Minimum Wage

The economic inequality in American society does not reflect fairness and equilibrium. It reflects power and disequilibrium. The same is true in the argument over the minimum wage.

In spite of current economic mythology, historical data prove that raising wages does not cause unemployment (the facts also bear out the truth that any connection between unemployment and inflation is indirect). Any business that has demand for their product is going to have to employ enough workers to make that amount of product, regardless of the wages.

Wages do not reflect a workers contribution to production. Wages reflect what the owners (who take in all the money the company makes then give some back to the workers) are willing to share with their workers. In the absence of unions, owners have all the bargaining power. That’s dictatorship not democracy. It’s remarkable that a country that professes to believe in democracy   worships totalitarianism in the workplace.

Since the range of possible wages is set by the wider labor market in the business sector, and not the owners, it behooves the government to set a wage floor that is democratic. Raising the legal minimum wage won’t necessarily cut into profits. This is because raising wages puts more money into consumer’s hands.

People who aren’t rich don’t horde their money. They don’t have enough. They need it to buy food, gas, the basic necessities of life and some items that entertain and make life a little easier to deal with. If you increase their wages they will buy more stuff. This means more products bought and an increase in profits that can be used to off-set the increase in wages.

Increasing the money in the hands of the mega-rich doesn’t affect profits because they aren’t going to spend that extra money on goods and services. They already have enough spending money for everything they want. If average folks aren’t spending then capital is afraid to spend on creating new businesses and factories. This is the historical lesson of all recessions and depressions. In today’s world of unregulated financial markets the mega-rich will use extra money to play in the stock market. So extra money at the top, when folks in the middle and bottom are suffering, doesn’t help the economy. It does not “trickle down”.

Also, if average workers have more money they don’t need to borrow as much. So their increased income now goes to buy more products and services as opposed to bank fees and interest. Not so good for the loan and credit card companies, but much better for the businesses the worker’s frequent and much better for the economy.

If an increase in minimum wage causes your business competitors to raise their prices, but you leave yours low, your profits can increase. It works for Wal-Mart. Your profit per item decreases but the number of items you sell will increase because people will always buy the cheaper product (especially if it is of the same, or better, quality). So the increased sales will keep your profit the same as it was (before your competitors raised their prices) and it might even increase it. You will also have happier workers because they are being paid more.

The conventional economic notion of a perfectly competitive labor market is absurd.  Labor does not behave, and can not be treated, as just another commodity subject to the supply and demand curve. Are employees the same as a product that is sold? Are people the same as corn or wheat or beef or timber or tin? Do people behave like commodities?

Conventional economic theory holds that: when wages are too high then there will be too many people looking for work; whereas if wages are low then some people will decide not to work because it isn’t worth it. This makes little sense in the real world. Most people in low-end jobs don’t’ have the option not to work. If they don’t work their families don’t eat. So most people are going to work no matter what minimum wage is.

Of course, some go on unemployment or welfare. If really you want to reduce the number of people “living off the system” then you should support raising the minimum wage to increase the incentive to work. If minimum wage is so low that the unemployed won’t work then a higher minimum wage floor could stop spiraling unemployment and get people off unemployment checks and welfare.There is no single, possible, consistent, descriptive labor-supply curve. There is no statistical evidence that raising the minimum wage effects unemployment. Data shows that individual workers are just as likely to work fewer hours as to work more when wages increase.

Raising wages can reduce over-production. It also cuts into the profit margin. Over-production contributes to recessions and the profit margins of many businesses are way too high anyways. Price = Cost of Production (including wages) + Profit. If demand stays high and the amount of production can’t be scaled back then cost of production/wages will go up. But prices can stay the same if profits are reduced. In larger businesses, profits can and should be reduced in the area of executive compensation and shareholder profits. Is it such a disaster to make a little less profit so people can have better lives?

The belief that raising minimum wage causes inflation is based on the belief that raising it also causes unemployment. The belief that unemployment effects inflation is based on an erroneous interpretation of the Phillips’ curve. Phillips’ research into the rate of change in prices due to unemployment clearly shows that it takes quite awhile for prices to change relative to unemployment. The stagflation of the 1970s proved that this correlation doesn’t always exist.

Other workers won’t settle for minimum wage jobs when higher wages are available elsewhere. So a higher minimum wage would also entice more and better workers to take minimum wage jobs thus increasing the productivity of businesses. Unless you like it when terrible employees serve you at the store or the restaurant.

If minimum wage increases most full time workers won’t take hours away from possible new hires by working more. There’s only so many hours in a day and they still have to eat, sleep, take care of their kids and spend time with their families. Some people have hobbies and interests outside work. Most sane individuals will choose to have some free time and not give it all up to work more.

Regardless, moderate inflation doesn’t need to be a big problem for the working man. It’s their creditors who have reason to be against inflation. If the dollar decreases then the dollars paid for interest fees are worth less. This is good for the working person who essentially pays less in interest as inflation rises.

The mega-rich also don’t like inflation. This is because they don’t work for a living. They let their money do the work for them, often by investing in financial instruments. But if the return on their stocks is a little less it’s not going to cause them undue economic hardship.

Interest earned through financial instruments becomes worth less as prices rise and the amount a dollar will buy becomes less. The rich might then look at the fact their interest earned is less and instead invest in businesses and factories which will multiply their dollars through profits from inflation-increased prices.

Employers could cut products/services which would decrease staff, but if demand for their products and services exists they’d be fools to cut those products/services. If there isn’t the demand then they shouldn’t be over-producing products/services anyways. If they are doing things sensibly then they are not wasting extra staff hours inefficiently. Regardless of wages, it takes x number of staff hours to create x number of products/services. If wages go up- it still takes x number of staff hours to create x number of products/services.

This is the way the free market is supposed to work. If a business isn’t run efficiently they should be out of business. If a business’s profit margin isn’t enough to cover a living wage for their workers then they shouldn’t be in business.

An owner could keep payroll at the level it was before minimum wage was raised if they cut staff hours (as opposed to cutting staff) to make up for the increase in the hourly wage. Workers would make the same paycheck they made before the wage hike but at fewer hours worked. This could force more inefficient businesses to increase productivity per hour. It doesn’t cut into a business’s profit margin or force them to raise prices. This would free up more hours for employees to take care of their families or find second jobs. If demand for the business’s product doesn’t change then they might end up hiring more workers.

If the minimum wage stays low and businesses could hire two workers instead of one for the same amount of money, that doesn’t mean they would. As mentioned before, it still takes x number of workers to make x amount of product/services and wage rates can’t change that. Most businesses, if they are well run, will have the number of staff they need to do the job- no more and no less.

How many small business owners have valuable, productive employees at the current minimum wage? The small businesses that take good care of their employees are probably paying them above the current minimum wage anyway.

Granted some small businesses may not have enough profit margin to transfer into higher wages. But small businesses that employe a lot of minimum wage labor (like a pizza shop for example) get a substantial amount of business from minimum wage earners. These individuals would have more money to spend at that business if the minimum wage was increased. So their profits would increase and make up for the added labor costs from the increased minimum wage.


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