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California workers put on notice hour cuts are coming with $20 minimum wage going into effect

  
Via:  GregTx  •  2 weeks ago  •  54 comments


California workers put on notice hour cuts are coming with $20 minimum wage going into effect
California fast-food workers are getting a pay boost to $20 an hour on April 1, but the benefits are likely going to be paired with reduced hours.

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California fast-food workers are getting a pay boost on April 1 that is coming with some unintended consequences.

After the state legislature approved a law hiking the minimum wage for fast-food workers to $20 an hour, some companies have warned their employees that they will be scheduled for fewer hours as a result of the wage increase. The bill, which increases wages for fast-food companies with more than 60 locations nationwide, has put some managers of these chains in a tricky position.

"I am used to being a champion of labor, and I'm in this odd position," Michaela Mendelsohn, who manages six El Pollo Loco restaurants and oversees more than 170 employees, told NPR. "We're having to get more efficient. So really, what's left is … to reduce labor hours. And I hate saying that."

Many employees will receive a 25% wage increase as a result of the new law. California is one of the most expensive states in the country to live in. And more than half of its employees work in the fast-food industry.

"It's super great," said Sandra Jauregui, who will see a $120 increase in her paycheck as a result of the bill. "At the very least, it'll give me some breathing room … and make it easier to pay the rent and other bills."

She is, however, worried about her co-workers who could see their hours cut.

"My boss told me that he won't reduce my hours but that he will cut others' hours," Jauregui said.

Some restaurants have already warned that price hikes are likely to affect customers as well. Jack in the Box, Starbucks, McDonald's, and Chipotle said prices could go up 2.5% to 3.5%. Pizza Hut said the wage increase was the cause of the company warning nearly 1,000 employees they could lose their jobs.

"This policy is going to be really different in different parts of California," said Jacob Vigdor, a University of Washington professor who studied a similar wage increase in Seattle.

Vigdor's research on the increase from $9.47 to $13 an hour in Washington didn't have much of an impact on the number of jobs available but did find that workers lost hours.

"The restaurant business is a really tough business," Vigdor said. "Restaurants open and close all the time, even in places where the minimum wage hasn't changed for more than a decade."

The bill was previously at the center of a controversy involving Panera Bread. Gov. Gavin Newsom (D-CA) came under fire following reports the chain was not going to have to increase its pay for employees due to an exemption in the bill for companies that bake their own bread on-site.

The loophole appeared to be a favor for Glenn Flynn, who owns dozens of Panera Bread locations in California and has donated $220,000 to Newsom's campaigns since 2017.


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GregTx
PhD Guide
1  seeder  GregTx    2 weeks ago
"I am used to being a champion of labor, and I'm in this odd position," Michaela Mendelsohn, who manages six El Pollo Loco restaurants and oversees more than 170 employees, told NPR. "We're having to get more efficient. So really, what's left is … to reduce labor hours. And I hate saying that."
 
 
 
George
Junior Expert
2  George    2 weeks ago

How appropriate that this happened on April fools day. 

 
 
 
CB
Professor Principal
3  CB    2 weeks ago

Imperfect capitalism pleads its case to stay the course.

 
 
 
Drinker of the Wry
Junior Expert
3.1  Drinker of the Wry  replied to  CB @3    2 weeks ago

Do you have an alternative in mind?

 
 
 
Ronin2
Professor Quiet
3.2  Ronin2  replied to  CB @3    2 weeks ago

Imperfect Capitalism? Capitalism has nothing to do with this.

It is Democrats mucking in something they have no knowledge of that will cost workers money and jobs; and increase operating costs for businesses- which will be passed onto consumers.

Blaming capitalism is rich.

 
 
 
goose is back
Sophomore Guide
3.3  goose is back  replied to  CB @3    2 weeks ago
Imperfect capitalism pleads its case to stay the course.

How many businesses have you started or currently own?

