15 November 2014

Minimum Wage: No Good Theory & Net Loss to the Poor

Stephen Kershnar
NFL Salaries and the Minimum Wage
Dunkirk-Fredonia Observer
November 11, 2014

A common view is that people in some types of jobs are paid too much and others too little. This view explains why debates over executive pay and the minimum wage take on a moral tone rather than being mere policy judgments. It is as if politicians are talking about sin.

In 2009, President Obama forced a $500,000 cap on corporate executives at firms receiving taxpayer bailout money. He said he wanted to stop federal money to be used to reward failure. He just knew that these corporate fat cats were making too much. On the other hand, four states recently voted to raise the minimum wage. Apparently, the crass politicians in those states just knew that unskilled workers were making too little. 

The problem with all this is that these judgments are arbitrary and indefensible. Simply looking at people’s salaries tells us little about whether the pay is deserved, fair, or a good deal for employers. To see this, consider whether you would want your brother or son to play in the NFL.    

On the benefit side, being a NFL player is well-paid, exciting, prestigious, and can make one famous. Nick Schwartz, writing in USA Today Sports, points out that the average NFL salary in 2013 was $1.9 million. The average play over his NFL career makes roughly $4 million after taxes. It also carries with it validation of one’s sense of masculinity, access to attractive women, and participation in a band of brothers. For young men, prestige, excitement, and access to attractive women are very appealing. Other jobs (for example, factory worker) don’t offer anything like these benefits. 

The costs of trying to make a career in the NFL are significant. NFL football is a dangerous sport with significant chance of an injury that can damage one’s ability to think. NFL players suffer concussions and other types of traumatic brain injury. This can cause memory loss, depression, and dementia. The NFL has acknowledged that many former players are suffering from these problems.

Players who commit to football in college invest a tremendous amount of time and energy and stand very little chance of getting a return on their investment by making it to the NFL.

NFL careers are short. NFL players’ union claims the average career is 3.2 years long. The NFL claims that it is 6 years but its estimate is misleading because it focuses on better-than-average players. On either estimate, an NFL career is short. The job is also stressful, physically demanding, and requires travel. Every day, players fear injury, demotion, termination, and loss of ability to support one’s family.

In 2009, Sports Illustrated reported that 78% of NFL players are bankrupt or facing serious financial stress within two years of retiring from the league. Compare this to the ironclad job security had by teachers, soldiers, and postal workers and the generous retirement benefits had by soldiers and police officers.  

When compared to the jobs held by players’ peers (for example, farmer, factory worker or insurance salesman), the basket of costs and benefits is better for some people and worse for others. Whether the basket is better depends on an individual’s talents and preferences of the person in question. This is similar to the different attitudes people have toward the basket of costs and benefits that accompany specific consumer goods. Consider, for instance, that some people have a strong desire to buy Porsches. Others have no interest or don’t see them as worth the money.

There is no way to decide what NFL players should make. First, the notion that they make too much because they don’t need so much money is unconvincing. None of us need that much money to live. Even people making wages below the minimum wage can live dignified lives, albeit with far less opportunities than the rest of us. A good deal of the third world is doing so now.

Second, the notion that they don’t deserve so much money depends on there being a principled way to pick out what a worker deserves. On one theory, workers deserve money for the effort they make. The problem is that this is implausible. Musicians who put in a lot of effort, but still make terrible music don’t intuitively seem to deserve a lot of money (think of the 80’s big hair bands). The same is true for those teachers who teach poorly and people’s whose skills are unwanted because they are just not good enough in a flooded market (consider, for example, violinists).

Perhaps, instead, workers deserve money for what they contribute to others’ lives. Again, this just isn’t true. Some movie and pornography stars contribute to a lot of people’s lives as judged by the number of people who enjoy their work without working especially hard. Consider Marlon Brando and Linda Lovelace. I don’t see why they deserve a lot of money.

In any case, NFL players contribute a lot to others. In 2014, the Associated Press reports that roughly half of Americans are NFL fans (156 million people). That is a lot of people whom players make happier. The fact that teams pay so much for NFL talent tells us that they think that the players who make it would contribute a lot more than the teams’ next best options (those players who don’t make it).

If we can’t discover what an NFL player should make, because there is no adequate theory, there is similarly no reason to think that we can discover what is the minimum that unskilled workers should make or the maximum that corporate executives should make.

If the case for the minimum wage is not based on what unskilled workers deserve, then it weakens considerably. While there is a controversy over the studies, it is likely that raising the minimum wage results in fewer low-wage workers being employed. If this is so, then it is likely that the costs to such workers via lost jobs outweighs the gains to those who retain their jobs.

Also, most minimum-wage workers do not live in poverty. On one 2007 estimate by economists Richard Burkhauser and Joseph Sabia found that only 13% of the workers who would be affected by it live in poverty. Thus, it is not a particularly effective welfare program.