An unintended consequence of minimum wages?

I have a theory.

Employers offer a wage consisting of monetary compensation plus non-monetary benefits. Non-monetary benefits include, for example, free or discounted coffee, flexible work hours, breaks, a safe working environment, and so on. They choose the combination of monetary and non-monetary compensation that allows them to hire the required workforce at the minimum possible cost.

Suppose, for example, one cup of free coffee and a wage of $7 per hour costs the employer the same as a wage of $7.50 an hour. Yet employees prefer free coffee to higher wages. After all, buying coffee would cost more than 50 cents, so the employee is better off with $7 plus free coffee than a $7.50 wage.

So employers will offer free coffee in lieu of higher wages.

Now suppose minimum wage legislation is introduced, bringing the wage up to $10 per hour. Employees are happy - they were willing to work for $7 plus coffee, now they're getting $10 (leaving aside any impact of minimum wages on the number of workers hired.) But the employer will look for a way to cut his or her costs, so the free coffee will go.

Here's a picture:

 
It's summer, so I'm not going to even try to find data or research to support this theory.

But I tried it out on an employee at my favourite local coffee shop. I asked, "Do you think, if there was no minimum wage, you would get free cake at work?" She replied, "When the minimum wage was $7 per hour, my boss paid minimum wage, and there was no free cake." So I pressed her, "But what if there was no minimum wage at all, do you think your boss might pay, say, $2 per hour and give you free cake?" "Why are you asking me this? There would never be free cake."

My casual observation of minimum wage jobs suggests that employers sometimes do not meet even the fairly relaxed requirements of the Ontario Employment Standards Act, such as "An employee must not work for more than five hours in a row without getting a [unpaid] 30-minute eating period free from work." A 2005 HRSDC assessment of the Canadian Labour Code reported:

The pressures for deregulation have resulted in under-funding of labour standards enforcement and a shift of resources from proactive inspections and enforcement to a program relying on voluntary employer compliance. The results are widespread violations of basic employment rights. Federal evaluations of the program found only 25 percent of employers were following the law; the other 75 percent were in partial or widespread non-compliance with Part III provisions.

But employees don't complain: change is slow, and in small workplaces there is always a risk of reprisals or erosion of trust and workplace collegiality. 

What do you think? Do you think that minimum wage legislation causes employers to restrict perks and demand more from their employees? Or do you think employers would restrict perks and demand more anyways?

Comments

[steve]

Demand more. Fewer perks. Depends on the labor market also, and tax subsidies available. All of my employees make six figure incomes. I dont give out perks to be nice, but because they help retain employees I want to keep. It is cheaper to pay through better health insurance and pension contributions. As long as there remains an abundance of labor at the unskilled level, which I dont see changing for a long time, the minimum will be paid be it in wages, perks or enforcing standards.

Steve

[Rick B]

Frances

My first job was at silver city tearing tickets and cleaning theaters. As a perk we used to get free movies, and a small bag of popcorn and pop every shift. Things were great for the first year or so until the first batch of internal promotions took place to replace some managers who moved on to bigger and better things.

Their became this growing competitiveness among them to be promoted to some corporate level and maximizing shift efficiency became a big deal. This new set of managers would send employees home within an hour of the start of their shift leaving whoever was left to work harder to clean the theaters. They then started limiting the free movies to Monday, Wednesday and Sunday, and never for movies that came out within the week.

Breaks began to be monitored and then some crazy policies were put in place like scheduling 2 4:45 minute shifts back to back to prevent breaks for people who spoke up about the Employment Standards Act.

In the end most of us just started stealing things and letting each other and friends into movies for free.

I think that in minimum wage environments, where there is a "professional" management structure, the management is usually going to be uneducated and ambitious, and will attempt to take advantage of whoever they can to look good. I think its less so in small business type environments where turnover of employees is more costly and the ownership has more of a relationship with the employees.

i.e tim hortons = no free coffee or perks, a small shop = free coffee and perks....

As an aside I think all high schools should have a Employment Standards Act course.....

What do you think???

[Frances Woolley]

Steve: "Depends on the labor market also, and tax subsidies available" Absolutely. A corporation will be able to document and deduct for tax purposes money wages, but not free coffee. On the other hand, CPP and EI premiums don't have to be paid on coffee. Etc. Etc.

Rick B: "tim hortons = no free coffee or perks, a small shop = free coffee and perks..."

Not obvious. A least from my small sample, it seems to depend a lot on the individual employer. Last shift+generous employer+a policy of throwing out unsold goods at the end of the day=free cake. Starbucks seems to be fairly good for this.

And at Tim Hortons the workers get uniforms, which may or may not be a perk.

(And raises the additional fascinating question: why don't the pants on Tim Hortons uniforms have pockets? Is it to prevent the employees from standing around with their hands in their pockets, to reduce theft, to reduce the costs of manufacturing the uniforms?)