 
 
 
Sparty On
Professor Principal
3.3.1  Sparty On  replied to  goose is back @3.3    2 weeks ago

The answer is none Bob …..

 
 
 
CB
Professor Principal
3.3.2  CB  replied to  goose is back @3.3    2 weeks ago

I don't do MAGA questions, . . .as it becomes a stupid 'transaction.'  Make a statement, and I will give it a go. Oh, and when you do make a statement. . . open it with how many businesses you have started and currently own, Bob. 

 
 
 
Drinker of the Wry
Junior Expert
3.3.3  Drinker of the Wry  replied to  CB @3.3.2    2 weeks ago
I don't do MAGA questions, . . .as it becomes a stupid 'transaction.' 

Exactly, who ever heard of questions in a discussion.

That said, what is MAGA about this question, “How many businesses have you started or currently own?”

Make a statement, and I will give it a go.

What does that mean?  Should a relevant statement be, “You’ve never started or owned a business”.

 
 
 
Jeremy Retired in NC
Professor Expert
4  Jeremy Retired in NC    2 weeks ago

Oh gee, who didn't see this coming?

 
 
 
Sparty On
Professor Principal
5  Sparty On    2 weeks ago

Evil, evil companies.    The liberal business model is companies must lose money, go out of business and be replaced by the state.

Viva la socialism

 
 
 
evilone
Professor Guide
5.1  evilone  replied to  Sparty On @5    2 weeks ago
The liberal business model is companies must lose money, go out of business and be replaced by the state. Viva la socialism

What's the answer here? Start busing the homeless to Tx and Fl?

 
 
 
George
Junior Expert
5.1.1  George  replied to  evilone @5.1    2 weeks ago
What's the answer here? Start busing the homeless to Tx and Fl?

Or maybe, just work with me here, we stop importing unskilled labor that take the jobs of those on the lower rungs of the pay/skill scale. this may free up jobs and government funds for actual citizens.

 
 
 
evilone
Professor Guide
5.1.2  evilone  replied to  George @5.1.1    2 weeks ago
we stop importing unskilled labor that take the jobs of those on the lower rungs of the pay/skill scale.

So the low wage/high cost of living issue in CA is imported unskilled labor? That doesn't sound right. Even if it is won't this minimum wage issue mitigate the use of imported workers?

this may free up jobs and government funds for actual citizens.

Isn't the idea of Capitalism to increase the middle class so we don't have to give government funds to people? 

 
 
 
George
Junior Expert
5.1.3  George  replied to  evilone @5.1.2    2 weeks ago
So the low wage/high cost of living issue in CA is imported unskilled labor? That doesn't sound right. Even if it is won't this minimum wage issue mitigate the use of imported workers?

Sigh....FFS what does that have to do with bussing the homeless? Lets take this one at a time. 

So the low wage/high cost of living issue in CA is imported unskilled labor?

The high cost of living is do to location, in the inland part of the state the cost of living is lower, in the coastal it is higher, not surprising that you would ignore this. As for the second part yes, if you import a group that will work for less than the native population then wages will go down.

Isn't the idea of Capitalism to increase the middle class so we don't have to give government funds to people?

Only in liberal bizzarro world, the idea of capitalism is to create a profit for the owners and shareholders, it's not a fucking charity to fund liberal ideals.

 
 
 
Sparty On
Professor Principal
5.1.4  Sparty On  replied to  evilone @5.1    2 weeks ago

Look, it’s pretty simple.    

Anyone who has ever run a successful business understands this issue.    Companies are just like employees.    They are in business to make money.    If they don’t make money, they go out of business.

So until such time employees decide work at a loss, this will be true.

Raising minimum wage will just raise the cost of the product or service being provided by the company via the employee.    Econ 101 …..

 
 
 
George
Junior Expert
5.1.5  George  replied to  Sparty On @5.1.4    2 weeks ago
Econ 101

If i find an employee who will work for 10 dollars and hour as opposed to another who want s 12, I will hire the 10 dollar an hour employee? is that what you are saying? i'm shocked to hear this. 

