David R. Henderson  

Jon Cooper: Force Others to Do What I Do Voluntarily

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"This is great news. Raising the minimum wage will help America succeed," said Jon Cooper, the President of Spectronics Corporation in Westbury, NY. "Employers like me need to do our part by paying a decent minimum wage - closer to what our counterparts paid in the 1960s. At my company, the world's leading manufacturer of ultraviolet equipment and fluorescent materials, fair wages are part of our formula for success."
This is from "Business Owners Welcome White House Support for $10 Minimum Wage" on the Reuters web site. If you don't look carefully, you might think that this is a Reuters story, as I did at first. But the fine print above--and I do mean fine--says "Reuters is not responsible for the content in this press release." I've gotten used to reporters recycling press releases of various interest groups in and out of government. This is something I hadn't seen: Reuters simply reprints a press release.

On to the content. "Employers like me need to do our part by paying a decent minimum wage," says Jon Cooper. OK. So why doesn't he? Why does he need a law to force him to do what he says he should do? He hints at it in the last sentence: "fair wages are part of our formula for success."

And it's clear from context that "fair wages" means wages substantially above the current federal minimum of $7.25. So it's reasonable to conclude that he already pays well above $7.25 and probably above $10.00. But I did a little homework and found the following from a 2009 story:

Cooper, 54, grew up on Long Island. His family started Spectronics, a maker of ultraviolet lighting that he now runs, in 1955. It's a union shop, with 165 employees and a 100,000-square-foot factory, one of the last big manufacturers left on Long Island.

If it's a union shop, I'll lay 10 to 1 odds that the lowest wage the company pays in greater than or equal to $10. Which means that the higher minimum Jon Cooper advocates would not force him to pay a dime more than he's paying.

So then why advocate increasing the minimum wage? One possibility is that he believes in it and realizes that it won't hurt him at all but will strengthen his standing with the Democrats in his state. (Why would he want to do that. Read the 2009 piece.) My gut feel is that that's the most likely possibility.

There's another possibility that is less likely because his competitors probably pay more than $10 an hour already also. But if some of them don't, raising the minimum would hurt them and help Jon Cooper. If so, then Jon Cooper's second sentence should have read:

Raising the minimum wage will help me succeed.


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CATEGORIES: Labor Market , Regulation



COMMENTS (22 to date)

I think you mean something like, 'Raising the minimum wage will keep any start-up from competing successfully with me.'

Joel Johnson writes:

This is about the power of employers vs. the power of workers and how the balance of government intervention on each of their behalves. Not all government intervention is on behalf of workers, but we don't talk about that. We pretend that corporations are a creature of nature and the free market, but they are not. If corporations don't want to pay minimum wage, which is lower in value than it was forty years ago in real terms, they don't have to. They can give up their government granted benefits of organizing as a corporation- limited liability, etc. and go it alone. Nobody is forcing anyone to form a corporation. Can we please have some balance in these conversations and stop pretending that workers somehow have the upper hand in the battle to curry favor with legislators?

liberty writes:
"Employers like me need to do our part by paying a decent minimum wage," says Jon Cooper. OK. So why doesn't he? Why does he need a law to force him to do what he says he should do? ...One possibility is that he believes in it and realizes that it won't hurt him at all but will strengthen his standing with the Democrats in his state. ...[Or if competitors pay less and he walready pays more] raising the minimum would hurt them and help Jon Cooper.

There is another pretty obvious answer to this, not for this case since they already pay above the minimum, but in general: In many cases firms have a small profit margin and cannot raise wages unilaterally without risking losing business/profits (since either their prices must rise to cover the higher wages, or profits will drop, hitting their stock price or ability to invest and expand, etc.) so naturally they would want their competitors to agree to join them in raising the wages of the low-paid workers so that they can do this -- which they may see as the right thing to do and something they want to do -- without being forced out of business. Right?

Similarly, if in this case the company already pays above the minimum wage and competitors pay below it, it could be said that they are not so much trying to *hurt* their competition, as trying to stop their competition from *hurting workers* in order to out-compete them, and thereby possibly forcing *them* to hurt workers in order to keep up.

Brian E. writes:

". . .fair wages are part of our formula for success"

He neglects to mention that another part of their formula for success is forcing all of their competition to pay more for labor.

Glen Smith writes:

It is pretty easy to support a position when you pay no negative consequences for supporting it. He probably even gets positive feedback for his position.

