Thursday, November 16, 2006

The Minimum Wage -or- The Living Wage

There is a myth that circulates in people's heads that there is somehow a wage that can be set that makes everyone able to afford everything without hurting anyone. I battled with one of these on MPR's blog and she of course refused to call it a minimum wage in favor of the "Living Wage". We see these word games all the time and that is the subject of another blog all together. Let us just focus on the basic here.

It was her assertion that people like Bill Gates, Steve Jobs, and every other self made millionaire out there was physically doing harm to people who made less money than they did. Yes, a physical harm, kind of like how Ronald Reagan was said to have snuck out of the White House and ate hobo's meals. When I asked the question how they were doing this I never got a straight answer, but it always came back to a "living wage". The sad truth is there will always be people who don't make enough money for all their wants. Another sad truth is there will almost always in 100% of people's lives be someone with more money than them (Bill Gates was poor once folks). So here is the deal, should these people be penalized for making money? If Bill Gates was only able to retain 10% of the wealth he accumulated over the years, do you think he would have founded all the divisions in Microsoft? Would we have Windows XP right now? The problem with creating such a high tax burden is that you make success a penalty when you could just cruise where you are now with no benefit, but no harm either. I personally wouldn't switch to a job with more responsibility and more risk to make only 10% more than I am making now. There is no incentive in it.

But then there is the living wage, which is defined as a wage by which everyone gets what the need (need being defined as want here folks, these people aren't even honest enough to say that a car, a TV, Cable, health insurance, et al is a want and not a need). So I pose the question, if everyone needs a living wage, how do we achieve it? Do we subsidize out of tax dollars? We then run into the previous paragraphs problem of people no longer wanting to achieve wealth because they are taxed at a ridiculous rate. Plus we know that the economy suffers when people and corporations are taxed at a very high rate.

Do we push the cost of the new wage onto the business owners? This is well noted as there is an increase in unemployment and a drop in jobs created every time there is a minimum wage increase. Aside from that illegal immigrants are exempted from federal and state wage rules thus they are hired on the side at a lower than regulated rate and take even more jobs that Americans want. The big myth here is that illegal immigrants take jobs Americans don't want when the truth is they take jobs Americans can't afford. Business owners have to chose between paying $8-$10 for an American citizen (that is minimum wage plus the other expenses need in hiring and retaining an employee) or $3-$4 for an illegal immigrant. You can say "Well I would hire the American" every day of the week but when it comes down to your business and your bottom line you will hire the illegal, don't kid anyone here.

The other problem with the minimum wage is this; If $5.15, the current federal minimum wage is not enough, then why is $10 any better, or $20? Hell why don't we just make everyone get $50 per hour and then we will all be rich! The reason is 2 fold. First, not everyone is worth $50 and hour, you are paid what you are worth. If everyone was mandated to pay that kind of money, there would be a lot of jobs cut because only the best people, the most motivated people would be hired. The second reason is because it is an artificial inflation. When a business is deciding it's prices it must choose between profit for the owner, stockholders and alike, and it's operating expenses. They need to always remain competitively priced or else they go out of business. So we are faced with 3 possibilities with a large wage increase:

1. The most unlikely, the business will raise prices to cover the cost of the new labor. In this scenario it is usually a high wage increase like doubling of the minimum wage as all his competition is doing the same. All the sudden that $2 gallon of gas now has doubled it's labor cost and is now $3 a gallon. That new minimum wage isn't quite as much as it was before and in most cases the artificial inflation eats up more than the wage gained. A loss for the business in a minor way but even worse for the new minimum wage employees.

2. The business is able to absorb the cost operating at slimmer profit margins. This would happen only with minor minimum wage increases. However for large corporations like Wal-Mart, McDonalds, and Best Buy, their profit's would drop substantially and thus look much worse to investors. The investors would start pulling out of the market reducing capital in the market and would invariably create a depression worse than that of the 1930's. Bad for business in a big way, even worse for the employee's who are all laid off because the big bad corporations couldn't stay in business.

3. The most likely scenario plays out that companies place hiring freezes into effect and lay off some employee's. It reduces their payroll and then they simply keep the most productive employee's. This is the best option for business and the worst for employee's. This is also the option that grabs the most illegal immigrants in for the unskilled professions because they are under the radar again and replacing hard working Americans.

Every time the minimum wage is increased we see these exact things happen. Each of the 3 happen and usually the companies that do 1 and 2 end up out of business. 3 usually happens more often because businesses know how to run their business and they prefer to stay in the black.

Minimum wage laws create artificial inflation, hurt business, hurt the economy, hurt employees, and cause unemployment. They must be repealed.
Weblog Commenting and Trackback by