 
 
 
Sparty On
Professor Principal
5.1.6  Sparty On  replied to  George @5.1.5    2 weeks ago

Well, assuming performance is the same?    Yes.

I’ve hired many employees that I paid more than their peers because they worked harder and produced more.    Unfortunately I’ve also let many go that expected something for nothing.

It’s common sense really …..

 
 
 
evilone
Professor Guide
5.1.7  evilone  replied to  Sparty On @5.1.4    2 weeks ago
Raising minimum wage will just raise the cost of the product or service being provided by the company via the employee.    Econ 101 …..

Yes, businesses make money. Several of the restaurants up here where I am are already paying their wait staff $20 and hour or more. They are extremely successful and don't have staff turn over. They are so successful they keep expanding. 

 
 
 
Sparty On
Professor Principal
5.1.8  Sparty On  replied to  evilone @5.1.7    2 weeks ago

I’m sure you are going to tell me their prices haven’t gone up.

 
 
 
evilone
Professor Guide
5.1.9  evilone  replied to  Sparty On @5.1.6    2 weeks ago
I’ve hired many employees that I paid more than their peers because they worked harder and produced more.  

This. This here. Pay & treat people with respect and a business gets good workers. They don't have to keep looking for and retraining workers. Customers are happier and the business makes money.

 
 
 
George
Junior Expert
5.1.10  George  replied to  Sparty On @5.1.8    2 weeks ago

Of course, they are benevolent overlords who only care about doing the right thing and not making an evil profit.

 
 
 
evilone
Professor Guide
5.1.11  evilone  replied to  Sparty On @5.1.8    2 weeks ago
I’m sure you are going to tell me their prices haven’t gone up.

No. Prices have increased but that hasn't slowed down business. Not even a little. It's not even tourist season and I was told the wait time was 2 hours for lunch at one of the new places in town. I came back after I ran errands and only had a 15 min wait time. The fish street tacos were fantastic, but I wasn't as happy with the bloody mary as I wanted to be.

 
 
 
evilone
Professor Guide
5.1.12  evilone  replied to  George @5.1.10    2 weeks ago
Of course, they are benevolent overlords who only care about doing the right thing and not making an evil profit.

It doesn't have to be one or the other.

 
 
 
Sparty On
Professor Principal
5.1.13  Sparty On  replied to  evilone @5.1.9    2 weeks ago

Yes and that conveniently left out the other side of this equation as noted:

Unfortunately I’ve also let many go that expected something for nothing.

Pie in the sky dreams of all employees being rock stars …..

 
 
 
evilone
Professor Guide
5.1.14  evilone  replied to  Sparty On @5.1.13    2 weeks ago
Yes and that conveniently left out the other side of this equation as noted:
Unfortunately I’ve also let many go that expected something for nothing.
Pie in the sky dreams of all employees being rock stars …..

It had nothing to do with anything I posted and I don't see a problem with it. 

 
 
 
Sparty On
Professor Principal
5.1.15  Sparty On  replied to  evilone @5.1.11    2 weeks ago

People are over rising prices.    

I live in a resort town as well, know several restauranteurs personally.    No problem with tourists because they tend to pay whatever the freight is no matter what but they are losing off season business from year around locals.    Business is down almost across the board and they are concerned.

Glad you are happy.    Many are not and poll after poll shows it.

 
 
 
Sparty On
Professor Principal
5.1.16  Sparty On  replied to  evilone @5.1.14    2 weeks ago
It had nothing to do with anything I posted and I don't see a problem with it. 

Which just indicates you never had to.    Which is not reality

 
 
 
evilone
Professor Guide
5.1.17  evilone  replied to  Sparty On @5.1.15    2 weeks ago
Many are not and poll after poll shows it.

I find it interesting that people are complaining about the cost of living while still spending freely. It's what saved the economy from sliding into that recession gloom and doom economist wrongly predicted.

