A (minimum-wage free) success story

Read about what happened back in the days when the US had no statutory minimum wages:

“…one young man didn’t want to stay on the farm so he approached a dry-goods dealer in town and asked for a job. After the guy decided to hire him, the young man asked what he would be paid. “Pay? Your pay? You should pay me for working here, you don’t know anything about the business. After you learn enough to be useful I’ll start paying you.” The young man worked three months for absolutely no pay.

How would you like to be that young man? For three months you are paid nothing, then you get a pittance after that. What did he think of his employer? Well, later he not only thanked the man for valuable lessons, but made him a partner in his own business. Maybe you’ve heard of that young man. His name was F.W. Woolworth and he became one of the world’s wealthiest men. What would have happened had that employer been forced to pay Woolworth more than his meager skills were worth?”

11 thoughts on “A (minimum-wage free) success story

  1. Nice story. Can’t disagree with the logic of on the job training being a service. However individual success stories don’t really amount to much of an argument. If they did then we could make the counter argument by pointing to somebody that dies in a ditch a year after working for nothing. Or we could cite Oprah Winfrey who was sexually molested as a child and is now a billionair and imply that sexually molesting kids is a good thing. Which it isn’t.

  2. I saw a program about the differences between European countries once. An Italian woman didn’t get paid for a YEAR at her firm before she was judged to have learned enough to be useful! And this was on recently, about recent events! So this system is still in place in Italy, and still legal, I presume. And I think she was typical of young Italians.

  3. Specious correlation. If that’s considered a good argument for removing the minimum wage you’re up shit creek without a paddle.

    On the job training is a service for both employer and employee. Can work very well.

  4. It wasn’t because he was paid nothing he was a success, but because he wasn’t priced out of the market that he was able to be employed and learn quite a lot about the business.

    Anyway, I wouldn’t work that way unless I was guaranteed future well paid employment. Which is technically illegal under the TPA in Australia, see bonded apprentices.

    Ergo the Australian labour market is flexible enough for F W Woolworth, but not for me.

  5. Well, Terje, this is your chance to compare a worked example with the material you’ve just been looking at on my publications page, like this and this.

    There are two important things to note here, as well as what you’ve already pointed out. One is that in that day and age, in that part of that country, people had subsistence resources – they didn’t need to hold out for an income for survival, because they or their friends and relatives could grow food and get shelter without serious barriers stopping them doing that. The other is that a Negative Payroll Tax system reproduces the effect of those conditions (a Basic Income restores them directly, but only after expectations have adjusted).

  6. PML,

    What are the serious barriers today that stop people from getting assistance from family and friends? In Woolworths day he could not rely on government welfare either so the situation today is arguably more favourable for someone such as he. I don’t see a stronger case for minimal wages today relative to Woolworths day even if there is a strong case to review the interplay between tax, welfare and minimum wages. Which we obviously agree there is.

  7. Finger trouble; the link that goes to http://users.beagle.com.au/peterl/publicns.html#UNPUBART is wrong, it should have gone here.

    In Woolworth’s time and place, you could fend for yourself quite easily; that farm he was leaving was still there. For us, not only is that option not usually there, the personal support network usually isn’t there and what there is hasn’t got so many disposable resources – much more has been crowded out by governments through taxation. Personal help can allow for training work better than the crowding out bureaucracy can, because there is someone on the spot with discretion about helping and there is a personal sense of obligation on the recipient’s part to stop him overdoing it.

    That’s not a case for minimum wages, though. To get that you have to put more in, e.g. the idea of helping the lower paid. That is sound as far as it goes, it just ignores people with no work at all as a result (“survivor bias”) – which means it doesn’t go very far. There have been economic conditions in which minimum wages weren’t enough of a burden to keep people out of work and so did help people at the bottom of the ladder, just as payroll taxes didn’t always drive up unemployment, but that’s not what we have any more.

  8. I updated the post to leave it as an open question. I don’t think it’s causative… you have to be a particular type of person to make it big in business in the first place.

    But it’s desirable we remove impediments like the minimum wage. It could be just what a future F.W. Woolworth-type person needs to get started on a successful career.

  9. PML,

    I suppose perception of the world is based in a big part on personal experience. I left a farm and for many years after I left I still had family there. I don’t see that the world has changed so much in terms of social networks and family structures. Although obviously there have been significant cultural changes. And in any case today there is a government safety net in the way of welfare so the argument in favour of minimum wages is not really that different in either time period. In both instance people have fall back options of a sort. IMHO.

  10. As a new veterinary graduate in the 70s, I was aware of unpaid jobs with ‘name’ horse practitioners who served elite studs and training stables in the thoroughbred industry.

    Young vets with a passion for horses lusted after these positions and, such was the competition for them, it was common to work for free for a probationary period of several months. Those who could not afford to work for free (which would have included me if I had been interested) did not apply.

    I suspect it still occurs. The competition for these positions remains high.

    I also suspect laws imposing the minimum wage do not prevent working for free.

  11. Fascinating story. I guess in a way it’s analagous to the sort of unpaid internships the more motivated university students take up at some point during their student days. In both cases they bring very little to the table themselves, but are interested in gaining skills / proving themselves to prospective employers.

    Employers should only have to pay employees what they’re worth. But by the same token in a tight labour smart employers know that they must sometimes pay a little over the odds for young talent in the early days in the hope of realising the future benefits that they’ll bring to the firm.

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