On whether or not the high schools should have an Employment Standards Act course - in Ontario there is a required course called "careers." And knowing about the ESA would be pretty useful, wouldn't it?

Hypothesis 1: corporate employers have more influence over the design of curricula than minimum wage employees.

Hypothesis 2: the people who design high school curricula - high school teachers, university professors, government employees - might not realize how many employers push the boundaries of what is allowed under the ESA.

[rg]

As an employer (full serve restaurant) facing an upcoming increase in the minimum wage rate in Alberta from $8.80 to $9.40/hr, with anyone serving alchohol having a minimum wage rate of $9.05 I have mixed thoughts.

One "issue" I am debating relates to hiring. We have full time servers, and a mix of part time and full time hostesses who typically are teenagers still in school.
Now I have an option that did not exist before at least theoretically (and if my front of house staff actually was paid at minimum wage rates.)

Instead of the current mix of servers and hostesses it would be better for my bottom line to have only servers working, and no hostesses. The business would save $0.35/hr for every hostess I replaced with a Server, and my Customers get that much more attention from a Server.

Servers would lose out on tips somewhat as their overall amount of sales per shift drops with more Servers working. Ideally I could reduce their tip-out as they would then have only kitchen staff to tip out to. They would still get the perks – free beverages and discounted food etc. The better ones get benefits and bonuses.

Hostesses (teenagers mostly) would simply not be hired, reducing the number of part time jobs available to that age group.

Who benefits from a minimum wage increase in the restaurant business? In the short term I can see that many restaurant businesses would opt to hire more Servers (serving alcohol) at the lower minimum wage requirement. The overall “productivity” of the business should go up with more knowledgeable and experienced staff, business costs go down, Customer satisfaction should increase. Servers get a small raise (8.80 to 9.05). Teenagers get more free time? Law of Unintended Consequences for them.

[Min]

First, I love it how a safe working environment is considered compensation. Like the default is an unsafe environment. {grin, I think}

Second, I have no experience with either minimum wage jobs or perks. But I suspect that, as you say, the personal equation matters. Perhaps along those lines, my local TV cable company used to give terrible service, not only over the phone, but with repairs, etc. Rather suddenly that all changed. To my surprise, I started getting good service. Soon after that I found out that the owner had died.

[Curt Doolittle]

I actually think something very difficult occurs.

A minimum wage establishes a cartel at the bottom that lets employers justify low pay for jobs. There is a discount on labor given to employers because of it.

For employees, the skill and experience one obtains in lower level jobs, is generally worth more long term than the wage or savings. For example, waitressing is an economic trap because of the high income per hour in youth, which in turn prohibits waitresses from developing early career skills. Conversely, getting an internship at a law firm, regardless of how little it pays is very valuable since it opens opportunities elsewhere. At the low end, employers can use the quality of their environment alone to 'pay' workers, instead of pay them above minimum wage. There is a line of possible employees trying to get into shops that sell 'shiny things'. So it is actually better to invest in your office space than it is in wages, since it's more determinant of the quality of staff you can hire than is money.

I have never seen an employee get 'perks' in lieu of pay, without him considering the employer and his business to be 'a scam'. Salary has associated integrity for an employer, and coveys status status to the employee that perks do not.

THe reason for most 'cake' perks (discounts) is simply to prevent shrinkage (theft). There is an enormous body of actuarial data on this topic which is why everyone does it.

It is very dangerous for an economist to fail to understand that the human accounting system is status, and that money is simply a vehicle for obtaining it. Wealth is a tool of status. Money is a tool of wealth. But people seek status. It is perfectly easy to live with three other people sharing an apartment living on rice, chicken and beans. The problem is: YOU CAN"T GET A MATE.

Human action is the pursuit of status not money.

Or did you think redistribution was a goal of the left because they actually want money? You don't really think that do you? :)

[Johann]

Casey Mulligan has been crying this from the rooftops for two or three years.

[Frances Woolley]

Curt - interesting points. I agree about quality of environment in lieu of pay - hence the people with BAs or masters degrees serving organic fair trade coffee (sure it's a coffee shop, but it's a progressive, concerned, do-the-right-thing coffee shop). I hadn't thought about discounts to prevent shrinkage.

" minimum wage establishes a cartel at the bottom that lets employers justify low pay for jobs." - The literature on reference points/framing suggests that sometimes stated minimums can pull things down by acting as a psychological anchor. I've argued earlier that minimum payment requirements on credit cards can reduce the amount people pay off on their card, for example. I don't think that, given where minimum wages are set in most of Canada right now, this is an issue here, but it might be elsewhere.

rg - interesting example with the hostesses and servers. You wrote: "The overall “productivity” of the business should go up with more knowledgeable and experienced staff, business costs go down, Customer satisfaction should increase."

