December 11, 2013

If you owned the company, what would you pay?

In all of the discussions about increasing the minimum wage a few points are lost. First, proponents claim that the increase in minimum wage has not kept pace with inflation. They argue that if we look at historic minimum wage as a percent of GDP, the wage should be north of $14/hr. The other half of that argument is if the price of the goods produced and sold by those making minimum wage have also matched the pace of inflation. Has the price of a Big Mac or pizza increased at the same percent of GDP? I don't know the answer, but that is an essential piece of the puzzle.

Secondly, we have to consider the value of the labor. How many sandwiches does a business have to sell to make enough income to pay the proposed wages? I will say this until I am blue in the face, a business does not exist to create jobs, it exists to make money. That is precisely why almost without exception the private sector works better than government. If a business owner cannot make a profit he will cut costs to make it so. The local convenience store, restaurant, pack and ship store cannot print money or operate for long losing money. A business cannot run trillion dollar deficits like the government. All businesses will reduce costs when they are losing money and in most cases labor costs are among the largest costs.

Unskilled labor is easy to find and thus demands lower wages. A trained tool and die maker takes years to develop his skills and is paid accordingly. It takes little or no skill to push a picture on a McDonald's cash register. That McDonald's worker may work just as hard as the union member tool maker, but the value of the labor does not demand a similar wage.

Finally, it makes no sense to have a federal Minimum wage. The costs to live in Manhattan, New York are significantly higher than the costs to live in Manhattan, Kansas. The buying power of $8.00 is not the same nation-wide, so why should there be a federal Minimum wage?  In fact, 20 states already have a minimum wage higher than the federal standard, so a significant number of workers will not be helped by the proposal anyway. But pushing for a higher minimum wage does focus the attention of the "Hey look -- a squirrel"  crowd from the utter failure that is ObamaCare.

Progressives want to make the minimum wage part of a dialogue about income disparity in America. That discussion can only happen if we are willing to consider all of the economic influences that affect economic activity and wages, including illegal immigration, the devaluing of the dollar, and the the governmental debt that weighs down the economy like a swimmer wearing cement flippers.

1 comment:

diamond dave said...

Excellent points. Unfortunately it'll be totally lost on most of the people that need to hear it - the same people that thinks they're entitled to anything they want just because they want it.

I've said it many times before, and I'll say it again - basic economics should be a required, compulsory course for every high school in America, public and private, in order to graduate with a diploma or to even get a GED. No exceptions. As a matter of fact, it should be a core requirement to even enter the workforce.

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