The charge is often made that low wage workers are being "exploited" by their employers. What is meant by "exploited" isn't usually defined clearly, so let's explore some possibilities.
1) A low wage is exploitation per se. Even if the worker's productivity is in line with their wage.
2) The low wage isn't a necessary precondition of "exploitation." What's important is that the employee produces far more than their wages indicate. Their employers are earning a huge surplus on their labor, and declining to share it with their employees.
Casual conversation suggests people are using definition 1). But 2) seems like a more reasonable definition of "exploitation." It's possible that some people are so unproductive, for whatever reason, that they simply cannot produce more than $7.25 an hour for their employer, no matter how well managed or well capitalized their workplace is. Such a worker is not being exploited. In fact, there's nothing special or logical about the $7.25 figure, which (frankly) was basically pulled out of someone's ass just over a decade ago. (Minimum wages are set by politicians enacting whatever legislation they can get away with, not carefully fine-tuned by economists and statisticians who come up with the answer to a complex optimization problem.) Some employees might only be able to eke out a mere $3 of productivity per hour. An employer who puts this person in a job might actually be doing charity work, in the sense that they're losing $4.25/hour to employ them. Assuming such cases exist, does it make sense to talk about the worker "exploiting" the employer? (I suspect that some employers are consciously doing charity work for workers who otherwise have a hard time finding work, like people with criminal records or disabilities, and I'm certainly not criticizing them for doing something pro-social. Just pointing out that it's unreasonable to expect businesses to make a habit of losing money.)
Thomas Sowell has actually made a similar argument by pointing to highly paid superstar athletes. He points out that these people will tend to be hired by whatever team will earn the most from them, in terms of ticket sales, advertisements, merchandise, etc. A team in a city with a larger population will be able to pay more, because they more likely to sell out tickets for a sporting event and have more fans bidding up the prices of those tickets. A team that is already popular, with a large fan base, might be able to make more money on advertising. The highest-bidding team for a superstar's services might conceivably make $10 million more than the next highest bidder because of the athlete's effect on all these revenue streams. But they might be able to out-bid their second-best rival by offering only $1 million, thus keeping $9 million of that person's value-added. (Of course, the actual outcomes are risky and somewhat random, but businesses, including sports franchises, think in terms of expected revenues and profits.) One might say that highly paid athletes are exploited to a much higher degree than low-paid workers, assuming "exploitation" implies the intuitive definition, productivity in excess of pay. And this argument would tend to apply to other highly paid workers. The very best CEO for a company might earn the company tens or hundreds of millions over what the second-best candidate would earn, but they are likely to only capture a fraction of that in take-home pay. Nobody thinks of these people as "exploited".
Maybe someone will wish to argue that, actually, those low-paid workers do produce an enormous surplus for their employers. Thus they are being exploited according to definition 2). This theory bumps up against some uncomfortable realities. Who gets hit the hardest during an economic downturn in terms of layoffs and unemployment? Low-wage workers or highly paid workers? Empirically and (I think) matching with most people's intuition, it is the low-wage workers. But this makes no sense if these workers are earning a huge surplus for their employers. If Walmart is paying its employees $14.26 an hour (Walmart's average hourly wage) but earning, say, $30/hour, then each employee is a tiny gold mine. Likewise, why keep around the highly paid (some argue "overpaid") employees during hard times, when any inefficiencies in the system bite hardest? Also, take a look at profit margins by industry. Do sectors that hire a lot of low-wage workers have generally high or generally low profit margins? Consider also the very high rates of turnover (as in openings and closures) in the restaurant industry. Why is it so hard to stay in business if it's so easy to exploit low-skilled labor? Finally, supposing it were true that there were some kind of enormous profit to be reaped by employing low-skilled workers, shouldn't that attract more competition? If Walmart is only paying $14.26 for something that's actually worth $30, shouldn't someone else bid for that worker's services? Even assuming the bidding doesn't get the worker's pay up to $30/hour, shouldn't someone at the very least bid an extra dollar? Shouldn't another employer be willing to earn "only" $14.74 instead of $15.74 on each employee's labor? Markets are generally pretty good at not mispricing things, because this kind of bidding and counter-bidding is always happening. Nothing should stay badly over- or under-priced for long. If a worker is working at Walmart for $14.26/hour, it probably means nobody else was willing to pay them more for comparable work, and Walmart actually gave them their best option. It makes little sense to heap scorn on the employer who is doing the most to help that person.
I think we do ourselves a disservice by misstating the nature of the problem. The shitty reality is that some people just are not very productive. It could be an intellectual limitation, like they're just not very smart, or a social limitation, like the inability to correctly pick up on cues and instructions from their manager, or a behavioral issue, like chip-on-my-shoulder resentment towards authority and general insubordination. If these prosaic explanations of low wages make more sense than theories about power structures and "exploitation", we should face that fact with our eyes wide open. Otherwise we'll implement bad policy solutions that don't address the actual problem. Minimum wage legislation and other legislation that's meant to "protect the worker" can be counter-productive by making it even less profitable than it currently is to hire certain workers. Or even un-profitable, as in, "I can only hire this person at a loss." This isn't a plea to shed a tear for business owners, but rather to understand what business owners are likely to do in response to profit motives. If we are trying to incentivize pro-social behavior on the part of businesses, we need to set the incentives right. That first requires correctly specifying the problem.
If you do know how to coax tremendous productivity out of low-skilled workers, please go into business and hire them. You will bid up their wages, you will make a fortune for doing it, and you will become my personal hero. I dearly wish I knew the secret formula for getting higher productivity out of people, and moreover in a way that scales up to millions of people. Sadly I do not.
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It's also worth noting that only about 2-3% of the labor market earns the minimum wage or less, so the fraction of workers "protected" by this policy is small by any measure. Businesses apparently are willing to pay workers more than the statutory minimum in the overwhelming majority of cases. The reason, I suspect, is that labor markets are actually quite efficient and good at paying the appropriate wage for the worker's value added.
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