But if business costs would go down by substituting servers for hostesses, why were you hiring hostesses in the first place?

[Robert McClelland]

Anyone who pays minimum wage should simply consider themselves lucky to have any employees at all.

[Chris J]

One should note that the idea of accepting lower pay for a better internship works great for people in reasonable financial shape. It does not work for poor people. Forcing people into unpaid work in order to get ahead is a terrible idea. (Work terms in which students get course credit and a grade are an an exception - here the fact that it is a course means that the student is eligible for student loans and such.) A situation in which the way ahead is unpaid internships is class warfare on the poor. Those internships should pay.

[Determinant]

Unpaid internships are not normal in Canada and this is one way we defer markedly from the US. Firms which hire university students on a work term or internship pay entry-level rates pro-rated to the term, maybe with a 10% discount.

In the words of one person at a company I used to work for "I am against the concept of free work, it devalues what the rest of us do."

I procured a summer job in my third year by just calling around. I wanted student rates and got it, $12/hour. They wrote out a contract and I duly signed it. Legally I was on the same legal basis as the rest of the company's staff.

Furthermore, in order to invoke the full protection of employment law for the employer, you need to pay the employee. Thus if your employee is negligent or your customers are in a highly regulated business like aerospace manufacturing, you really, really want employment law on your side as an employer. A contract and pay makes everything "regular" in the eyes of the courts.

[bork]

Someone very wise once wrote:

THE CAKE IS A LIE.

[HS]

I've worked at a couple jobs which gave perks. At Tire Company A you got a big discount on tires. Before working there I never would of considered two sets of tires, one for winter and the other for non-winter. Who got the end of the deal who can say. At Tire Company B, as a front counter employee I was promised a company car to use and free vacations. Sounded good but in reality it wasn't. The car was an old beater and I was told I wouldn't get it until around a year's employment. There were free trips, but they were ones you had to take with the owners and staff. You used your vacation time and had to go. I quit the job after a month so never went on one but was told by a long time regular that the person with my job before me was fired/quit because on the trip to Disney Land he decided to go on rides him and his family wanted to go on and not the ones the boss wanted everyone to on. Also, I was made to work 60 hours each week and never got paid my overtime. I was giving them a free week for every 4 I worked for them. I did the math too. The perks had a value between $9-11,000. My unpaid overtime would have come out to around $20-23,000 each year. I would rather the money and not the perks there! Last job was a summer job at IKEA. You got a discount on their breakfasts and a minimal discount off furniture. The staff room had pop dispenser machines but that was not free, only water. Though many employees stole pop anyways. But they were nice in hours and scheduling so can't say nothing bad on them. I work for the city government here now. Overall their perks are quite nice (not Toronto Garbage men nice but fair to the taxpayers and nice for us employees here).

[Frances Woolley]

bork "the cake is a lie".

HS, rg and Bork all mention workers getting free beverages, but in most cases paying for food. I wonder

- is this because well-hydrated employees are better employees, so the cake (water) increases worker productivity, thus is not really cake at all?
- because employers care about their employees, and don't want them to suffer from thirst?
- because employees would just take the beverages anyways, so it's easier all round to just provide them for free
- or because there's some legal requirements to provide employees with beverages?

[Frances Woolley]

HS: " Also, I was made to work 60 hours each week and never got paid my overtime."

Which probably violated labour laws where you lived? But you didn't complain because there was no point, you just looked for another job?

Do you think proactive enforcement of labour laws - i.e. spot checking employers to make sure that they comply, rather than waiting for employees to complain - would change things?

[Mike Moffatt]

"Do you think proactive enforcement of labour laws - i.e. spot checking employers to make sure that they comply, rather than waiting for employees to complain - would change things?"

This actually exists in Ontario - I know of a few business owners who have received surprise inspections.

That being said, the inspectors typically are looking for petty little infractions - do you have your green book posted in the correct place? Is it affixed with a chain or is it just sitting loose? (I had a friend who was fined $300 for having the book loose instead of on a chain), etc. They don't seem to dig to see if you're making your employees do massive amounts of unpaid overtime. But if your green book is out of place, look out!

That being said, the chances of getting inspected are pretty small. We've been in business since 2005 and never seen an inspector. Once you work in regulatory compliance you come to realize how sporadically and infrequently regulations are actually enforced. As a society we're great at coming up with a multitude of rules but lousy on actually enforcing them.

[Mike Moffatt]

I should add the inspections were random, not based on complaints. My CFIB rep said they try to get to every workplace every 5 years, but we've been in business over 6 and never seen anyone. Every 10 years is likely more accurate.

[Frances Woolley]

Mike - are these health and safety inspections, or employment standards inspections? Health and safety seems to be more proactive, but I don't know.

