L. A.’s productivity decree

Did you hear about Los Angeles’s new Compulsory Productivity Law? Henceforth, or at least from Jan. 1, 2020, since they’re phasing it in, people may be legally employed in Los Angeles only if their productivity is $15 an hour or more. That translates to $120 per eight-hour day. If your productivity is less than that, well, you better know the way to San Jose because L.A. ain’t taking you.

It sounds a little draconian or, if you’re not up on the doings of Draco, first legislator of the Athenians, maybe Stalinist would do. Enforcing decrees about people’s productivity seems a very Stalinist thing to do, not at all Californian. “Comrade, why have you not achieved your $120 of value-added today? If you don’t get your value-added up, we’re going to liquidate your job.”

Of course, Los Angeles is in California and its city council didn’t actually promulgate a productivity decree. What it did was raise the city’s minimum wage in steps to $15 a year, and index it after that. Raising the minimum wage is a much more touchy-feely-luvvy-progressive-sustainability thing to do than issuing a productivity decree banning all employment that produces output at less than a specified rate.

But they are exactly the same thing. If you establish a minimum legal wage per hour, you’re effectively also establishing a legal minimum rate of output per hour.

Why do businesses employ workers? Because they want them to produce value for the business. How much will they pay workers to produce value? Anything less than the value the workers actually do produce would be great. That way, the business makes a surplus from employing workers, who, as one K. Marx observed, are in this way a kind of golden goose. The output they produce, whether in goods or services, has more value than they’re paid, which leaves something over for the employer. Employers can’t exploit the geese without limit, however. If there are lots of businesses competing for workers, they start bidding wages up, and as a result, the last worker hired may produce very little surplus. In Los Angeles, there are roughly 450,000 employers, too many to conspire to fix the bidding for labour.

But not paying more for labour than it gives you in value is key to making money. If the city council says people can’t be legally employed at a wage of less than $15/hour, no profitseeking business will intentionally employ any worker who produces $8 or $10 or $12 or even $14/hour. To coin a phrase, where is the profit in that? So establishing a minimum wage of $15/hour means establishing a minimum productivity requirement of $15/hour, too.

Some workers will be replaced by machines

To be sure, not all enterprises are profit-seeking. So maybe some L.A. organizations — it hosts roughly 2,500 not-for-profits — will be happy to pay $15 an hour for workers who produce only $12 an hour of value or $8 or $3, however the organizations define value. But doing so raises the problem of sustainability. Even non-profits need cash. The $15 does actually have to be paid. If the non-profit had been paying $9, the current L.A. minimum wage, where does it get the extra $6? Do all donors to non-profits or customers of non-profits, if they have customers, simply pony up the extra 67 per cent per minimum wage worker, no questions asked? And where do they get the money if they do? Even deep pockets have bottoms.

Fifteen dollars an hour doesn’t sound like very much value. But if you’re working at your first job, or if you don’t speak any official language, or if you had a lousy education, you’re often going to feel like a fifth wheel, or maybe a flat tire, production-wise. At a New York McDonald’s, once I was served by a teenager who clearly hadn’t the first clue how to make change. The cash register told her how much to give me back but the poor girl couldn’t mix nickels, quarters and dimes to get me to my 65 cents or whatever it was I was owed. In a regime that requires higher productivity, workers like her will be in deep distress. (I can’t believe she kept her cashier’s job for long.)

There is a school of thought that, in effect, wishing will make it so. If labour becomes more expensive, employers will figure out smarter ways of using workers and that will raise their productivity. But why were these unexploited profit opportunities from reorganization not exploited in the first place? Do modern businesses not like profits?

Or maybe employers will help workers upgrade their skills so their productivity rises. But what will that cost? Will all employers have the money or be able to hustle up the money to do it? Will the upgrades always take? And will the return to employers in extra value be worth the cost of the training?

Or, finally, employers may decide to raise their workers’ productivity by using more machines, particularly computers. That’s great if you’re a worker who gets to keep his or her job. Machines have made an enormous contribution to both output per hour and therefore wages per hour over the last couple of centuries. But it does seem unlikely that every worker who has a job with a $9 minimum wage will end up with the same job, but using more machinery, when the minimum wage goes to $15. Some workers will be replaced by machines. I’ve been to a couple of restaurants in the last while in which you could order using a tablet attached to your table. Not the highest class restaurants, of course. But restaurants where lots of ordinary people do eat. Looks like they intend to get along with less help

Setting minimum wages sounds so enlightened. Setting minimum productivity levels sounds so dumb. Maybe instead of basking in the enlightenment glow, people should think for a minute about how hard it is to simply command productivity improvement.