 
 
 
Sparty On
Professor Principal
5.1.18  Sparty On  replied to  evilone @5.1.17    2 weeks ago

Nah, the main thing that saved the economy was an aggressive rate increase policy by the Fed.    Without it, we would likely be in double digit inflation right now.

Any first year Economics major knows this.

 
 
 
Drakkonis
Professor Guide
5.1.19  Drakkonis  replied to  evilone @5.1.9    2 weeks ago
This. This here. Pay & treat people with respect and a business gets good workers. They don't have to keep looking for and retraining workers. Customers are happier and the business makes money.

And that's capitalism. Democrats want to have centralized planning concerning this issue. That incentivizes less effort at work rather than more. 

The imperfect answer is for government to stay out of it and let unions do their thing, although that has its problems as well. It shouldn't be so hard to fire someone who's in a union. I am for unions and I am in one now. However, I hate the notion that the union has to defend lazy, unproductive members simply because they are in the union. The union should be the one doing the firing, not making the company do it. That would solve a lot of the problem unions represent.  

 
 
 
TᵢG
Professor Principal
5.1.20  TᵢG  replied to  Drakkonis @5.1.19    2 weeks ago
And that's capitalism. 

No, that [Pay & treat people with respect and a business gets good workers] is not a defining characteristic of capitalism.  Capitalism is the leveraging of privately held property (means of production and distribution) to produce goods and services that can be sold at a profit.    Paying workers the least amount possible works perfectly well within that model.  The trick really is to find a low spot that is just high enough to mitigate too much employee churn.   Why do you suppose we see companies making use of lower wage scales in foreign nations?   They are (in general) perfectly comfortable to not pay domestic employees (thus not providing jobs) when they can get equivalent results from people whose wage demands are lower.

Wages (compensation in general, really) fluctuate based on the labor market.  Employers will pay higher wages when they must but will always seek lower wages because that helps boost profits.   Even employers with a (responsible, practical) philosophy of paying more to get higher quality employees will seek the lowest wage that meets their objectives.   The dynamics of capitalism naturally pursue lower wages and higher prices.  Luckily, there are mitigating measures (in particular, the competitive market) that generally keep those forces in check.

 
 
 
Sparty On
Professor Principal
5.1.21  Sparty On  replied to  TᵢG @5.1.20    2 weeks ago
Employers will pay higher wages when they must but will always seek lower wages because that helps boost profits. 

This is not true.    Many companies, including my own, paid higher wages by choice, based on better performance, etc.    And I know we aren’t the only one. 

Your interpretation of US capitalism appears to be sophomoric at best.

 
 
 
TᵢG
Professor Principal
5.1.22  TᵢG  replied to  Sparty On @5.1.21    2 weeks ago
Many companies, including my own, paid higher wages by choice, based on better performance, etc.

Always the same ... a failure to read what was written:

TiG@5.1.20 Even employers with a (responsible, practical) philosophy of paying more to get higher quality employees will seek the lowest wage that meets their objectives

Your company paid higher than market wages by choice because they sought higher quality results.   They did not overpay simply for the joy of paying more than they needed to get the results they desired.   


... sophomoric at best.

Always the same platitude in lieu of a rebuttal.

 
 
 
Sparty On
Professor Principal
5.1.23  Sparty On  replied to  TᵢG @5.1.22    2 weeks ago

The same disingenuous & argumentative response we have all come to expect here.    I quoted you directly.    And I quote, again:

Employers will pay higher wages when they must but will always seek lower wages because that helps boost profits. 

We paid higher wages by choice.    We didn’t have to.    There was no “must” to it.     And there was never “always” seeking out lower wages.

Your words corner you again for all to see.

Here’s where you request a ticket so all can’t see …..

 
 
 
TᵢG
Professor Principal
5.1.24  TᵢG  replied to  Sparty On @5.1.23    2 weeks ago
I quoted you directly.    