[Mike Moffatt]

Both because they're the same agency (OLRB). The problem with proactively investigating things like overtime is that it's messy - it's a lot of paperwork and he-said-she-said. Investigating things like whether or not the green book is in the right place or if an MSDS binder is available and current is more cut-and-dried, so these tend to be more investigative.

But in general health and safety isn't particularly proactive either - the government simply has no desire or incentive to put resources in this area.

[Mike Moffatt]

Err.. more investigated.

[Jane]

The majority of employers will comply with enforced legal minimum labour requirements; if the law is seen to be avoidable or unenforced in any way it will be ignored.

Talk to any student who has held a part-time job in the last 5 to 10 years, they all have at least one story of being shorted wages, forced into unpaid overtime, working 10 hr shifts without a break, etc. And many have stories of showing up for work only to find the doors closed and no paycheque for their last two weeks of work.

Talk to any contract worker; they are expected to work 8-10 days, often without a break, yet they will be paid only for 7.5 or 9.5 hours. Their shifts can be shortened arbitrarily, without pay, on any day they show up for a full day's work. No benefits, no sick leave, 12, 18, 24 month contracts regularly end up discontinued after 3, 4 or fewer months without due notice or pay in lieu of notice.

Talk to any regular full-time employee (if you can find one); they are expected to take 'working' breaks and be on call to respond to e-mails, voice mail, etc. 24-hrs a day. Benefits, if they have any, have been reduced every year for the last 15 years.

Those are the 'unintended consequences' of stock-option perq's (creating a business environment where short-term gains are all that matter) and dying unions. When there are no consequences, there is no risk.

[Frances Woolley]

Jane - yup, I think some of the discussion about the consequences of disbanding unions and revoking minimum wage legislation takes an overly optimistic view about what the equilibrium wage rate at the lower end of the labour market would be without unions/minimum wages/other institutions.

[Patrick]

I worked a bunch of terrible min wage summer jobs in Montreal in the early '90s. I never got more than the absolute minimum required by law. Overtime without additional pay was common. If you didn't like it, there were ten guys standing in line to take your place. I also worked part time at night to pay for school and the occasional box of KD. Oddly enough, those where much better jobs even though they were both min wage. Being the night shift, I suppose I just flew under the radar. The boss wasn't around to make unreasonable demands!

By far the hardest work I ever did was tree planting (which is piece work) in Northern AB. But the company I worked for was really bad, so the hard work was made worse by impossibly bad land, no tree runners on huge clear cuts (so you had to waste time going to get trees), and terrible camp conditions (we actually ran out of potable water at one point!).

[the_iron_troll]

@Bork: That was a triumph.

@Frances: It really depends on how much it actually costs the business to provide those perks, doesn't it? If it's a coffee shop, and they would throw out the extra cinnamon buns at the end of the day if they didn't just give them to employees, well, that seems like a no-brainer. But that is going to depend entirely on the businesses in question, and their competencies.

[Mike Moffatt]

"Those are the 'unintended consequences' of stock-option perq's (creating a business environment where short-term gains are all that matter) and dying unions. When there are no consequences, there is no risk."

The problem is, some of the worst offenders are mom-and-pop type operations and they don't face any of these pressures.

People get away with things when they can (case in point: marijuana laws). I don't think you need much of an explanation past a lack of enforcement.

[Mike Moffatt]

Or put it differently, how much taxes would get paid if the CRA never audited anyone?

[Determinant]

Frances:

I have been on the receiving end of management nonsense and riding roughshod over workers lives. Promises broken, ridiculous scheduling, the works.

The best job I ever had was as an Undergrad TA. I was also a member a CUPE.

I have seen enough nonsense and doubletalk in the working world to know that the only answer to a unified management is a unified union. Rock meet hard place.

Mike is quite right in that every economic incentive tells employers to take advantage of loopholes to the disadvantage of labour. All that is needed to catalyze this is a lack of enforcement. Unions are the on-the-ground enforcement.

Some people have a pie-in-the-sky assumption that employers should provide pensions and benefits as some sort of right. It's not a right, it has to be bargained for.

[HS]

To follow-up on a few people's questions:

Yes, the job I did at IKEA was labor intense. It was in the warehouse department, so I was putting the furniture into their shelves. I was told that once they did allow pop but they stopped to cut down on costs (too much pop was getting drank).

That tire store indeed I would say broke labor laws I never bothered to report. I don't want to go off-topic by ranting about that place, so I'll just say I quit ASAP, went back to school full-time, and now have a much better job. This was a weird place. They never gave breaks too. Quick story, on my second day I worked there, normally this tire store chain has new employees go through training. Training was done on a computer but they felt it was like a video game, so you weren't working. They had me wash the store walls. I washed all morning and when I was done the owner's wife told me I earned a break. I said "OK I'm walking over to the gas station to buy a coke, be back in 15". She was shocked! She replied by break she meant something like 3 or 4 minutes. What an angel.

