Corporatism and the Minimum Wage

November 14, 2017

 

The problem with the minimum wage is that it operates as a blanket price floor, not allowing a unit of labor designated per hour to go below a certain threshold. It doesn’t account for living costs indexes or production values. Price floors on labor are good for certain industries that can bear the costs of paying a higher wage, which is typically passed off to the consumer. Business models matter in this respect. However, some industries operate above the price floor, and when wages to inputs are increased while no adjustments made to those above the floor, then they effectively have seen a decrease in their buying power due to the costs of labor being passed off the supplier and onto the consumer of the goods produced by the supplier. It is not always true that firms have to pass off costs to consumers, but for any goods or services, it is easier to do so.
 

Think about how often you encounter someone at minimum wage or close to it? It is daily. According to data from the Bureau of Labor Statistics annual report from 2016, “701,000 workers earned exactly the prevailing federal minimum wage of $7.25 per hour”. The Bureau continues to state that “about 1.5 million had wages below the federal minimum. Together, these 2.2 million workers with wages at or below the federal minimum made up 2.7 percent of all hourly paid workers”. Our interactions at restaurants, grocery stores, gas stations, movie theaters, and on and on are built on a foundation of surplus extracted from labor by paying them the smallest amount possible. Dependence on the minimum wage at the federal rate has decreased by .6% from 2015 to 2016, but this doesn’t factor in states that have passed higher minimum wages than the federal wage rate. Minimum wage affects low education workers, accounting for 8% that have no college, and has higher rates for part time employees than full time employees. The largest occupation accounted for 7% of the total share of minimum wage earners resided within the services occupation, particularly centered around restaurants and other food services, with a majority of workers in these occupations earning the federal minimum wage. However, tips may supplement the wages earned (BLS, 2017). 
 

If a $15 minimum wage is to be the solution, then how will it solve the fight against poverty? It certainly attains a better standard of living for those who are at that lower bound in the labor market. Minimum wage was never something to rely on decades ago due to the externalities created by a strong unionized manufacturing base. Why work for cheap when you could get a great job making cars or ships, or planes, sewing cloths, building toys? This reality to attract labor forced non-manufacturing sectors to raise their wages to compete with what manufacturers paid. Since large scale outsourcing, those blue collar manufacturing jobs have decreased, some completely gone. Just look at Detroit. Factories stand as a glaring truth to the productive power that America once was, now decayed and shattered, broken down buildings of memories and a middle class built by the labor of American hands. Over time, manufacturers were able to pool American labor into a global labor market, and began forcing wages down while sourcing in parts and cutting labor production domestically. Now we rely on minimum wage, because it not only affects those who earn it, but those who are around it. 
 

Is there an alternative to this system? A way in which an increase in the bottom tier of labor in the economy doesn’t affect the upper tiers incomes, or at least drastically? There is a solution. That solution is to entail collective bargaining contracts on a sector wide scale, adjustable to living costs per region. Such a system is called corporatism. First, we must explain why collective bargaining is beneficial under a corporatist system.
 

Collective bargaining contracts occur through a negotiation process. Any union member will be familiar with the process. However, under a liberal system of labor markets, they understand Contestation models of collective bargaining. 
 

Contestation models equate to a zero sum game, in which capital, c, and labor, l, enter into negotiating processes which have a zero sum outcome. We will observe Colin Crouch’s models published in 1985 by Wyn Grant and go through the process of collective bargaining negotiations under a system of contestation. Let us begin with the simple equation of:
 

∆c+ ∆l=0
 

Where a change in capital plus a change in labor produces a zero sum game. Labor has an issue, and the produced sum from the conflict creates a zero sum, meaning one party is gaining at the disadvantage of another party, with neither party expected to concede willingly (Crouch, 1985, P. 64). 
 

Labor makes gains when the costs imposed from conflict, b_c, is assumed to produce an improvement in labors position, with the inequality as follows:
 

b_c> ∆l
 

Most conflicts will impose costs on both parties, such that b= b_c+ b_l where b equals the total conflict costs towards both parties. 
 

Due to this nature of contestation negotiating, these negotiations can be worse than zero sum games, in which both parties become worse off, where the outcome of the zero sum game becomes an outcome of 0 minus any of the costs imposed from the negotiating process.
 

∆c+ ∆l=0-(b_c+b_l)
 

This equation is compounded based on the intervals of conflict, designated as n, added to the above equation:
 

∆c+ ∆l=0-(b_c+b_l)n
 

What this new equation entails is that each interval of interaction reduces further the gains from the negotiation (Crouch, 1985, P. 65). Over time, the expectation is that the costs become too great to capital and so they concede to labor, that is b_c> ∆l. Under this case, the example to point to is the auto manufacturers in Detroit, in which the unions forced concessions onto their employers which caused the employers to outsource and automate. 
 