You cherrypicked.   I showed you exactly where I had covered your specific condition.   And here you go pretending yet again that it is not there.

Such blatant dishonesty!    You can pretend to not see this but I bet everyone else can see it:

TiG @5.1.20  ☞   Even employers with a ( responsible, practical ) philosophy of paying more to get higher quality employees  will seek the lowest wage  that meets their objectives
 
 
 
Sparty On
Professor Principal
5.1.25  Sparty On  replied to  TᵢG @5.1.24    2 weeks ago

I cherry-picked nothing.

They were your words.    If you didn’t mean them.    You shouldn’t have written them.

As usual, I stand by all my words here.    No clarification or back tracking required.

 
 
 
TᵢG
Professor Principal
5.1.26  TᵢG  replied to  Sparty On @5.1.25    2 weeks ago

These are my words too ... in the same comment.   You continue to pretend I did not write them:

TiG@5.1.20 ☞ Even employers with a (responsible, practical) philosophy of paying more to get higher quality employees  will seek the lowest wage  that meets their objectives . 

Blatant dishonesty!

 
 
 
Right Down the Center
Senior Guide
5.1.27  Right Down the Center  replied to  Sparty On @5.1.23    2 weeks ago

[deleted][]

 
 
 
Sparty On
Professor Principal
5.1.28  Sparty On  replied to  TᵢG @5.1.26    2 weeks ago

[deleted][]

 
 
 
Sparty On
Professor Principal
5.1.29  Sparty On  replied to  Right Down the Center @5.1.27    2 weeks ago

[deleted][]

 
 
 
JohnRussell
Professor Principal
5.1.30  JohnRussell  replied to  TᵢG @5.1.24    2 weeks ago

efficient capitalism requires that employees be paid the lowest possible wage. it is known as the race to the bottom

 
 
 
JohnRussell
Professor Principal
5.1.31  JohnRussell  replied to  JohnRussell @5.1.30    2 weeks ago
  1. th?id=ODLS.b4ceb15a-1d55-46fa-b163-9620cd124134&w=32&h=32&qlt=97&pcl=fffffa&o=6&pid=1.2
    Cambridge Dictionary
    https:// dictionary.cambridge.org /dictionary/...

    RACE TO THE BOTTOM | English meaning - Cambridge Dictionary

    a situation in which companies compete with each other to reduce costs by paying the lowest   wages   or giving workers the worst conditions: They wanted to stop a " race   to the  

 
 
 
TᵢG
Professor Principal
5.1.32  TᵢG  replied to  JohnRussell @5.1.30    2 weeks ago

Anyone who understands even the basics of business and capitalism knows that companies will pay the least they can to get the results they desire.   So if a company desires a quality level more than average, they will pay extra to get that.   They will not, however, knowingly pay more than they need to get the results they desire.  

Competent businesses do not pay higher than the market rate unless they have a reason to do so (e.g. to reduce churn, to get higher quality, more experienced individuals, to have more local employees, etc.).

It is the same with buying commodities.   We will pay more for organic food if we desire that feature.    However, we are not going to go to a store and just pay more than what the store charges.   At least not if we are rational consumers.

 
 
 
Drinker of the Wry
Junior Expert
5.1.33  Drinker of the Wry  replied to  JohnRussell @5.1.31    2 weeks ago

Are you reading to try wage and price controls again?

 
 
 
JBB
Professor Principal
6  JBB    2 weeks ago

So you were making $750 a week for 48 hours of hard labor over six days and they cut you back to 40 hours over five days for $800...

And, this is bad? For Who? GTFOOH!

 
 
 
Ronin2
Professor Quiet
6.1  Ronin2  replied to  JBB @6    2 weeks ago

You are assuming that they are being worked 6 days and 48 hours. Many were struggling to make 40 hours to being with. Try making ends meet when they cut down hours to 32 (part time employee then); or outright terminate the position. That $20/hour won't look nearly as good unemployed.

