Poverty Wage Workers Are Living in Milton Friedman’s America

Boston-based Boloco is one of a handful of fast food chains that makes a point of paying its workers above the minimum wage. How and why does it do it?

“We were talking about building a culture in which we want our team members to take care of our customers,” Mr. Pepper said. “But we asked, ‘What’s in it for them?’ Honestly, very little.”

So in 2002, when the minimum wage was $5.15 an hour, Boloco raised its minimum pay to $8. It also began subsidizing commuting costs, providing English classes to immigrant employees and contributing up to 4 percent of an employee’s pay toward a 401(k).

“If we really wanted our people to care about our culture and care about our customers, we had to show that we cared about them,” Mr. Pepper said. “If we’re talking about building a business that’s successful, but our employees can’t go home and pay their bills, to me that success is a farce.”

When the company raised its minimum pay to $8, “that was an immediate hit to the P.& L.,” Mr. Pepper acknowledged, referring to the company’s profit and loss statement.

He said his privately held company, unlike some fast-food chains, did not sense an urgency to achieve a 20 percent profit margin per restaurant.

Zeynep Ton, a professor at the M.I.T. Sloan School of Management, said many companies did not pay their employees well because they had a short-term focus on maximizing profits.

During much of the minimum wage debate, proponents (including myself) have emphasized that a higher wage can actually be good for business—increasing productivity and reducing costly turnover, while stimulating the broader consumer economy. And all that is true. But if $15 ultimately decreases profit margins for the businesses required to pay it, so what?

It is important to remember that our current obsession with maximizing shareholder wealth is a late 20th century invention, first popularized by economist Milton Friedman in a 1970 article in the New York Times. It was never a part of classical economics. You won’t explicitly find it in Adam Smith. Through the early part of the 19th century, corporations were chartered to provide a public good. The modern joint stock corporation was never intended as a departure from this tradition, but merely as a means of more efficiently pooling capital, while limiting the liability of shareholders to the sum of their investment. Indeed, read the 1881 mission statement on the founding of the Wharton School, and it sounds downright utopian:

1. Object.  To provide for young men special means of training and of correct instruction in the knowledge and in the arts of modern Finance and Economy, both public and private, in order that, being well informed and free from delusions upon these important subjects, they may either serve the community skillfully as well as faithfully in offices of trust, or, remaining in private life, may prudently manage their own affairs and aid in maintaining sound financial morality: in short, to establish means for imparting a liberal education in all matters concerning Finance and Economy.

That executives might choose to run their corporations with a primary goal of maximizing shareholder wealth is up to them. But contrary to Friedman’s assertion, they are under no legal or moral obligation to do so.

Comments

  1. 1

    Better spews:

    Assuming we survive as a culture, it will be fascinating to see how we resolve “Greed is good” with the facts that greed has reached the point of being toxic to the community.

  2. 2

    you gotta be kidding spews:

    Once again Goldy is content to frame the discussion of $15/hr against corporate executives who justifiably should pilloried for their runaway greed aka Walmart, McDonalds, et al. Totally ignoring the effect on the small businesses that make up over 50% of our economy. The $15NOW movement finds it politically convenient to demonize all businesses including local & small as though they are the same as Walmart & corporations trying to maximize profit shares. Very cynical and disingenuous to lump all small businesses in with Walmart, McDonalds, and greedy corporations, but hey that’s what ideologues do. Or to compare and $8 wage with a $15 wage when according to the most recent CBO study job losses rise exponentially to wage increases. At $9 federal wage only costs a 100,00 jobs, but a $10.10 costs an estimated 500,000 jobs. How many would a $15 minimum wage cost, who knows? But the relationship is exponential not a direct one.

  3. 3

    headless lucy spews:

    re 2 — “…corporate executives who justifiably should {be} pilloried for their runaway greed aka Walmart, McDonalds, et al.”

    Do you really believe this or is it just a rhetorical device for you to preface your tired old arguments again against a higher minimum wage. After all, aren’t corporations people too?

    What about the argument regarding McDonald’s franchise holders that they are just like some little mom and pop restaurant?

