Wednesday, August 30, 2006

Minimum Wage Increase Debated

It is my pleasure, and true honor, to introduce the second point/counterpoint post, this on the need for an increase in the minimum wage, written by David of Travel Italy. The post is brilliant, and captures a great deal of the growing dichotomy between the haves and have nots in the United States today. Believe me when I tell you that, in this post, you are in for a great read!

Tomorrow, my task will be to write a counterpoint to this article, despite the fact that much of what I read here I agree with. Still, it is my job to take the alternative position, and I will do as much. Still, realize that this is an excellent piece that, by and large, I agree with, and suspect you will as well (assuming you share my liberal bias).

So sit back and take a read of this great, thorough and informative piece by David of Travel Italy, and be sure to express your opinions on the urgent need raise the minimum wage. And while you’re at it, check out his blog, and get a taste of what Italy has to offer. I look forward to reading your opinions.

Minimum Wage – Class Warfare Fought Only by One Side
by David of Travel Italy

There is a war going on in the US, not as sensationalist as the war in Iraq, or other conflicts but just as important. It is the class warfare, on one side vehemently fought by the financial markets, investment class, and corporations and on the other side the normal worker. Unfortunately it is a one sided war. The one side with lobbyist, investing hundreds of millions of dollars to sway our legal representatives and on the other side no opposition. In my discussions with financial analysts and fund managers they proudly boast of how they have annihilated the unions. I listen and am again amazed. Is it possible that these people I respect do not remember history. Have the French Revolution, the fall of the Roman Empire, the fall of the Soviet Union, the communist revolution of China, the current religious fanaticism taught us nothing.

I was dismayed upon my return to the US. Workers are making less money than when I left in 1978. I have had the opportunity to meet many great new friends but found that they were working two sometimes three jobs just to make it till the end of the month. We hear stories of people who avoid going to the doctor when sick because they just cannot afford it, these are not welfare recipients; they are hard working men and women with families. Even some of our friends, that we consider “well to do”, go garage sales, buy things, fix them up and attempt to sell them for some extra bucks every month.

Minimum wage has not kept up with inflation, even with the proposed 7.35$ hour, it would still be 10% less than 1978 minimum wage. Since 1990 politicians have increased their wages over 65% to a whopping 158,000 $, 5 times the average income in the US, and guaranteed increases for inflation. The President received a raise in 1998, increasing his salary by 100%. I guess what is good for Joe Citizen is not good enough for our elected representatives.

Economists will argue several points:

1) People are not required to take the jobs. They do not say that most of these individuals are professionals, not high school kids, whose job has been outsourced to some other country or destroyed by unfair competitive practices, forcing local businesses to close shops, by offering goods and services below their real cost. If there is no competition between employers then wages will fall. Illegal immigration further exasperates the problem. Why should a company hire a legal US citizen when they can hire and pay slave wages to illegal immigrants without consequences. This is evidenced by Republican support for amnesty. The only reason to reward someone who breaks the law is that the politicians are personally receiving, or have received compensation.

2) Increasing minimum wages will create additional pressure on the working Joe by reducing the number of Jobs. Again this is a talking point, sounds real good to those who are not informed about the US economy but holds no water with those informed. First of all from a financial point of view, it is inefficient to support any business model that cannot support the true costs of doing business. Second, US GDP is 60% health and construction while 18% is Retail. That makes 78% of US GDP is generated by businesses that cannot be outsourced. In other words, there are no more jobs that can be outsourced. Since the investor class is hungry for ever increasing margins and CEO need to make 100s of millions of dollars a year, these businesses that must operate in the US, have to decrease the cost of labor.

3) Increasing the Minimum wage will reduce working Joe’s disposable income because he will no longer be eligible for Welfare. This is the first time I have heard the Republican party support increases in Welfare. I do understand it. One of the ways to make businesses more profitable is to get someone else to pay the costs associated with that business. In this case the US taxpayer.

4) Minimum wage only affects 1% of the working force. This is true for the legal market. With 25 million illegal immigrants, more than 10% of our total workforce, the number of jobs paying minimum wage is not reliable. Additionally if we consider the number of workers now making less than 1978 minimum wages the percentage jumps to one-third of all employees. Finally if we consider that many labor intensive jobs that pay a higher wage, based on minimum wage, the percentage jumps to 50% of all workers.

“About one-third of all U.S. workers earn less than $15,000 a year and an additional 20% make between that and $25,000, the study said.”