Don't get me wrong. I still don't think unions help in this modern age too. Why should I pay someone to collect MY earned money so they can give it to a bank to invest it for my pension. I can easily do that myself. Also seniority rules can slow innovation at work. And I have heard so many stories of other cities where employees are so lazy. In fact one of my province's big 2 cities is famous for having employees work only 5 hrs of their 7.5 hrs day. If they just made their employees work the agreed hours they could easily let go 1/3 of that department. Sadly, thanks to union seniority rules, the bulk of the 2/3rd kept would be the lazier employees. So I disagree that unions are the savior. Only fair labor laws that are enforced!

[Pdt]

In my experience the perks are more about maintaining a workplace culture that limits employee comeback over perceived exploitation (theft, but also work to rule, not looking for efficiencies, making things a bit more difficult - it all adds up).

Any discussion of minimum wages should look at the total system. One good place to start would be Australia in the 50s and 60s. High minimum wage, strong unions, very low unemployment (anything over 2% was thought high), strong workforce training, reasonable service. Coupled with high tariffs and restricted immigration as a package. The "reformers" thought they could lower tariffs and raise immigration but keep the rest - turned out not to work so well, so bit by bit most of it went.

[Andrew F]

I always suspected free coffee was about boosting productivity through higher energy levels.

[Andrew F]

As far as unions go, it seems to me that unions are great for the bottom 30 or 40% of workers. The rest would be better off without them, at least in reasonably skilled professions.

[Patrick]

"Employers offer a wage consisting of monetary compensation plus non-monetary benefits"

The times when I've worked for firms with substantial non-monetary benefits, they made it pretty clear that they considered it part of my overall compensation.

Generalizing my earlier stupid anecdotes, I think some perks (or lack thereof) has to do with the vagueries of human relationships and no so much on market forces. Bad bosses and companies (by extension) are often irrational about their lack of perks (like skimping on safety or bathroom breaks). They aren't trying to maximize around a tax wedge or regulator or whatever, they're just being a-holes because they can.

Thinking about free coffee:

Companies expect something in return for perks. Free coffee and the equipment to make it fixes a productivity reducing annoyance: if everyone has to make their own pot, it's a lot of people messing around making pots of coffee and not working. If some sub-groups organize to share resources, then they spend time organizing the 'coffee pool' and not working. It also make people feel better about the firm - first thing in the AM they are reminded about how much big brother loves them.

So I think the company probably does a calculation like this: (cost of coffee service ) - (cost of the projected lost productivity of people coping with no free coffee sub) and gets a number < 0, so it's cheaper to do the coffee service.

Perks like coffee tend to be universal, so should we look at cost relative to average wage across the firn rather than an individual wages? I've never heard of low wage workers being denied free coffee if it was available.

[Frances Woolley]

Andrew F: "As far as unions go, it seems to me that unions are great for the bottom 30 or 40% of workers. The rest would be better off without them, at least in reasonably skilled professions."

What unions seem to do in universities is flatten the earnings distribution, so they pull up the salaries of the least marketable professors (e.g. associate professors in sociology) and pull down the salaries of the most marketable ones - the Richard Floridas of the world (super-star business profs).

yes, definitely, coffee=productivity.

[Nick Rowe]

Determinant: "I have seen enough nonsense and doubletalk in the working world to know that the only answer to a unified management is a unified union. Rock meet hard place."

Similarly, in the world of output markets, the only answer to a unified management is a unified buyers' collective. Otherwise firms will charge infinitely high prices for really bad goods.

But actually, it's not like that. Though there are exceptions of monopoly and failing to deliver what was promised, the best protection for buyers is competition between sellers.

In a loose output market, individual firms have an incentive to try to keep customers.

In a tight labour market, individual firms will have an incentive to try to keep workers.

[JB]

It only works if the employee actually wants a free coffee every hour. Over an eight-hour shift, you'd be a sucker not to overdose on caffeine. Better to keep the $4 (and steal a cup of coffee).

[Andrew F]

And perks like free coffee definitely have value. If you were to compare similar workplaces that offered free coffee and those that offered coffee for some nominal charge (say, $1), I wouldn't be surprised if it took a surprisingly large pay differential to get people to switch from the former to the latter. Humans really like getting things for free.

I think people like sunk costs. If people had to fill up their car with insurance every time they did gasoline, car use would drop significantly. If you instead sink that $2k - $3k once a year, it makes it much easier to swallow. I marvel at the people who gripe about gasoline costs, when fuel represents perhaps 15-20% of their total cost of ownership. So, employees are willing to have a 'sunk' cost in terms of lower wages for relatively low value perks like free coffee.

Workplaces that charge their employees for coffee are, in my mind, incredibly short-sighted.