  4. 4

    you gotta be kidding spews:

    Yes I really do believe runaway capitalism has concentrated the wealth at the top in a way that is unsustainable. Case in point is the Walton family (Walmart heirs) own as much wealth as the bottom 40% of the country, this is up from 25% 10 yrs ago. If you really wanted to go after the 1%, making them pay their fare share of taxes is a better place to start, and doesn’t harm the middle class. It is obscene that Mitt Romney pays 13% while a plumber or mechanic who helps keep the water on & fix someons car to go to work pay 25%.
    My issue with the this debate is the hyperbole and disingenuousness from both sides. Raising the minimum wage is not economic apocalypse as business claims, nor is a $15/hr minimum wage not going to have substantial negative effects as labor claims it won’t. But neither side will acknowledge the other has any point at all. According to the “free-market” GOP Reagan disciples anyone working for minimum wage is only worth that and looking for a handout, and according to Goldy & Sawant all business is looking to enrich themselves at the expense of their employers and are barely better than plantation owners. This sort of ridiculous polarization of politics is what bothers me more than the $15/min wage.
    In addition the process which I feel was more than a little dishonest resulted in a Frankenstein of a minimum wage policy catering to special interests. Whatever the minimum wage amount, I support a minimum wage with no different phase in schedules, no different business classes, no waivers or comps for special interest groups, one minimum wage for everybody is what I would like to see, this would also address your question about McDonalds franchisees

  5. 5

    ChefJoe spews:

    Yawn, Bo(ston)Loc(al) sets a wage floor that’s lower than the Seattle minimum wage. A higher wage has certain incentives that a higher minimum wage does not. The question is, how comfortable will businesses that have just nudged some employees up to $15/hr be with raises above $15 or how patient will they be with new/stupid workers who are learning the ropes ?

    http://www.nytimes.com/2014/07.....e-pay.html
    Mr. Nawn receives $9 an hour, which Boloco sets as the floor at its chain of 22 restaurants, most of them in New England.

  6. 7

    Jack spews:

    Godly, what does Milton Frieman got,to do with things? He’s been dead for some time now.

  7. 8

    Deathfrogg spews:

    @ 7

    He remains a major neoliberal god. Ronald Reagan and every GOP Congressman since has echoed his ideals. Mix that up with Ayn Rand and Evilangelical “christianity” and you got a lot of shit to dig through to get to the point of it all. That point being, that too much is never enough. One billionaire buys a 140 foot yacht, the next guy decides that having a 175 footer is better, and then some third clown comes along and blows them all out of the water with a 350 footer. It isn’t about making money, it’s about power. Basically it is nothing other than a giant dick-waving contest and the working man is getting fucked from both ends. The worst part of it all, is an awful lot of those working folks deliberately vote for the people that are either utterly incompetent or so corrupt that it would take 20 years of trials to convict them of all the shit they do.

    The robber barons of today have no conscience at all about deliberately starving people out of their homes. Even some of the names are the same as they were 120 years ago. They run this country like a giant mafia protection racket.

  8. 9

    Jack spews:

    8

    Yes, the lust for power and the quest for winning the Urinary Olympics is quite prevalent. I’ve noticed it especially among the political class.

  9. 10

    Roger Rabbit spews:

    @2 Businesses aren’t all the same, but one thing they have in common is they’ve stacked the deck against workers.

  10. 11

    Roger Rabbit spews:

    Basically, today’s American economy is equivalent to Las Vegas casinos changing the house’s take from 10% to 60%. How many people would play against such odds? Count me among those who reject the new terms. I don’t work anymore. I’m a capitalist now.

  11. 12

    Dr. Hilarius spews:

    Whenever there discussion of companies paying wages more than the bare minimum or considering any values beyond shareholder value, up will pop someone pontificating about “fiducial responsibility.” Fiducial responsibility applies to wages, pollution, common decency etc. but never to corporate jets, expensive art or bonuses for underperforming CEOs. More business school jargon mostly for the rubes.

  12. 13

    spews:

    You gotta be kidding @ 2,

    “Or to compare and $8 wage with a $15 wage when according to the most recent CBO study job losses rise exponentially to wage increases. At $9 federal wage only costs a 100,00 jobs, but a $10.10 costs an estimated 500,000 jobs.”

