The same “side” always “wins” the debate on minimum wage. It’s as if one side doesn’t realize it’s been using the wrong argument. Unfortunately, nobody actually cares about the poor. They just care about themselves and lip service to make them feel good, otherwise such arguments would be effective. I don’t know that my concept is the right one, but maybe we can at least consider other arguments?
I can’t explain this as an economist would, but here is what I saw when I went to China (many times over a period of 9 years starting in the mid-2000s).
A Chinese widget factory has annual revenue of $80 million and 1200 employees. Of course, that’s just the most recent year’s figures, because the factory is always growing. It’s located in a manufacturing zone and surrounded in a sea of factories that all look much the same.
One thousand of the employees are what the Chinese refer to as ‘the workers’. The workers are unskilled labor. Prior to going to China, if someone were to ask me what unskilled labor is, I would have said it’s someone who graduated high school but doesn’t really know a skill. Unskilled labor in China is someone who cannot read or write and comes from a background of subsistence farming or abject poverty.
The workers typically live on the factory ‘campus’ in what the Chinese refer to as apartments, but I would call them really cramped dormitories. They work 5 to 7 days per week in 8 to 12 hour shifts, depending on the factory’s orders. The factories are typically not air conditioned or heated, and China is both very cold during the winter and brutally hot during the summer (customers sometimes complain when products packaged in sealed bags end up all wet from the exported humidity arriving in condensed form).
The workers have traveled a long ways to work in these factories. By hook or by crook, they arrive from far away to make better lives for themselves and those close to them. Many of them will spend a considerable portion of their income making sure that their and the children of family members can attend school and enjoy opportunity they will never experience.
But that is only the workers. The other 200 employees are of a different sort. They hold the positions in sales, operations management, engineering, and finance.
The widgets provided by this factory are marketed on a global scale, likely they are components found in a product you own and use every day. The factory actually faces very stiff competition not only from other factories in China, but Korea, Vietnam, Indonesia, Malaysia, and even one or two in developed countries.
To keep these products competitive, the factory must hire good engineers. Imagine, the entire company’s product line is very reliant on how clever these engineers are. The owner of the factory is willing to spend good money on staff to make sure that the factory is not left behind and can continue to grow and gain new customers.
Of course, getting new customers requires good sales people. What is it worth to hire a salesperson that can bring in $15 million in new business? And what is the cost of losing a salesperson managing accounts worth that much?
Managing all those workers is a logistical miracle. Imagine having a couple of bad days and finding yourself 30,000 man-hours into mass confusion? For this, the factory owner needs a good operations management in place to be sure that customers receive their orders on time at the expected quality level.
Believe it or not, caclulating the cost of manufacturing something is no small feat, with some calculations heading off into advanced calculus. Many factories have been surprised to find themselves completely out of cash because they could not accurately calculate the cost of manufacturing, and the market snapped at the opportunity to buy a product the factory was losing money on. On top of that, embezzlement is a problem everywhere in the world, so the factory owner needs to be sure that whoever is counting the money is not only honest, but able to spot when some of that money goes missing.
For these other 200 employees, I have observed that salaries are not that far off from those in the U.S., and that is in real terms, not adjusted spending power. Most factories have plenty of BMWs, Mercedes Benz, and other nice cars parked out front that belong to these employees, and keep in mind that they pay a 50% import tariff on many of those goods. They wear $10,000 watches and are the ones paying $3000 for the latest iPhone.
Many of the recent over-the-hill white-collar employees are the first generation given the opportunity to go to school by parents who grew up in poverty. Their parents are humble and weathered, but beaming with pride that their children have accmplished so much. Meanwhile, here in the U.S., it is unlikely that the next generation will see more wealth than the previous ones for foreseeable future.
This is the unseen in the U.S. that is seen in China, and this seems like the argument that should be made when discussing the minimum wage. Low-cost, low-risk labor is what growing economies are made from.