[Frances Woolley]

Andrew F: "Workplaces that charge their employees for coffee are, in my mind, incredibly short-sighted."

Perhaps, but it (or similar) happens.

At Carleton, our collective agreement is very specific about salary and benefits, but gives the employer somewhat more leeway on the amount "coffee" (paper, pens, photocopying, long-distance phone calls, printers, computers, office furniture, etc) provided to employees. There's an expectation that professors will find money for computers, printers, etc from research funding. I think this is pretty standard practice in Canadian universities.

But of course, if one is paying for one's own computer (either from personal or research funds), the temptation is to buy a sweet machine and have it at home where it can be used for both entertainment and work, and a cheap desktop for the office. Which increases the incentive to work at home - making the workplace environment less congenial, further increasing the incentive to work at home.

[Shlaw]

Half of my employers have had no qualms about actively breaking or strongly requesting me to do things that broke labour laws (one of them was a public sector employer). The idea that people will just choose a better employer ignores that (i) people are reluctant to move from one industry to another and (ii) firms within in an industry typically have some cultural norms about what is expected within the industry.

[Bob Smith]

I could have sworn there was literature out there on this point (and I could also have sworn that I found links to it here in a previous post).

Determinant: "The best job I ever had was as an Undergrad TA. I was also a member a CUPE"

Same here when I was in grad school. I was paid a ludicrously high hourly rate, didn't have to work that hard (and, heck, I liked marking papers - there was a thrill of the hunt in catching plagiarists), and had ample opportunity to listen to my "brothers" and "sisters" spout off about how they were standing up for the "oppressed" proletariat.

Mind you, I never quite understood how the "oppressed proletariat" (i.e., the taxpayers and students whose subsidies and fees paid my wages and subsidized my education) benefited from our union's demands (or would benefit from the denial of our services in the event we went on strike - happily, the union had been thoroughly defeated in a prior strike and wasn't keen to go for a rematch - unlike my colleagues at York ), but I suppose I lacked the insight to appreciate how higher tuition fees and scarcer resources would improve the student experience.

[Patrick]

"If people had to fill up their car with insurance every time they did gasoline"

Totally OT, but I can't resist ... That is an awesome idea. You'd plug-in the the cars black box (the connector usually low on the steering column), download the telemetry, and get a price based on your actual driving since the last time you filled-up with insurance. Can you imagine the howls of outrage?!

[Frances Woolley]

"If people had to fill up their car with insurance every time they did gasoline" An alternative is to base insurance premiums on miles driven - which would also have the added bonus of removing some of the age discrimination in the insurance system ("grey power" drivers have fewer accidents in part because they drive less- the accident/mile rate is not so different from that of younger drivers).

[Determinant]

Insurance is based on kilometres driven. Every time I renew my policy I have to declare my expected mileage and if I'm over the allowance the insurance can be disclaimed.

I have a decent middle-of-the-pack insurer too, not a cut-rate outfit.

Nick:

No. It should be, but isn't. I call this the Aversion to Institutions, it's rampant in our society. Many people hate, viscerally, administration, systematic thinking and hierarchy. But those are necessary for any complex organization public or private.

Given that we have had a loose labour market policy for at least the last 30 years, ISTM that unions are the workers best chance to get a decent bargain. Because managers vs. employees is not an equal negotiation and never was.

If we take your assumption as given, which I don't, I would further point out your outline of Neo-Keynesianism that said that Unemployment was the only policy are that didn't have as macro manager to take care of it. In Old Keynesianism it was Inflation.

I would point out that Robert Skiddelsky said exactly what you said, though he said it earlier in his book: "Keynes, the Return of the Master".

[Nick Rowe]

Determinant: "Given that we have had a loose labour market policy for at least the last 30 years, ISTM that unions are the workers best chance to get a decent bargain. Because managers vs. employees is not an equal negotiation and never was."

But the tightness/looseness of the labour market is not exogenous w.r.t. unions and minimum wage laws.

Remembering the assignments of targets to instruments of Old Keynesianism, the use of monetary and/or fiscal policy to target the unemployment rate, we also need to remember why even its adherents abandoned it. Dennis Healey said something memorable, but I have forgotten what. Something like "It doesn't work".

[Determinant]

Hello politics.

This part of New Keynesianism isn't economics, it's politics.

The only economics is to recognize that sticky prices, including wage prices, require large instruments to move. Hello union.

BTW there is a fundamental difference between the employment market and the output market for goods ans services: In the goods and services market failure is an acceptable option. Most companies can accept one customer not buying, they just find another. Similarly customers can forego or defer the use of the good or service.

But in the labour market, wages are used to pay vital current needs: housing, food, transportation. To do without isn't a viable option and leads to painful and immediate consequences: savings depletion, resort to EI and then welfare. Neither of which are generous.