    The CBO report projects a very small effect on unemployment, with a large range. The mean effect (nationally) is a decrease in employment of 0.3%. The range goes from “very slight decrease” to 0.6%. That is at the $10.10 level, which is closer to $15/hr in a high minimum wage, high cost city like Seattle.

    Here is the summary:

    • Once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2 billion.
    • Real income would increase, on net, by $5 billion for families whose income will be below the poverty threshold under current law, boosting their average family income by about 3 percent and moving about 900,000 people, on net, above the poverty threshold (out of the roughly 45 million people who are projected to be below that threshold under current law).
    • Families whose income would have been between one and three times the poverty threshold would receive, on net, $12 billion in additional real income. About $2 billion, on net, would go to families whose income would have been between three and six times the poverty threshold.
    • Real income would decrease, on net, by $17 billion for families whose income would otherwise have been six times the poverty threshold or more, lowering their average family income by 0.4 percent.

    What the report shows is net positive benefits on all income categories except a very slight decrease at those who earn 6 time the poverty threshold and higher.

    It is very difficult to read the report summary and conclude that an increase in minimum wage is bad.

  13. 14

    you gotta be kidding spews:

    @13 I never implied the CBO study showed that raising the minimum wage is negative. What I said the study showed was that the relationship between job loss & minimum wage increase is exponential.

  14. 15

    Sloppy Travis Bickle spews:

    @ 13

    Unless I misinterpreted the CBO report, the ‘likely range’ of job losses from that theoretic minimum wage increase could be as great as a million. The mid-point of that range is 500,000.

    Darryl, when you talk about dollars or talk about effects on employment in percentage terms, you are not talking about people.

    If you instead talk about people losing jobs, with a ‘likely range’ possibly as great as one million Americans losing their job, the perception is different than when you’re talking about billions of dollars.

    For a breadwinner who comes home without a job because of a large minimum wage increase made his/hers go away, an increase significantly greater than that embraced by Obama not very long ago ($10.10 is the new $9.00), it’s a very significant loss.

    I support an increase and indexing thereafter. I just think that the real effects shouldn’t be hidden in the numbers. The Bloomberg poll reported in the LAT, to which I have linked at least twice on HA, is testament to that, I think.

    It’s not right to hide behind the numbers. We have a national labor force of around 115 million people. If a million jobs were lost, that’s nearly one in every one hundred working Americans out of a job because of an increase in the federal minimum wage to $10.10. The effect on the unemployment rate would not be an immaterial effect, were such to occur.

    I agree with you that it is difficult to read the report and conclude that the net effect is bad.

    I would, however, suggest that the CBO’s inability to project, long-term, what the effect of an increase to $10.10 on the federal budget deficit would be does not support an assumption that the net effect is good.

  15. 16

    headless lucy spews:

    Why would the loss of 1,000,000 crappy jobs be detrimental? I never heard from the likes of you when we were losing 700,000 GOOD jobs a month in 2008.

  16. 18

    Sloppy Travis Bickle spews:

    @ 16

    Why would the loss of 1,000,000 crappy jobs be detrimental?

    I suppose you would have to ask someone who has one.

    Or, to get a more informed answer, ask someone whose job disappeared after the upcoming minimum wage increase.

    To the extent my argument @15 was, basically, that people here don’t seem to consider those deleteriously affected by policies they support, you’re an amazingly strong example of what I meant.

    I wasn’t around on this site during the Great Recession.

  17. 19

    spews:

    You gotta be kidding @ 14,

    “I never implied the CBO study showed that raising the minimum wage is negative.”

    What the fuck ?!? Claiming an exponential effect on unemployment and ignoring the overwhelming positive impact isn’t implying a negative consequence of raising the minimum wage??? Bullshit.

    “What I said the study showed was that the relationship between job loss & minimum wage increase is exponential.”

    No it doesn’t With only two data points, you cannot differentiate between a linear trend (with a non-zero intercept) and an exponential trend.

  18. 20

    spews:

    Sloppy Travis Bickle @ 15,

    “Unless I misinterpreted the CBO report, the ‘likely range’ of job losses from that theoretic minimum wage increase could be as great as a million. The mid-point of that range is 500,000.