Jon Murphy writes:

@ liberty:

I don't follow your logic. If a business cannot raise their prices initially because it would hurt their margins due to falling demand, why would that change if everybody raised their prices (this is assuming, of course, that businesses not not react in other ways so as they don't have to raise their prices).

As price rises, quantity demanded falls. If everyone raises their prices, but the consumer budgets remain the same, then quantity demanded will still fall. Just because everyone rises their prices does not mean the consumer can weather the higher prices any better.

Jesse writes:
@ Jon I don't follow your logic. If a business cannot raise their prices initially because it would hurt their margins due to falling demand, why would that change if everybody raised their prices (this is assuming, of course, that businesses not not react in other ways so as they don't have to raise their prices).
The impact on the sales of one company raising their prices without their competitors following is much, much higher than an industry as a whole raising their prices, especially if there aren't good substitutes.
Brian writes:

Jon,

Liberty is ignoring, or perhaps doesn't understand, the effect of supply and demand, but is also correctly pointing out the additional effect that unilaterally raising wages out of ethical concern puts the company at a disadvantage relative to its direct competitors. They suffer a double whammy, so to speak.

Your point is an important one, however. Most people who advocate for an increased minimum wage ginore the effect of supply and demand, falsely believing that if EVERYONE has to pay the wage, customers will simply have to accept it and pay up. They don't seem to understand that increased cost, even when universally shared, lowers demand and ends up costing jobs.

Brian writes:

"If corporations don't want to pay minimum wage, which is lower in value than it was forty years ago in real terms, they don't have to. They can give up their government granted benefits of organizing as a corporation- limited liability, etc. and go it alone."

Joel,

This is not correct. Minimum wage has nothing to do with whether the business is a corporation or not. It applies to all "enterprises" with more than one employee with sales over $500,000, to hospitals, schools, any employees anywhere whose product or service crosses state lines, and all domestic service workers. See here for official information on enterprise and individual coverage.

ThomasH writes:

Another data point in the observation that Libertarians may object to all sorts of departures from unregulared markets, but the one that REALLY puts the bur under the saddle is the minimn wage.

David R. Henderson writes:

@ThomasH,
Another data point in the observation that Libertarians may object to all sorts of departures from unregulared markets, but the one that REALLY puts the bur under the saddle is the minimn wage.
I wouldn't say "the" one. I gather you read this blog a lot. I would say the one that upsets Bryan the most is immigration barriers. For me, it's a long list. But it is true that I care particularly strongly about unskilled youth for whom the minimum wage destroys opportunity. I wish you would share that concern, Thomas.

Pajser writes:

If minimum wage is marginally increased, then the prices of the products (services) of the company he works in will increase - but not that much as wages. Hence, demand for products will be reduced but again, less than wages are increased. Hence, average, and with some redistribution every worker, including those who are fired will be better off.

Brian writes:

Pajser,

So increasing the minimum wage is a net gain for everyone? By that reasoning there's no limit to how high the minimum wage should be set. Let's make it $1,000,000 per hour and make everyone immensely wealthy!

I would say, on the contrary, that the failure of the minimum wage to increase with inflation is a good indication that the cost of a minimum wage is fairly high.

Pajser writes:

Brian,

I wrote "marginally increased." didn't I? And increased minimum wage is not net gain for everyone, but if complemented with some redistribution it is gain for all workers. It is loss for consumers and for capitalist.

If wages (and hence price of the product) increase significantly, then demand for the product will be reduced exponentially and it is destructive for all.

liberty writes:

Jon etc.,

I never meant to imply that it would not hurt them at all -- obviously higher prices will tend to reduce quantity demanded even if all firms do it -- I just said that if their competitors also increase wages it would help ensure that they could pay the higher wages "without being forced out of business" (which is much more likely if competitors are able to keep their costs and hence prices lower by paying lower wages).

Anyway, it is for this reason that firms with smallish profit margins cannot (even if they truly want to) simply unilaterally raise wages above the existing minimum and might want instead to see a higher minimum wage, which all firms must pay.