 
 
 
Sparty On
Professor Principal
6.1.1  Sparty On  replied to  Ronin2 @6.1    2 weeks ago

This law is targeted towards companies with over 60 locations nation wide.     In other words, fast food companies.

Get used to electronic ordering kiosks … especially in Calikakistan.

 
 
 
bccrane
Freshman Silent
6.1.2  bccrane  replied to  Ronin2 @6.1    2 weeks ago

Fast food is already down to 30 hour or below per week to keep below the ACA threshold for mandatory health insurance, my son found this out.  And also that is why fast food is managed as franchises under an LLC to keep below the number of employees where the ACA also kicks in.  So they aren't getting that many hours in and the business will cut back the number of employees per shift to keep the same number of employees thereby cutting their hours or terminate a few.

 
 
 
George
Junior Expert
6.1.3  George  replied to  Sparty On @6.1.1    2 weeks ago

If they had donated money to Newsome, then they may have all gotten the Panera exception.

 
 
 
George
Junior Expert
6.2  George  replied to  JBB @6    2 weeks ago
So you were making $750 a week for 48 hours of hard labor over six days and they cut you back to 40 hours over five days for $800..

Sigh.... minimum wage in California before this law was 16, So using JB's numbers 40 X 16 = 640. anything over 40 is overtime so 8 X 24 = 192, now if we add 640 + 192 we 832, not 750. so now we are making 32 dollars a week less, Yippee!   

 
 
 
Snuffy
Professor Participates
7  Snuffy    2 weeks ago

Didn't Oregon see the other side of this issue back in 2016 when they raised their minimum wage? I seem to remember stories about how some employees (not all but the majority of them were in fast food as I recall) voluntarily reduced their hours so as not to make too much money which would cut off their government assistance for childcare and/or snap?

 
 
 
CB
Professor Principal
8  CB    2 weeks ago

California Increases Minimum Wage, Protections for Fast-Food Workers

Published: Sep 28, 2023
WHAT YOU NEED TO KNOW:  Beginning in April next year, California’s minimum wage for the state’s 500,000 fast-food workers will increase to $20 per hour – the  average hourly wage  for fast-food workers in 2022 was $16.21. Through the Fast Food Council, workers will have a stronger say in setting minimum wages and working conditions, including health and safety standards.

LOS ANGELES – Alongside fast-food workers, labor leaders, and legislators, Governor Gavin Newsom today signed legislation increasing the minimum wage for fast-food employees to $20 per hour, beginning April 1, 2024. The legislation, AB 1228 by Assemblymember Chris R. Holden (D-Pasadena), authorizes the Fast Food Council to set fast-food restaurant standards for minimum wage, and develop proposals for other working conditions, including health and safety standards and training.

WHAT GOVERNOR NEWSOM SAID:  “California is home to more than 500,000 fast-food workers who – for decades – have been fighting for higher wages and better working conditions. Today, we take one step closer to fairer wages, safer and healthier working conditions, and better training by giving hardworking fast-food workers a stronger voice and seat at the table.”

375A6689-1.jpg?w=300

“Today, we witnessed the signing of one of the most impactful fast food wage laws that this country has ever seen,”  said Assemblymember Holden . “We did not just raise the minimum wage to $20 an hour for fast food workers. We helped a father or mother feed their children, we helped a student put gas in their car, and helped a grandparent get their grandchild a birthday gift. Last month, when we were knee deep in negotiations, hundreds of workers slept in their cars and missed pay days to come give their testimony in committee and defend their livelihood. Sacrifice, dedication, and the power of a government who serves its people is what got us to this moment. My goal for AB 1228 was to bring relief and solutions where they were needed and together with my colleagues and Governor Newsom, that is what we have done. Thank you to the SEIU and all who supported this important effort. We, as a state, should be proud.”