5) Higher wages will increase the cost of goods. This is not really true. Wage gains and inflation are not directly related. Inflation is a byproduct of Money Supply. If a government prints more money while the national resources remain the same the value of the piece of paper decreases. Corporations have had stellar productivity gains, this means each worker produces more, while salaries have decreased. The resulting increased margin has gone to investor returns and 100 million dollar a year salaries to the executive management. There is no reason why bringing salaries in line with productivity gains should influence in any way prices.

6) Wages should be determined by the Free Market. Free Market requires that interested parties engage with enlightened self-interest and is free of corruption. Enlightened self-interest is understanding that a contract must be considered profitable by both parties in order to be executed successfully. We have seen that there is only self-interest and none of the enlightened part when the question is labor and US corporations. Concerning corruption, Abramof, need I say more? The NFL, NBA and MLB have all determined that free market does not work in labor negotiations. Salary caps, minimums and maximums and luxury taxes are all imposed to facilitate the long-term health of their markets. We could learn something from the most successful and wealthy of businessmen.

Economists are the same professionals who believe that inflation should not consider energy and food. I am glad that they are able to live without eating, heating or cooling their homes (with 100+ degrees in Dallas), drive their cars, or use their light bulbs in the evenings. For the rest of us, energy and food are a major portion of our income.

So why should the minimum wage be increased?

There is a serious financial crisis spreading among a large portion of our economy. People are unable to earn enough money to make it to the end of the month. This creates future generations that are less educated and can, in extreme, bring about populous revolts. We are worried about Radical Islam, I think there is a growing danger here at home of Radical Joe Worker, desperate because he cannot feed his family or send his kids to school to give them a better life than he had. For Joe Worker, the American dream is dead! Not just for him but for his future generations. President Grover Cleveland called out the soldiers to massacre the “socialist” movement resulting in Labor Day celebrated around the world. Working Joes killed because they had the unmitigated gall to go on strike because they were not paid fair wages. Today our working class is prey of a more insidious Grover Cleveland, the financial markets and executive management in companies.

Raising the minimum wage will decrease illegal immigration allowing law enforcement to dedicate resources to dangerous illegal criminals. Illegal immigration is supported by low wages. If companies are forced to pay fair wages they will be more likely to hire individuals who are actively part of the US economy, workers who speak English. Companies who still hire illegal immigrants will be easily identified by the cost structures. As fewer companies hire illegal immigrants the immigrants will search for easier destinations, reducing the number of individuals to verify and track.

Raising the minimum wage will reduce the public debt and strengthen the dollar. Since most workers around minimum wage also require public assistance the weight of their services will be moved from the public budget to those companies that actually consume their services. Since minimum wages are paid across the country to people who actually need the money, these extra funds will be immediately pumped back into the economy for goods and services supporting further GDP growth. While it is questionable that tax breaks to the upper 10% of the population actually do anything for the economy there is no doubt that extra bucks in the pocket of an individual who has difficulty paying his bills will immediately return.

Raising the minimum wage will make the American dream more accessible to all Americans and create greater financial strength for the US economy. In the film the Sicilian, Salvatore Giuliano is discussing the failure of the revolt with his mentor. The mentor made a statement that has taken on new meaning while researching minimum wage. The mentor stated, “Salvatore, you gave the people land when all they wanted was bread.”

Initially I understood that most people do not want the responsibility of creating a business. Talking with people today I realize that this statement reflects a simpler and darker truth. If individuals are unable to support their family they lose hope. They no longer are able to see a future, instead their future is keeping a roof over their head and food in their mouth every day.

Long term corporate irresponsibility and political corruption have created a dire situation that will be resolved one way or another. A pensive legislature would take the initiative and immediately raise the minimum wage to 1978 levels and tie future adjustments of minimum wages to real inflation. Failure to do so will result in further discontent on the home front, higher crime rates, lower education and could arrive at more extreme events should the situation persist during a downturn of the economy.

To put this into context:

Walmart’s CEO earned about 18,000,000 $, plus perks, last year. The median CEO compensation was 6,830,000, plus perks. By reducing the CEO compensation from 6,830,000 to a measly 1 MILLION $ year, plus perks, 583 employees could have a 10,000$ annual raise! That is an increase of about 70% over their current salary.

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Cartoon from Nicholson Cartoons

Posted by Scottage at 2:19 AM / | |