Flat White

Much ado about muffin means it’s time to talk minimum wages

25 February 2019

1:27 PM

25 February 2019

1:27 PM

So the CEO of Muffin Break has discovered over the weekend that there’s muffin so offensive to millennials on social media as her comments about how their self-importance harms their attitude toward doing unpaid work.

Sorry. I had to try the pun. But still, rather heartless of her, no?

Who cares? There’s a vastly more important point here.

It looks as if, once again, the commentariat and the Twitterati have utterly missed the core point here. These comments point to a near textbook example of the distortions created by the price controls we call minimum wages.

If we want to get real about the problem of unpaid internships, which from personal and familial experience I believe to be a real and urgent problem, then we need to talk about the minimum wage.

Where the Twitterati see outrage over cruel robber barons exploiting workers for more profit, I see red over minimum wage laws which force good businesses to present young inexperienced workers with a choice between work for no pay and no port of entry into the workforce.

It’s actually not a very complex idea to get around. The existence of an employment contract depends on the following factors:

  • A successful business ought only to hire someone if they expect that that person will create value for the business sufficient to justify the cost of the wage they will pay them.
  • A worker ought only to work for someone if they expect that the wage they will be paid is sufficient to justify the cost of the effort they will have to put in.

If a labour contract exists at a zero wage then, either the worker incurs no cost of effort (unlikely), or they are entirely compensated for their effort by other considerations than wage (possible, but not especially probable), or there is some distortion which prevents them from being compensated for their effort.

This third possibility is the current case in Australia. Here, it is illegal to pay someone less than $18.93 an hour for work. Period. That minimum wage doesn’t account for the kind of work the worker is doing, what their abilities are, or any other arrangements between worker and employer.

Now I can completely understand the sentiments behind that law – I’m a product of a Catholic school big on social justice and a family with strong roots in the Catholic Worker Movement. But you have to think about what choice that law presents good businesses with, and thus, vicariously, workers.

That first factor in employment contracts isn’t derived from assumptions about cold rationality and “profit-maximisation”. It’s derived from what will allow a business to survive, and we need businesses to survive for our societies to function.

So we force good businesses to make a terrible choice when faced with an inexperienced or (even more tragically) disabled worker who can’t rise to the unreasonable task of bringing more than $18.93 an hour of value to the business. They can offer them an unpaid internship in the hope of being able to train them up over time, or they can not hire them at all.

No wonder we have a problem with unpaid internships in this country.

So forget about the prognostications of the CEO of Muffin Break and the outraged Twitterati and the commentariat.

They stumbled across a very real problem. But that problem arises from the demands we place on businesses to be successful when we also restrict how they can be successful with minimum wage laws. We need to get real about the true effect of those laws in order to address it.

Brendan Markey-Towler is an institutional cryptoeconomist affiliated with the RMIT Blockchain Innovation Hub.

Illustration: Muffin Break.

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