“After ten years of vibrant and courageous activism, which included raising the minimum wage for all workers in the state and bringing billions of dollars into working families’ pockets, fast food workers have now achieved something historic,”  said David Huerta, President of SEIU California and SEIU USWW . “We extend our deepest gratitude to the Governor for his leadership in fighting poverty, empowering workers, and moving us toward a more just and equitable society.”

WHAT AB 1228 DOES

  • Repeals and replaces provisions of the statute creating the Fast Food Council within the Department of Industrial Relations, creating a process to develop minimum fast food restaurant employment standards, related to wages, working conditions, and training – upon the withdrawal of the AB 257 referendum:

    • Establishes a minimum wage of $20 per hour for fast-food workers beginning April 1, 2024 and allows the council to increase this wage annually.

    • The annual wage increase is capped at the lesser of 3.5% or the annual increase in the US-CPI for Urban Wage Earners and Clerical Workers.

  • Allows the Council to develop and propose other labor, health or safety standards for rule-making by the appropriate body.

  • Ensures consistency for a statewide industry wage by stating only the Council may set wages for fast food workers until January 1, 2029.

  • The Council and its authority sunset January 1, 2029.

“It’s time to get to work so we can bring real solutions shaped by real workers to the Fast Food Council. Today’s victory is just the beginning,”  said Ingrid Vilorio, a California fast food worker and leader in the Fight for $15 . “From day one of our movement, we have demanded a seat at the table so we could improve our pay and working conditions. This moment was built by every fast-food worker, both here in California and across the country, who has bravely gone on strike, exposed the issues in our industry and made bold demands of corporations that we knew could do better by their frontline workers. We now have the power to win transformational changes for every fast-food cook, cashier and barista in our state. We hope that what we win here shows workers in other industries and other states that when we fight, we win!”


So there is the rationale for raising wages (enclosed in the Governor's statement above). Of course, their will be company adjustments made and needed to make it work or not. Of course, I hope the governor is prepared for the "usual suspects' " (who guard capitalism status quo like a hawk looking for its next meal) criticism!

Honestly, I don't know where this is headed in my state's economical soundness, but time will tell us.

 
 
 
CB
Professor Principal
9  CB    2 weeks ago

subsistence theory

economics
Also known as:  iron law of wages , subsistence theory of wages
Fact-checked by The Editors of Encyclopaedia Britannica
Article History
David-Ricardo-portrait-Thomas-Phillips-National-Portrait-1821.jpg?w=385
David Ricardo, portrait by Thomas Phillips, 1821; in the National Portrait Gallery, London.
Courtesy of The National Portrait Gallery, London

Subsistence theory , in  labour economics , a theory of the factors that determine the level of  wages  in a  capitalist  society, according to which changes in the  supply  of workers constitute a  basic force  that drives real wages to the minimum required for subsistence (that is, for basic needs such as food and shelter).

Elements of a subsistence theory of wages appear in  The Wealth of Nations  (1776), by the Scottish economist and philosopher  Adam Smith  (1723–90), who wrote that the wages paid to workers had to be enough to allow them to live and to support their families. The English  classical economists  who succeeded Smith, including  David Ricardo  (1772–1823) and  Thomas Malthus  (1766–1834), held a more pessimistic outlook. Ricardo wrote that “the natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution.” Ricardo’s statement was consistent with the  population theory  of Malthus, who held that population adjusts to the means of supporting it.

Subsistence theorists argued that the market price of labour would not vary from the natural price for long: if wages rose above subsistence, the number of workers would increase and bring the wage  rates down; if wages fell below subsistence, the number of workers would decrease and push the wage rates up. At the time that these economists wrote, most workers were actually living near the subsistence level, and population appeared to be trying to outrun the means of subsistence. Thus, the subsistence theory seemed to fit the facts.

Although Ricardo held that the natural price of labour was not fixed (it could change if population levels moderated in relation to the food supply and other items necessary to maintain labour), later writers were even more doubtful about the prospects for wage earners. Their inflexible conclusion that wages would always be driven down earned the subsistence theory the name “ iron law of wages .”

 
 

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