    And you forgot that the other end of the range. It is just as likely that the effect will have “a very slight reduction in employment” as it is that employment will be reduced by 1 million. In fact, their confidence interval is only a 67% interval.

    The 67% interval goes from no effect to a 0.6% effect, with the central estimate being 0.3%.

    Another way of seeing the result is that the projected reduction in employment cannot be differentiated from zero effect.

    “Darryl, when you talk about dollars or talk about effects on employment in percentage terms, you are not talking about people.”

    On the other hand, you ignore that the CBO projection show a large net positive effect. Furthermore, you cherry pick the range of possibilities.

    “If you instead talk about people losing jobs, with a ‘likely range’ possibly as great as one million Americans losing their job”

    Yet it is just as likely that there will be essentially no effect on reduced employment. That is just as likely as a million unemployed.

    “…the perception is different than when you’re talking about billions of dollars.”

    Did I talk about billions of dollars?

    “For a breadwinner who comes home without a job because of a large minimum wage increase made his/hers go away, an increase significantly greater than that embraced by Obama not very long ago ($10.10 is the new $9.00), it’s a very significant loss.”

    That is a big IF. The report shows that overall, people below, at and slightly above the poverty line are HUGE winners. Fortunately for the tiny fraction of below-or-near-poverty “bread winners” that become unemployed, we have in place a social safety nets.

    “I support an increase and indexing thereafter. I just think that the real effects shouldn’t be hidden in the numbers.”

    Bullshit. You almost completely ignore the substantial real effects, and rely on a worst case probabilistic outcome.

    “The Bloomberg poll reported in the LAT, to which I have linked at least twice on HA, is testament to that, I think.”

    Sorry…I don’t read 95% of your bullshit. Reason: You have repeatedly shown yourself unable to objectively read, analyze, and comprehend information prior to presenting an argument. A good propagandist tries to fully comprehend information prior to developing a particular spin. You simply cherry pick without comprehension. The result is that few people take you seriously around here.

    “It’s not right to hide behind the numbers.”

    Says the guy cherry picking numbers….

    “We have a national labor force of around 115 million people. If a million jobs were lost, that’s nearly one in every one hundred working Americans out of a job because of an increase in the federal minimum wage to $10.10.”

    On the other hand it is equally likely that there will be no jobs lost for the same national increase.

    “The effect on the unemployment rate would not be an immaterial effect, were such to occur.”

    And the effect would be immaterial should the equally likely scenario play out.

    “I agree with you that it is difficult to read the report and conclude that the net effect is bad.”

    I see. So you choose to present a partial (and probabilistic) negative story. Very interesting. It doesn’t add anything to your credibility.

    “I would, however, suggest that the CBO’s inability to project, long-term, what the effect of an increase to $10.10 on the federal budget deficit would be does not support an assumption that the net effect is good.”

    WTF?

    It is unclear whether the effect for the coming decade as a whole would be a small increase or a small decrease in budget deficits.

    In any case, now you are violating your “prime directive” and not talking about people, Sloppy. Very sloppy.

  19. 21

    Liberal Scientist is the "Most vile leftist on this blog!" spews:

    “With only two data points, you cannot differentiate between a linear trend (with a non-zero intercept) and an exponential trend.”

    Thank you Darryl, I was going to post the exact same observation.

  20. 22

    Liberal Scientist is the "Most vile leftist on this blog!" spews:

    CheapshotBob, @15, sez:

    “Unless I misinterpreted the CBO report…”

    **SNORT**
    Given your past performance analyzing a technical paper (remember your charitable giving fiasco?), that preamble you penned above is PRICELESS.

  21. 24

    Steve spews:

    “Evisceration.”

    Judging from past behavior, this when Bob disappears for a year or so.

  22. 25

    spews:

    Liberal Scientist,

    Thank you Darryl, I was going to post the exact same observation.

    You’re welcome! I should have added “among other parametric relationships”, as the curve is probably neither linear nor exponential. But I didn’t find the methods they used, so I cannot say.

  23. 26

    spews:

    Steve,
    “Judging from past behavior, this when Bob disappears for a year or so.”

    I don’t know…it is an election year. There are lots of polling numbers forthcoming for him to cherry pick…