The Doctor-Laborer Inversion

by | Dec 3, 2014 | Business, Economics, LAW, Price Controls

The battle over minimum wage is raging. Emotions are running hot. Some cities are setting the bar very high. For example, Seattle is mandating a $15/hour wage. Economically, the issue is very simple. Minimum wage laws do not raise anyone’s wage. This is because it’s not sustainable to overpay. Suppose you run a small tailor […]

The battle over minimum wage is raging. Emotions are running hot. Some cities are setting the bar very high. For example, Seattle is mandating a $15/hour wage.

Economically, the issue is very simple. Minimum wage laws do not raise anyone’s wage. This is because it’s not sustainable to overpay.

Suppose you run a small tailor shop. Customers are willing to pay $20 to repair a pair of slacks. Why are they willing to pay that, and no more? It’s not just their budget, but also the relative value of fixing their old trousers compared to buying new. A higher wage for your employees will have no effect on customer willingness to pay.

You have rent, utilities, insurance, wear and tear on your sewing machines, etc. that add up to $10. Therefore your maximum gross profit is $10. You cannot pay someone $11, much less $15, to do this work. If the law attempts to force you to overpay, then you have to lay off workers or even close your doors. Going out of business is no fun, but it beats losing more money.

This is black and white. Minimum wage law can destroy jobs and businesses but it cannot raise wages. However, many people become very emotional on this issue. So let’s look at the issue from a different angle.

There is an endless outpouring of sympathy and support for the unskilled laborer. How is this poor downtrodden helpless victim supposed to feed a family, cover medical expenses, and save for retirement earning only $7.25 per hour?

I don’t know.

My lack of an answer to this question is no justification for minimum wage laws. This is not even the right question. It is an example of the logical fallacy known as begging the question—when you presume what you should be asking. We should ask if one man’s need creates a duty in anyone else. Then the answer is a lot clearer.

The last time I checked, we had not adopted the Communist Manifesto as our new constitution. There is no law saying that each is to be given according to his need.

In comparison to the general sympathy for unskilled laborers, there is none for doctors. Just look at the endless commentary about Obamacare. What are the most popular complaints today? In my admittedly non-scientific sampling, the most common are higher costs, reduced choices, or a broken website. Some people worry about lower quality or less access to care.

There is virtually no discussion of what Obamacare will do to doctors. Doctors make far more than the minimum wage. One presumes that their needs are covered by their incomes, and therefore of no worry to us.

Need is the wrong way to look at it.

Instead of asking what someone’s need is, you should ask what are these people doing for you? What do they create? What value do they add? This brings the issue into sharp focus.

The unskilled laborer can be put to work turning a crank. He needs lots of supervision, which is an additional cost. The crank is paid for by someone else’s saved and accumulated capital, and this investor must be paid a return on capital for placing it at risk in a business. The laborer can be held accountable for showing up every morning and turning the crank all day, but not for business profitability.

This, by definition and by nature, is what unskilled labor is. He brings no capital, no skills, no knowledge, no expertise, no prior learning. He may be a young and inexperienced worker. Or he may have years of prior experience, but he is the sort of person who learns nothing from experience. Either way, the employer is taking on real risks and expenses.

Finally, the unskilled laborer is virtually indistinguishable. Many towns have a street corner, where construction contractors go to pick up a few laborers for a day’s work. There is a standardized market wage for these workers, and the employer doesn’t care who jumps in the back of the truck on any given workday.

How much does one of these workers impact your life? What would happen to you, if one of them stopped working?

For the next part of the discussion, please bear with me. I am assuming a free market in healthcare. In a free market, patients pay doctors for their services, the same way that homeowners pay plumbers, and diners pay restaurants.

Suppose you notice a lump in your neck. You’re worried it may be cancer. Catching it early is the key to surviving with maximum quality of life. You really want to see the best doctor that you can afford. You get a recommendation, and you call his office. They tell you he just retired. You get a second recommendation. You call this doctor’s office, but her receptionist says she was hit by a car this morning and is in critical condition. You open the phone book and call the last specialist. He is on sabbatical, teaching head and neck surgery in Thailand.

Now what do you do? Three doctors are unavailable, and you already feel a bit desperate.

You widen your search, and keep calling more. Suppose for some reason, all the doctors you call are unavailable. One by one, you hear why they can’t see you and you become increasingly frantic.

Why?

The doctor contributes the most value to your life, including saving it. By contrast, the laborer contributes the least. If 10 doctors stopped practicing medicine, you could die. In comparison, if 100 laborers stopped working, you wouldn’t even notice it.

What would you be willing to pay someone who saved your life?

If you would like a doctor to be available, in case your life needs saving, you must change how you think about wages. Start thinking about the value someone produces, and stop thinking about need. Your willingness, indeed your happiness—no your eagerness—to pay the doctor big money has nothing to do with his need. It has everything to do with what he does for you. Your life is worth more to you than the money you spend.