Conflict comes to an end when the workers expectations and the workers representatives expectations are in equilibrium, and both parties will agree to end conflict:
 

∆l_e-b_le= ∆l_r-b_lr
 

Where e is the expectations of the workers, and r is the expectations of the workers representatives. The change in labors expectations minus the estimated costs is equal to the change in labor’s representative’s expectations minus the estimated costs of conflict. A final variable, x, can be added to the end of the representatives equation to denote the representatives experience. There would be a staunch difference in experience between say myself, and Jimmy Hoffa. 
 

A secondary model of bargaining is known as Pluralist bargaining. Pluralist bargaining occurs when both parties, capital and labor, decide in the long run that a reduction in conflict creates gains. Under this method, procedures and rules are designed to ensure that conflict mitigation is reduced through arbitration. Under this model, both sides behave in a manner that restrains their freedom of action due to the mutual arrangement and add onto the prior equation of conflict multiplied by the interval:
 

∆c+ ∆l=0-((b_c+b_l )-(p_c+p_l ))n
 

Where p represents the “procedural restraints” adopted by capital and labor. It can be seen that such restraints do not eliminate the zero sum outcome, but they do however reduce the overall reduction from conflict (Crouch, 1986, P. 68). Pluralist bargaining is the extension of contestation in which both parties of C and L becomes a normal part of the business and have developed conditions for negotiation.
 

When these negotiations begin to seek positive sum gains together, we step out of pluralism and contestation and move towards Bargained Corporatism, in which both capital and labor pursuit “certain joint interests” (Crouch, 1985, P. 71). Under this model, one party will offer the other party one or more gains in exchange for one or more gains on their end:
 

(g_c-k_c )>0;(g_l-k_l )>0
 

The above inequality states that the gains from capital minus the cost or sacrifice from capital is greater than 0, while the gains from labor minus the cost or sacrifice to labor is greater than 0. Both parties gain something in return for the sacrifice made, thus creating a positive sum game.
In order to find the common interests between parties, they must restrict their pursuit of zero sum gains while increasing their view of interactions between one another:

 

∆c+ ∆l=((g-(〖fz〗_(c,) 〖fz〗_l )-(b-p))n/s
 

Interpreting this equation follows as such: a change in capital, c, plus a change in labor, l, is equal to the accumulative gains, g, subtracting the “continued pursuit of conflict, z, multiplied by the “factor by which pursuit of goals destroys the achievement of join goals”, f, respectively for both capital and labor; minus the difference between conflict, c, and procedures, p; multiplied then by the fraction of the “density of interactions between parties”, n, and the “devices for insulating conflict”, s (Crouch, 1985, P. 65-73). That sounds quite confusing. To simplify, we turn to the next form of bargaining, the Authoritarian corporatism model:
 

∆c+ ∆l=gn
 

A change in capital plus the change in labor equals the gains multiplied by the interactions, producing positive sum gains through consistent interaction between parties, n. Under this model zero sum gains disappear, the conflict costs would be “nil”, and exchange density gone. Relationships between capital and labor become more stable and possess less risk (Crouch, 1985, P. 77-78). The purpose of this organization and model is to reduce conflict between capital and labor, by reducing or eliminating zero sum games, thus any change in capital combined with changes in labor produce a gain.
 

There is much more to the authoritarian corporatist bargaining process other than a simple mathematical equation. Representatives, laws, and a system of courts to uphold the law would require efficiency in the delivery of negotiation and the implementation of upholding such agreements. 
 

Through the corporatist bargaining system, wages would be established throughout the industrial sectors which would designate incomes per trade. The need for a minimum wage would be replaced as industries set their own wages through negotiation. The strength of the workers negotiations will determine the outcome. Industrial externalities in the labor market will adjust other wages as well. If a worker wanted to make a different income, they would transfer to another industry. Think about the flow of workers today in which when one enters the labor market, they have little power to influence their wages. They begin at the starting level which may or may not be the minimum wage rate. Under the corporatist system, a worker would decide on a set of skills, acquire the skill set through training or schooling, and pursuit that path to employment. 

 

References:
 

BLS Reports. Bureau of Labor Statistics. (2017). Characteristics of minimum wage workers, 2016 (Report 

 

No. 1067) Washington D.C.: Division of Information and Marketing Services.
Crouch, C. (1985). Corporatism in Industrial Relations: a Formal Model. In W. Grant (Eds.), The Political Economy of Corporatism (63-88). London: Macmillan.

 

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