The federal minimum wage increased...
70¢ to $6.55.
Next year, it will increase another...
70¢ to $7.25.
I'd like to discuss a few of the economic facts in hopes that you can easily fend off the emotional arguments put forth by well meaning but ignorant people. Yesterday my post pointed out that the minimum wage debate is steeped in emotional and misleading language. Today we'll focus on economic facts, personal responsibility and the protection of freedom.
"America's workers are the most productive in the world..."
(quote from Jerry Lee, President of the AFL-CIO of Tennessee)
(quote from Jerry Lee, President of the AFL-CIO of Tennessee)
This is a prime example of the hypocrisy or ignorance behind arguments from most liberal advocacy groups.
What is productivity? Productivity is the volume of output for a given worker.
This output is a function of the worker and the leveraging of capital assets/ technology.
This deployment of capital / technology makes a given worker vastly more productive.
If product demand is constant, a company needs fewer workers to provide the necessary supply of goods.
This output is a function of the worker and the leveraging of capital assets/ technology.
This deployment of capital / technology makes a given worker vastly more productive.
If product demand is constant, a company needs fewer workers to provide the necessary supply of goods.
First, none of these minimum wage workers drive the incredibly high productivity of the average worker in the USA. By definition, minimum wage workers are low skilled. To bring productivity increases into this debate is disingenuous. While Americans work hard, I have no reason to believe that they work harder than workers in India, Vietnam or China. What I do know is that US business has deployed technology better and faster than most countries.
Second, let's remember that the AFL-CIO has fought every advance in automation and technology since the industrial revolution. For Big Labor to use per worker productivity improvements as an argument for wage increases is laughable and hypocritical.
A "Living Wage"
Now we get to the emotional trump card. How can anyone be against a "living wage?" Let's think about this.
Second, let's remember that the AFL-CIO has fought every advance in automation and technology since the industrial revolution. For Big Labor to use per worker productivity improvements as an argument for wage increases is laughable and hypocritical.
A "Living Wage"
Now we get to the emotional trump card. How can anyone be against a "living wage?" Let's think about this.
- Do you believe that the government should dictate the prices of goods and services in America? What if Congress decided to mandate what restaurants had to pay for eggs... or vegetables... or Pepsi? Labor is an input to a product, no different than eggs for a restaurant or paper for a printing company. --- Living Wage = Price of Labor for Businesses --- Government is not qualified to micro-manage prices of any input, be it eggs or labor costs. Income for the employee is a cost for the employer. Central management of prices has failed in every socialist and communist country in the history of the world.
- While the press portrays business generically as Big Business, the fact is that about 90% of businesses in America have fewer than 20 employees. The bulk of minimum wage workers work in small businesses. These small businesses have a hard enough time absorbing the massive cost of government regulations. They can't easily absorb an increase of 40%+ over a couple of years for the price of their lowest skilled / lowest productivity employees. They will hire fewer employees, margins will shrink, or they will go out of business.
- I really don't mean for this last point to be harsh. But... workers have to take personal responsibility for acquiring job skills! If not, you can wake up at 25, 35 or 45 and realize that you have no skills and can't find a good job. That includes staying in school, finding a career you want, and working at it. That may include finding and taking an entry level job, a job requiring no skill and paying a very low wage in order to get access to skills. But if the cost of these low skill jobs is forced higher by the government, the supply of these jobs will decrease... and so will the on-ramp to acquiring skills.
- Who decides what constitutes a living wage? Several newspaper articles today said that inflation has eaten up all the increase workers were given by the increase. The implication is that the current $7.25 target is not high enough. So, what is the right number... $9, $10, $12.50? Instead of impacting 2.3% of employees as this increase does, will the "living wage" that liberals want impact 4%, 5%, 10%... of workers and businesses? How many businesses will have to raise prices, use technology as a substitute for workers or go out of business? And how much will prices have to increase to absorb this new "living wage" ... and how much will the new wages increase future inflation?
- The Minimum Wage -
Good Politics, Bad Economics
A Horrible Violation of Freedom
Good Politics, Bad Economics
A Horrible Violation of Freedom
Note: Please review yesterday's post (Politicians and Language) on the fairness of "Income Distribution" in America.
2 comments:
Alas, your argument is specious at best. When you consider that the last couple of years have seen a larger percentage of GDP go to corporate profits than at any time since 1929 (does the year ring a bell?) the idea that capital should be further advantaged over labor is ultimately good for no one. Further, despite the much trumpeted increase in productivity over the last few decades, the real median wage has not advanced since 1973. To me, this indicates a problem. [And coupled with the idea that C-level people who preside over companies that lose vast amounts of their value -- and shed rafts of employees -- and, yet, walk away with several lifetime's worth of typical worker's wages, the idea that making sure that those at the bottom get a break is somehow evil totally escapes me.]
Perhaps, just perhaps, those small businesses who cannot get by with paying employees a living wage are not sufficiently capably run to stay in business. Or is "creative destruction" only applicable to lowly, faceless employees -- who may be treated as virtual chattel at an employer's whim?
Artie,
First... thanks for stopping by, reading and commenting on my post. I hope you read other stuff on my blog and that you return often!
I want to break down your comment into 4 areas:
1. Since you don't comment on the part about Big Labor being against technological advances and that productivity improvements are due to capital, I assume you agree.
2. I can't seem to put my fingers directly in the data, but I believe that the current corporate profit as % of GDP, while high, is in the general range of several spikes in the 12-14% range. I recall that we hit those levels in the 40s, 50s, 60s and 80s.... but again, that is from memory. Further, the standard deviation across industries is high... making comparisons harder to make relevant.
3. Your point on C-level pay is fair! Boards should be independent and do a much better job. Unfortunately, it has nothing to do with my post. It is an emotional red herring.
4. I am perfectly OK with "creative destruction" as used by Joseph Schumpeter impacting small business owners. However, this concept really applies to radical innovation causing sever disruption for a business. So this doesn't exactly apply.
But, more to the point you are trying to make, if a business is "not sufficiently capably run to stay in business", I believe that they should be allowed to go under. What I am NOT for is the government mandating the cost of production and that causing them to go under.
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