Monday, January 15, 2007

Why Raising the Minimum Wage is Futile

Facts are facts.

Labor is a commodity, nothing more than that.

It IS NOT and CANNOT be valued higher merely because humans provide/produce that commodity via human effort.

The cost of all the commodities used to produce, package, distribute and sell a given good or service determines its market price – the price the consumer pays.

When businesses are hit with higher taxes they are rightly passed onto the consumer, as they MUST be.

Who pays the “Corporate income tax?”

We do, as consumers. It's actually a "stealth consumer tax."

When the cost of steel or plastic goes up, so do consumer prices.When the cost of labor goes up, so do consumer prices.

Even if a large business, say GM made $12 Billion in profits the previous year it would be foolish to even suggest that they take in less profit in order to absorb jumps in commodity prices (oil, plastics, labor, taxes) so that consumers could pay the same price they did before the increases.

Profits, aside from going back into the business in the form of R&D and expanding production (jobs creation), also reward investors with things like stock Dividends.

If a company fails to attract and keep investors (Capital) it won’t be able to expand and compete in the marketplace. Businesses NEED investors. Anyone who’d even suggest that business should take less in profits in order to keep prices lower for consumers as their costs go up, as opposed to attracting/rewarding investors, would be guilty of the worst kind of GREED – that of seeking "something for nothing."

No, as commodity prices increase, so must consumer prices, often companies must even add a little extra padding for increased ancillary costs (additional accounting fees, etc).

That subsequent consumer price inflation impacts the lowest wage earners the most, basically nullifying any increase as their new wages are now paid in dollars worth less than they were when the increase was negotiated.

There’s no way to “help the poor” from the outside,” by giving them more money. I don't even like the Earned Income Tax Credit - bottom line, it's a form of welfare, as people earning less than $32,000/year pay zero income taxes anyway.

Poverty is caused by a dearth of marketable skills, or the inability to maintain gainful employment, usually as the result of a variety of self-destructive behaviors.

No, the only person who can help the poor individual is THAT poor individual him/her-self...and the only way that individual poverty can be remedied is via developing more valuable and marketable skills.

There is no “higher wages” solution to poverty.

That’s just the way it is. It’s like gravity, it’s not going to change simply because we don’t like it.

It's also part of the reason why poverty is such a difficult problem to address. It just doesn't respond to simplistic "solutions."


BNJ said...

Agreed. I don't really like the minimum wage. Besides all your (valid) practical arguments, I think it runs afoul of the right of contract. If two parties willingly negotiate an agreement to do certain work for a certain wage, then I don't believe the government should interfere.

That battle was lost long ago, however, and we're stuck with the minimum wage. The only question is where it should be set. Conservatives and libertarians argue that increasing the minimum wage puts the squeeze on small business and negative pressure on employment numbers.

They're right, of course, and even liberals understand that, although they'd never admit it publicly. That's why all the minimum wage hikes are tepid, modest increases, phased in gradually over several years. Doing anything more substantial would risk significant harm to the economy. But this way, they can give a modest increase that will affect very, very few people and have a minimum impact on the economy and then pat themselves on the back and feel good about how "compassionate" they are.

JMK said...

Without question Barry and that's why the current increase was passed along with some "protections" for small business.

In theory the minimum wage sounds great, no one wants to see people working for subsistance wages, but skills are valued by the market.

If we simply put pressure (big fines) on businesses that hire "undocumented workers" and hired people "off the books," the wage rate for unskilled and low-skilled work would rise significantly.

As you or CRB said, "If the minimum wage is the panacea some say it is, then why not set it at $20/hour, or $50/hour?"

It's a canard and you're right that all the Dems will do is tweak around the edges for a "feel good" fix.

The GOP should've indexed it to inflation (even if it raised it only 1% for every 2 1/2% rise in inflation) to take the issue off the table.

That probably would've been the best move politically for them, but they're tone deaf on things like that.

Me too...I guess.

CRB said...

The GOP should've indexed it to inflation (even if it raised it only 1% for every 2 1/2% rise in inflation) to take the issue off the table.

Raising wages causes prices to rise, which is a cause of inflation, so linking the two would result in a wage/price spiral that would continually drive the minimum wage (and inflation) up.

And the rise in inflation would make the wage increase worth less is terms of real buying power.

John Rudge said...

All this lovely free market rhetoric would be completely true if we lived in a free market economy in which if I had a marketable skill that was in demand I could get different employers to compete for my labor with increased wages. A good example would be nurses. Nurses are in a shortage,they are specialized and it is a brutal job. However the only reason they are able to keep a livable wage is due to the fact that they are unionized. Even with that union many of them struggle to get by. So what happens to the kid who can't become a nurse and has work for union busting Walmart that has massive financial and political influence? Nothing, she lives at effectively subsistance levels with no bargaining power. If she quits, she can't eat. Walmart wins. So this minimum wage hike gives her and the millions other like her a shot at getting ahead. Capitalism is a theory, it has positives and negatives, but everyone should be able to eat and have children without financial hardship. This is our responsibility as an enlightened and progressive society.

JMK said...

CRB, two things, the first is that's why I didn't say link it directly1:1 to inflation, but something like 1:2.5, a 1% increase for every 2 1/2% increase in inflation.

The second is that I don't see that as a GOOD economic move, merely a GOOD political one.

Eradicating the use of illegal immigrant labor (undocumented, off-the-books) labor via heavy fines would certainly do far more to increase the need/demand and reward (wages) for Americans entering the labor market.

JMK said...

John, you're right that we certainly don't have a "free market," as America's current economy is heavilly regulated.

The problem with arbitrarily raising wages by fiat (legislation) is that companies will counter that by either hiring fewer workers or charging more for their products as the price of a major commodity (labor) goes up.

The thing that BOTH major Parties have failed on is controlling immigration and that's created a glut of "cheap labor," especially in low-skill and no-skill jobs and that's been a disaster for a lot of American workers.

The GOP (especially "Moderate" or "Country CLub Republicans") have winked at illegal immigration as "good for business" - cheaper labor.

Those folks are certainly "enemies of America's working class," but the Liberal Democrats who favor "Open Borders" for either "diversity's sake," or in hopes of more Democratic votes, are even worse - they undermine American wages and allow a threat to national security to continue unabated.

The problem for many people is "Where do we turn?"

If only massive immigration (especially illegal immigration) were curbed, there'd be a huge swell in wage rates, as those for the low-skilled and unskilled labor went up in the absence of this artificial downward pressure on wage rates.

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