In comparison you aren’t willing to pay the same to someone who washes your dishes or trims your front lawn. If you would like restaurants and landscaping to be available, you must approach it the same way as with doctors. Start thinking about the value they provide and stop thinking about the needs of their unskilled workers.

6 Comments

  1. Or you call yet another doctor, discover that he’s perfectly qualified to diagnose and treat your medical problems, that he’s conveniently nearby, and that he’d be perfectly happy to see you – but he’s had his license to practice medicine jerked by the state Board of Medical Examiners for reasons absolutely unrelated to his professional competence.

    Turns out that a few years ago, he’d run for office – in an acrimonious “pit-bull” campaign – against the man who’s just been elected governor of your state. The same governor who gets to appoint all the members of the state Board of Medical Examiners.

  2. “How is this poor downtrodden helpless victim supposed to feed a family, cover medical expenses, and save for retirement earning only $7.25 per hour?”

    I’ll tell you how I did it. I worked one regular job from 8-4, another part-time job from 6-10 and on weekends I worked for my father-in-law at his business. I paid the bills and put food on the table. Only when I got laid off from the regular job was I able to land a job that paid almost enough to live on. I quit the part-time job but still worked for my FIL on weekends. We made do or did without. That’s life but I’m responsible for my bad choices which included partying while my other school friends studied for college. No college and then trouble with the law. I am NOT a victim.

  3. Yes, that is the right attitude. Sadly, it is becoming rare these days.

  4. Some people are normal, though maybe minimal, both mentally and physically. They’re unskilled and unable to learn by experience. Other people don’t want them around, don’t want to deal with them, not at work or at leisure. But these low people are still people, not sub-human. They know enough to want to live and to enjoy living, for as long as they can. But, such as they are, they have NO means of livelihood in the context of human relations, which is the ONLY context available to ANYBODY!

    There is, never has been and never will be, a Robinson Crusoe. There was never even a fictional Robinson Crusoe, despite the novel (Defoe, Swift?, I forget

    These low people GOT to live in human relations with their ‘betters’ whether their ‘betters’, like it or not. They can ‘work’. They can produce maybe a tenth of their own needs. But if they pour out their blood and sweat for just THAT, must they starve to death on the street because it’s not enough to keep themselves alive?

    In principle, the answer is, maybe. But in a human culture of capitalism, individual rights, egoism, reason and allegiance to reality, there will be people who will pick up these low people and hold them up so they can live their lives to their end, just like their ‘betters’. The low people can be put to work turning a crank or whatever. But they can be provided for. Did these low people beat their fists on the door demanding admittance? NO! They got CONJURED up and THROWN into here, whatever they were.

    As to their ‘betters’ who brought them forth I say, ‘Tough S—‘! What’s that say about abortion? Damn it! A ’tissue growth’? HELL! ‘Individuation’? C’mon! what’s the argument? Under capitalism, there’ll be plenty of provision for the low people, the down & outs, by the high flyers who know their high life depends on ALL those below them, clear down to the BOTTOM, minus criminals who can be very smart and able, but worth nothing, expendable to the benefit of the low lifers of which I speak.

  5. Replying here, to my comment directly above, I relent a bit.
    The non-criminal low people who can produce maybe a tenth of their own needs are, indeed, worth nothing, economically (criminals are worth nothing, period, no matter how smart and able they might be).

    To be worthy, economically, the non-criminal low people must produce at least equal to their needs in order for any employer to rationally hire them. The high flyers DO depend on all those below them clear to the bottom, economically, but not on low people who can’t produce equal to their needs.

    Under capitalism, those who can’t produce their needs will be picked up by charity, some possibly for the rest of their lives. But even then, they can be put to work producing whatever they can, without brutalizing them. Charity would cover the rest. Charities wouldn’t leave them out there to die of starvation and exposure. And euthanasia is out of the question.

    Abortion? Life does not begin at conception. But, identifying a pregnancy to be a tissue growth (like an abscess) or a fetus which isn’t ‘individuated’ (not born), so it’s ok to abort it? I’m just not convinced of that. I’m a person of reason, and even an Objectivist. Mike Kevitt

  6. Health care should be free to everyone, it is a basic human right. You are talking about those ‘Labourers’ as they are nothing. Not everyone can afford to go to university, or work in a families well established business, or is fed with a silver spoon. That being said everybody has to start somewhere, no matter how successful capitalism may be you will always need labourers, toilet cleaners, and hedge trimmers. They should at least be guaranteed a living wage.

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Keither Weiner is the founder of the Gold Standard Institute USA in Phoenix, Arizona, and CEO of precious metals fund manager Monetary Metals. He created DiamondWare, a technology company which he sold to Nortel Networks in 2008. He writes about money, credit and gold. Visit his site at monetary-metals.com

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