This article was originally published at Mises.org on July 23rd. Ryan McMaken is a senior editor at the Mises Institute. He has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.
Ryan McMaken – August 18, 2019
The Washington Post reported last week that some workers on the Bernie Sanders campaign are calling for a wage increase to the equivalent of 15 dollars per hour. This, of course, is the hourly rate which Sanders has long pushed for in legislation and on the campaign trail.
But that’s more than what many Sanders employees make per hour.
Many campaign workers are salaried, so the problem lies in the fact that total campaign salaries, when calculated on a per-hour-worked basis, come out to less than $15 per hour. Many employees work around 60 hours per week — as is often typical for full-time workers on a presidential campaign.
As reported by the Des Moines Register,
For a staffer working 40 hours a week, [the typical campaign salary] comes out to about $17 an hour. But 40-hour workweeks on presidential campaigns are rare.
So, some Sanders employees have complained they aren’t earning a “living wage” and have demanded Sanders raise wages immediately. Recognizing the bad optics of the situation, Sanders apparently began looking for a way to raise the per-hour wage.
But how to do it?
If we use the typical rhetoric surrounding the minimum wage debate, then the answer is simple: the employer — in this case, Bernie Sanders — should take a pay cut or reduce his own wealth in order to pay employees more.
After all, this is what we typically hear about why employees are not paid more: they are only paid so “little” because the owners are “greedy” or unwilling to share the wealth.
In Sanders’s case specifically, we could conclude he should be willing to sell off some of his substantial real estate holdings or devote some of his income from book sales to paying his employees more.
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So what is Sanders’s solution?
Not a Raise in Terms of Total Income
According to the Register:
Sanders said the campaign will limit the number of hours staffers work to 42 or 43 each week to ensure they’re making the equivalent of $15 an hour.
It’s not really an increase in total earnings for workers, of course, although workers do now have time to work a second job. Workers won’t be getting any closer to that “living wage” they keep talking about, but by cutting hours for salaried workers, the campaign can claim it raised hourly wages. The move is a masterstroke of cynical public relations.
There are a couple of things we can learn from this.
First of all, we learn that Sanders is not willing to put his money where his mouth is. He’s not willing to use any additional portion of his personal wealth to supplement worker wages.
He is willing to cut back on campaign activities to raise the per-hour wage. In other words, by cutting worker hours, the Sanders campaign elected to provide fewer “services” in the form of campaign activities. In practice, this will likely mean fewer rallies, less travel, or fewer television ads.
The Long Term Effects
Ironically, in the longer term, this may nonetheless turn out to represent a very real pay cut for campaign workers by reducing their employment options moving forward.
Given that the campaign must cut its campaign activities to increase per-hour pay, the change makes it harder for the Sanders campaign to compete against other candidates. A campaign failure will affect the future earning potential of current campaign workers. If the Sanders campaign loses, this will have significant impacts on the ability of many campaign workers to obtain jobs within a new Sanders administration as administrators and political advisors. Those jobs will be largely filled by workers from the campaign of the winning candidate. That is, a Sanders loss will mean Sanders workers will have greater trouble finding new jobs as government employees or on other campaigns. By hurting the campaign’s chances for success in the present, those who demanded higher pay are also damaging their career prospects in the future.
Applicability to the Private Sector
Mostly, however, this controversy within the Sanders campaign just helps to illustrate that employers can’t conjure up higher wages out of thin air. In the real world, raising wages (without first increasing productivity) means cutting back somewhere else. Neither campaigns nor for-profit firms are exempt from this reality.
After all, unless a campaign is self-funded, it must bring in revenue and spend those revenues in hope of achieving a certain goal. In the case of campaigns, the goal is to increase the candidate’s popularity and electoral prowess. This then leads to a greater ability to raise more revenue. In this respect, a campaign is like most any business: revenue spent wisely leads to more revenue.
Sometimes, increasing wages can help. But it is often also true that increasing wages may be harmful to a firm’s (or campaign’s) ability to increase revenue.
Say, for example, a firm paying 12 dollars per hour is compelled to begin paying 15 dollars per hour. This change could be due to legislation, or unionization, or merely through a public relations campaign shaming the company into paying more per hour.
The Sanders campaign, when faced with public shaming, slashed worker hours. But there are other strategies as well. For example, an employer could forego new hiring, and attempt instead to substitute labor-saving devices for workers. These devices could be anything from automobile-building robots to self-serve scanners at the supermarket. An employer could also reduce the range of goods and services, eliminating the more labor-intensive ones. At a restaurant, for example, an employer could remove — or refrain from adding — more labor-intensive menu items.
Or, employers could move toward types of services that require fewer employees. We see this in the rise of “fast casual” dining in which patrons order their food at a counter and bus their own tables. Fewer waiters means lower labor costs.
All of these options could then allow the employer to cut back hours or forego hiring without actually laying off workers.
From the business’s perspective, however, all of these options are sub-optimal. If business owners had reason to believe these strategies were the best way to raise revenues, owners would have already used them. Firms only switch to these strategies when the price of labor becomes inflated, and thus less economical.
Losing Out to the Big Firms
Moreover, by replacing workers with robots, cutting out services, or scaling back on products, a firm may be making itself less competitive.
Of course, in the case of a system-wide wage hike — as with a legislated minimum wage hike — some might say, “that’s not a problem because all employers have to pay more. So no one gets a competitive advantage.
But this isn’t true in practice. Some firms — mostly larger established firms — will be able to weather a mandatory pay hike better than other firms.
A firm that already has more market share — for example — will be able to outlast a firm that has less market share. The same is true with a firm that has lower per-unit costs due to economies of scale. Forced to pay higher wages, a smaller firm also now has fewer resources to develop new and innovative products designed to take market share away from the larger firms. At the same time, larger firms can more easily borrow money and find the resources necessary to replace workers with kiosks and robots. Small firms who lack much access to capital will lose out.[1]
The result will be concentration in the industry: smaller and less-capitalized firms will go out of business. Larger firms will gain even more market share. Ultimately, consumers will pay more as a small number of firms can then raise prices more easily. And workers will have fewer options among potential employers — and this will mean wage compression at all levels above the mandated minimum.
Thus, not only will a minimum wage hike mean fewer products and services offered per firm, it may also mean fewer firms providing products and services.
It’s debatable, of course, whether or not the Sanders campaign provides a “service” many people want. But by cutting back on total hours in order to pay higher hourly wages, the Sanders campaign is illustrating what private firms must do whenever government regulators and legislators raise costs: they must become less competitive.
The result is workers working less, firms offering fewer services, and smaller start-ups losing out to bigger competitors.
Unfortunately, Sanders is unlikely to learn anything from the experience.
Image source:Wikimedia
[1] We could apply this situation to the campaign trail. A billionaire candidate who is self-funding his campaign could potentially pay his workers a higher wage and thus outlast the other candidates since he has more resources to draw from. All the while he could claim to be “generous,” but what he’s really doing is just outspending his competitors.