And I also repeat my point that firms already paying higher wages should not necessarily be seen as wanting to destroy their competition if they advocate for a higher minimum wage, but instead might--if they are paying higher wages for ethical reasons and their competitors are cutting costs through keeping wages low--be simply trying to bring their competitors up to their own standard.

libertarian jerry writes:

It always amazes me that the 2nd or 3rd generation of business owners,that is the ones that didn't struggle to build the business from the ground up but inherited those businesses,are keen to act as "progressive" as possible with the hiring of union wage employees and pushing for minimum wage increases. The unions and established businesses like Mr. Cooper's,in their zeal for "social and economic justice," on purpose or sometimes inadvertently cut off the bottom rungs of the economic ladder thus keeping out of their market potential competition and lower cost labor. This is the unintended consequences of using the state to fulfill an individual's "world view." This scenario is similar to the "Starnsville" incident in Ayn Rand's epic novel Atlas Shrugged. Its funny how real life often imitates fiction.

genauer writes:

Greetings from Germany,

- a country without a minimum wage,

- where the unions have half the board seats,
- and when the metal worker union (IG Metall), if it is not satisfied with negogiations, 3 % of the nations (fulltime) employees let the hammer drop, just one hour later.

And it works and is consensus

genauer writes:

Since we have currently a discussion about a national minimum wage, it is part of the ongoing government coalition negotiations,

and I am actually split between the pros and cons,

I hope that I do not divert the discussion here, but maybe enrich it.

On the one side, It was the long standing policy of the industry unions, that minimum wages would lead to a dumping down of wages, and that wage setting is none of the business of government, and of course not of meddling American and French governments.

On the other side, a quarter century after reunification, eastern folks with their bad collectivist experiences, are still not willing or able to organize themselves in proper German ways.

As a background, with 1.3 Dollar to the Euro (halfways between 1.34 market value and 1.25 “fair value”), we talk here 8.5 Euro = 11 $/h in the West, and 10 in the East.

Recent events have it, that the hair cutters, notoriously hard to organize, have settled a deal of 10 / 9 (a up to 100% increase, according to the union statement) this year, with, how I interpret it, tacit approval of the ruling conservative government, both on the national and state level.

In Munich you would not get an illegal cleaning lady below 15 $ (youth unemployment is at 3%), but there are other areas in Germany with 13% unemployment, and lowest wages at 6 $/h

Despite seeing the price for my hair cut going up 20%, I don’t see the demand as elastic, at all.
And now I am curious.

Brian writes:

"And increased minimum wage is not net gain for everyone, but if complemented with some redistribution it is gain for all workers. It is loss for consumers and for capitalist."

Pajser,

Yes, a loss for consumers, a group which comprises all workers, so it's not a gain for workers either.

The bottom line is that a minimum wage squeezes out of the workforce those workers with low marginal productivity. Raising the minimum wage even a little squeezes out even more. Even if those squeezed out receive money through "redistribution," everyone is worse off because we are not getting the benefit of their productivity.

Tom West writes:

Brian, the fact that you don't get mass unemployment when you raise the minimum wage indicates to me that the vast majority of minimum wage workers are earning well below their marginal product.

Why would it be an economic disaster that unskilled labor is paid something closer to their marginal product, much like skilled workers?

This isn't to say that those few workers who *are* earning their marginal product don't lose out, as do teenagers who have fewer work opportunities.

But I think pretending there are *no* upsides (or no downsides) to minimum wage is a sign of the triumph of ideology over observation. There's a reason it enjoys wide-spread support, even among economists.

(Personally, I support minimum wage despite its costs. My observations across the world have reinforced my belief that many, if not most, people value people by their wage levels (with oddly enough, unemployment *not* being below a wage), and that having a class of people whose lives end up being considered near worthless is not in our society's best interest.)

Brian writes:

Tom,

I am not being ideological. I was merely pointing out to Pajser that his claims are self-contradictory. As for myself, I am ambivalent about the minimum wage. I suspect it reduces employment but not significantly enough at current levels to matter much.

Nor would I say there are no upsides. One could argue that a minimum wage makes people feel more secure ("at least I can't be paid below THIS") and helps the rest of society feel like they're not heartless. As we know, the minimum wage is easily seen, while any negative effects are unseen. But human psychology is not irrelevant. I guess I would view the minimum wage as a fairly low-cost homage to human psychology.

Tom West writes:

I am not being ideological.

Sorry, I didn't mean to attack you. I did want to see some acknowledgement in this discussion that minimum wage is a trade-off with costs and benefits on both sides.

As we know, the minimum wage is easily seen, while any negative effects are unseen.

Agreed. It is why the costs *do* need to be made clear, *especially* among supporters of minimum wage. You can't make an effective decision if you don't know the cost.

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