Charity may begin at home but it ends at the workplace, suggests a report from the New York Times. The world cheered when Dan Price, cofounder of Gravity Payments, decided to initiate a minimum salary of $70,000 per year across the board for his workforce, this after hearing a friend complain about making ends meet on $40,000 a year and realizing that many of his 120 employees earned less.
Those who were already receiving this minimum salary, however, didn’t like it. They had had to work long hours to attain that pay level. Experience and the hard work that gave rise to it merited their compensation, but now new hires and others with lower seniority were reaping the benefits without the effort. Minimum-wage mandates have always raised the hackles of classical economists, but rarely have they drawn the publicly vented ire of employees themselves. Until now.
Why minimum-wage mandates cause more harm than good
The purpose of a minimum wage is to guarantee an income higher than the rate the market of supply and demand would set naturally, ostensibly to help the poor make a living. In Planned Chaos, Ludwig von Mises gave the standard critique:
Minimum wage rates, whether enforced by government decree or by labor union pressure and compulsion, are useless if they fix wage rates at the market level. But if they try to raise wage rates above the level which the unhampered labor market would have determined, they result in permanent unemployment of a great part of the potential labor force.
In short, state interference with wage rates price the unskilled out of the market.
As can be inferred, highly skilled occupations are rarely affected by minimum-wage guidelines, but low-skilled employment—the wage route of youth and those with few (but nascent) talents—often falls victim to government interference. An employer may be willing to hire such individuals at a starting rate of x, which provides him with necessary labor and the recipients with a source of funds and much needed training, independence, and self-respect. Yet when the state steps in and imposes a rate of x + y, hiring these marginal employees is no longer economically feasible; moreover, corporate-imposed minimum wages depress incentives among the highly skilled.
But it would be a mistake to believe that lost employment opportunities are the only unintended consequences of the minimum wage. What happens in the work environment of corporations that are able to absorb the added costs of hiring marginal labor at salaries in excess of the market rate? Current employees rebel.
This is what occurred at Gravity Payments, a Seattle-based credit-card-processing company. Two staffers eventually left Price’s employ, “spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises.”
One such disgruntled staffer, a financial manager, told the New York Times reporter: “He gave raises to people who have the least skills and are the least equipped to do the job, and the ones who were taking on the most didn’t get much of a bump.” From her perspective, “a fairer proposal would have been to give smaller increases with the opportunity to earn a future raise with more experience.”
Gravity’s web developer was another employee who left, according to the Times:
“I had a lot of mixed emotions,” he said. His own salary was bumped up . . . but the policy was nevertheless disconcerting. “Now the people who were just clocking in and out were making the same as me,” he complained. “It shackles high performers to less motivated team members.”
Even some customers joined in the fray, accusing Price of “communist or socialist sympathies that would drive up their own employees’ wages,” while others “were worried that fees would rise or service would fall off.” A common complaint was “What’s their incentive to hustle if you pay them so much?”
The parable of the vineyard extracts charity from political economy
These incidents at Gravity remind me of the Bible’s parable of the workers in the vineyard, who are hired at various times during the day to work the harvest, each promised the same recompense for their labors (Matt. 20:1–16). Those hired late in the day are pleased by their financial gain; those hired when work began, less so, arguing with the landowner that “the men who came last have done only one hour, and you have treated them the same as us, though we have done a heavy day’s work in all the heat.”
The landowner replies, “I am not being unjust to you; did we not agree on one denarius? Take your earnings and go. I choose to pay the lastcomer as much as I pay you. Have I no right to do what I like with my own? Why should you be envious because I am generous?”
Is there a lesson for political economy in general and Dan Prince in particular in this parable about the Kingdom of Heaven and the unbiased nature of God’s love—“Thus the last will be first, and the first, last.”
Charity is a personal, voluntary act of giving (where entitlement has no place). When governments take from those who have to redistribute to those who have not, this is not an act of charity but of coercion. There is no moral uplift, since there was no act of charitable self-denial or service freely given. To disobey the state would only incur greater penalties or imprisonment. Likewise, the landowner may have been within his rights to disburse his generosity among his workmen, but to have mixed charity with wage-earning only stoked the ire of those who labored longer. Compassion ran head first into the justice of the marketplace.
Heaven may be governed by love, but the free market is run on competition. This is the lesson of the parable for political economy; this interpretation does not set the parable on its head but provides one context for multilayered biblical readings. For while Christianity teaches that our religious life should guide our actions in everyday affairs, it acknowledges that the spiritual and temporal spheres may have distinct routes to doing what is right. This is intimated in Jesus’s well-known advice to “Pay Caesar what belongs to Caesar—and God what belongs to God” (Matt. 22:21). It is one reason why the First Amendment was appended to the U.S. Constitution, that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.”
Meanwhile, the future well-being of the company is jeopardized
The unintended consequences of the minimum wage hit even closer to home for Dan Price and Gravity. While the free and generally positive publicity garnered a considerable increase in business clients, these new accounts will not immediately turn a profit for the company. Meanwhile reports the Times, “he has already had to hire a dozen additional employees—now at a significantly higher cost—and is struggling to figure out whether more are needed without knowing for certain how long the bonanza will last.”
And events continue to darken. Dan Price’s older brother and Gravity cofounder has filed a lawsuit against the company based on long-standing grievances, with Price renting out his house to cut expenses.
But the cost to the company itself may be insurmountable, as the salary raises and the impending lawsuit have taken a dramatic toll on capital accumulation and Gravity’s continuing ability to innovate, expand, and attract clientele.
It is said that no good deed goes unpunished; it is conceivable that both Dan Price and all of Gravity’s staff will face unemployment owing to his efforts to raise their minimum salaries. Imposing the feel-good emotions of charity on the hard-nosed realities of business may have been a price too high for anyone to pay.
Stephen Michael MacLean is an independent scholar whose current research is focused on conservatism and the political economy. The Medieval foundation of Western civilization is one of his favorite conceits. He lives in Nova Scotia, where his Atlantic seaboard vantage reflects his Anglo-American interests from Burke to Jefferson and Thatcher to Reagan. He blogs at The Organic Tory.