintion of the minimum wage. This is just one argument. I would like to hear others. What should America do for people like Kenny? Is the minimum wage causing more harm than good?