So your original comparison Nick was apples and oranges.

[Whitfit]

On this topic, I wonder if part of the margin for "perqs" is that they may be tax deductible to the employer, but not the employee. So, the $0.50 cent cup of coffee costs only $0.35 in foregone wages - assuming quite unrealistically that there is a competitive market for coffee vs. wages. Even if the employee would only pay $0.40 for that coffee, it benefits both the employer and the employee to split the difference in the tax arbitrage. This is presumably an inefficient allocation of resources, and a cost to the state, but it is also a consequence of our tax structure.

I wonder what the tax treatment is of all of the fancy perqs a company like google gives to its employees? I could probably find out using a search engine of some kind: report back - found nothing in a few seconds of searching - surely someone must have written on this subject?

These kind of inefficiencies bug me - it gives employers a way to direct an employees preferences (benefit plans that have features that are less insurance like and more like straight transfers) and provides a way to give a tax dodge (not that all benefits are tax deductible - some are taxable benefits).

On the aside mentioned above - filling up with insurance - that is similar to what I do with Zipcar. It is amazing how even with a seemingly high hourly rate ($10-12 an hour) you really can find efficiencies with auto use, saving a bunch of money while still extracting most of the high value use of cars. Even if I use it almost as much as I want, with few considerations of cost when I book it, I still end up saving (lots of) money over owning a car. The trick is in becoming comfortable with having the average cost of the car use become the marginal cost of the car use in daily driving. Mind you the economics work in part because I live in a high density neighborhood, but the principle could apply almost as readily if insurance was paid as you drove, and also, of course, with tolls/congestion charges. But this is getting off topic...

[Determinant]

While we're speaking of unions dare I mention tenure?

[btg]

Not all workers drink coffee... those who don't like me, are essentially paid less if the perqs (coffee) are of little or no value.

What bugs me along these lines is health benefits - married people (with a stay at home spouse) and parents of young kids get benefits that cost more/are more valuable than benefits for a single person, or a person with a spouse who already gets benefits... flex benefits eliminate this problem.

[btg]

pdt - is there anything that provides a fuller analysis of what you said about australia?

[Nick Rowe]

Determinant: "So your original comparison Nick was apples and oranges."

Let me try again:

1. If employers refuse to trade with me, I can't earn the money to buy apples and oranges.

2. If supermarkets refuse to trade with me, I can't buy apples and oranges.

Looks like apples and apples to me.

[Patrick]

Unions are much like any other organization of people who seek to further their common interests. The right to form such organizations is rooted in the right of association, which is fundamental and guaranteed by the Charter. That's not to say there can't possibly be good reason to limit people's right of associate (e.g. we do for lobbyists and politicians), but I think it would be wise to set the bar very high when judging what constitutes good reasons.

That being said, I think many unions would do well to re-evaluate their notion of self interest. I've had some dealings with unions, and while I found them to be very well meaning people who genuinely cared about the plight of workers, they really just couldn't grasp simple and self-evident facts - like the first requirement for job security is a profitable firm, or that productivity and wages really are connected.

At the risk of beating a dead horse: in the economy of 2011 labour and capital have much more in common than either would like to admit.

[JL]

If we remove minimum wage, people may accept a slightly lower wage for a free movie or coffee, but If they are conscious of the trade off, they will probably feel used and cheated : "I work for you and you won't give me a free movie or coffee without lowering the expected salary? What am I a cog?" Lowering satifaction with the employer may lower productivity, insite theft, etc...
In other words I expect the trade off would work in cultures where servility to the employer is the norm.

In any way the benefits of having a minimum wage legislation for employees far surpasses any kind of perk an employer would give a "lower bracket" employee...
"7.00$ to 7.50$ and some people get coffee, or everyone gets 10$ but not coffee"... it's a pretty easy choice...unless you drink wayyyy to much coffee.

[Nick Rowe]

Patrick: "At the risk of beating a dead horse: in the economy of 2011 labour and capital have much more in common than either would like to admit."

I think you should keep on beating that horse, occasionally. You are onto something. A related thought: retired workers are capitalists. Pension plans, and all that. (The more Marx-oriented lefties tend to freak out when I say that. It disrupts their conceptual scheme of workers vs capitalists/managers.)

[Bob Smith]

"Unions are much like any other organization of people who seek to further their common interests. The right to form such organizations is rooted in the right of association, which is fundamental and guaranteed by the Charter. That's not to say there can't possibly be good reason to limit people's right of associate (e.g. we do for lobbyists and politicians), but I think it would be wise to set the bar very high when judging what constitutes good reasons."

While there is no doubt that the right to join a union is protected by the Charter, its worth noting that most unionized workers don't "choose", at least not in an meaningful way, to join a union. If you want to work pretty much anywhere in the public sector, you don't have the option to be a unionized employee or otherwise. Curiously, the same union activists who (quite fairly) trumpet the freedom of association of their members are somewhat less concerned about the freedom of association of their involuntary members.
I think the bigger problem are the (non-charter protected) labour rights associated with being a union.
"That being said, I think many unions would do well to re-evaluate their notion of self interest. I've had some dealings with unions, and while I found them to be very well meaning people who genuinely cared about the plight of workers, they really just couldn't grasp simple and self-evident facts - like the first requirement for job security is a profitable firm, or that productivity and wages really are connected."

And, that's dealing with private sector unions, where employers can credibly threaten to shut down factories. Despite my own anti-union ranting, I'll freely acknowledge that private sector unions are not impervious to economic reality, and if the CAW can convince GM to pay it unsustainable wages, well, good for the CAW - that's a problem GM's shareholders should be taking up with management. At the end of the day, private sector unions don't bother me that much - hey, I don't have to buy a GM car.

What I really think gives the union movement a bad reputation are public sector unions, who simply aren't subject to the hard budget constraints imposed by the requirement that their employer be profitable and where wages are linked to the ability of the government to tax its citizens, not productivity. Let's face it, government's can't credibly threaten to shut down schools, hospitals, public transit, etc (at least not for any length of time). In fairness to public sector unions, this is as much the fault of politicians (who steadfastly refuse to take a hardline with public sector unions - I'm still enraged about David Miller's capitulation in the garbage strike two years ago) and arbitrators who grant awards which bear no ressemblance to economic reality, as it is union leaders.

Indeed, the constrast between the relative realism of private sector unions and the absurdity of public sector unions has never been made clearer than in the ongoing debate over the HST. In Ontario, the CAW came out quite strongly in favour of the HST, despite the fact that it likely hurt the pocketbooks of its members(on the quite reasonable basis that the HST is likely to be beneficial to the manufacturing sector, and therefore is likely to be beneficial to CAW members in the long run). In contrast, CUPE has been activily encouraging its members to vote against the HST in BC (despite the fact that more efficient revenue raising by the province is likely to be beneficial to its members in the long run). Although that's a political dispute, rather than a labour dispute, it illustrates a fundamentally different world view between the two unions (i.e., realistic vs. tiny-toon ideological).

Moreover, when you think about it, it's odd that we're so willing to tolerate public sector unions providing essential public services. Imagine, for example, if we were to propose giving a private company (or a partnership, or pick your entity) a monopoly on the provision of teaching services in our schools - "If you want to teach here, you have to be a employee-shareholder of Teacher Corp.". I think it's fair to say that people would, rightly, go nuts (including, if not especially, the most ardent pro-union activists). On the other hand, if you call the company a "union" and its shareholders "members" that opposition melts away even though, at the end of the day, there isn't a world of difference between the two (in either case, the union/company is primarily motivated with advancing the wellbeing of its members/shareholders). That's what really bothers me about public sectors unions, we've essentially granted them a monopoly for the provision of services (often, ironically, services, that are publicly provided because we don't want private sector monopolists providing them - TTC, anybody?).

[JL]

Most relations of dominance imply common interests and mutual interdependence, the error is to only see the antagonistic relation. One would expect true antagonism to lead to war, not cooperation let alone employment. The workers versus capitalists/managers conception holds in terms of the (often asymmetrical) negotiations over who gets what share of this common interest (i.e. productivity, profit, security) as well as the sharing of burden and loss.

Government employees are in fact in a different relation with their employer...or at least in different conditions... and it should probably be analysed in different terms.

[Determinant]

Determinant: "So your original comparison Nick was apples and oranges."

Let me try again:

1. If employers refuse to trade with me, I can't earn the money to buy apples and oranges.

2. If supermarkets refuse to trade with me, I can't buy apples and oranges.

Looks like apples and apples to me.

No.

If employers refuse to trade with you, your entire household budget is blown to smithereens.

If supermarkets refuse to trade with you, you can always go to a restaurant.

The difference is scale and scale matters.

In our economy we generally ration the ability to consume (income) through labour exchange (wages). But we generally supply our labour to one firm and consume from a diverse set of firms. That asymmetry matters.

[canned_]

Agh, summer has really made reading and commenting more difficult.

Not sure if anyone mentioned this as I haven't had the time to go through all the comments. But what about perverse incentives? If you offer free coffee, then wouldn't some workers be inclined to consume so much coffee that the employer is actually better off offering higher money wages instead of low wages and free product? It's probable that employers might restrict workers to, say, one cup of coffee per hour. But workers still could have an incentive to produce more coffee than is demanded in a given period of time, and then consume the rest. It might be difficult to enforce specific quantity limits on free coffee.

Anyway, this was my experience at Wendy's - basically replace cake with burgers and coffee with soft drinks. Thankfully I found the wonderful sport of squash to shed the pounds.