Minimum Wage Rage

A new Congressional Budget Office report has provided both political parties with demagogue headlines.  The CBO reported that a $10.10 minimum wage would raise the  income of some 16 million people and allow about 900,000 to rise about the poverty level.  That’s one for Democrats.

The CBO also reported there would be 500,000 less jobs as employers chose to lay workers off to offset the increased wage cost.  “Job Killer” says the GOP.

I just wonder whether the GOP plans to campaign on the slogan, “we can create 500,000 jobs at only the cost 900,000 more in poverty?

Common sense ought to raise a number of question.  For example, why $10.10 and not $9.10, or 12.10?  Or, will we act surprised when common services (like restaurants) raise their prices with the excuse of the new minimum wage?  Will we act surprised when businesses say they must outsource more in order to stay competitive?

Supposedly the purpose of raising the minimum wage would be reduce the number living in poverty and in some small way to deal with income distribution inequality.  Since those living in poverty tend to represent a long term social cost (read at taxpayer expense), it would seem both parties should be interested in minimizing the number.

Income distribution and its inequality among Americans is a much more complex consideration.  Owners and the senior management of corporations have discovered that they can earn more income simply because “they can”.  It is senior management who set pay levels.

There is little or no justification for the average S&P 500 CEO earning $15+ million.  CEOs receive this much income because they compare the salary of senior management with other senior management, and voila, the answer they are looking for just pops up.  Think about this.  If company A edges ahead in director level pay, Company B can tell shareholders they were forced to pay more in order to retain the best talent.  Company B probably will not say they also raised the pay of vice presidents, senior vice presidents, and of course the CEO to maintain their pay policy gap between senior pay grades.  Hmmm.

In a free market capitalist society, practicality demands some limits.  Unchecked, capitalist would drive the take home wage to the very lowest level possible.  Further, in a global market there is strong pressure to outsource as much as possible chasing the lowest hourly wage around the world.  With a senior management bias, raising only the minimum wage will not change income distribution very much and certainly not for very long.

The message here is that simply raising the minimum wage is a bogus goal.  America does not have linked pay levels.  If the minimum goes to $10.10, there is no guarantee that someone making $15.00 per hour would see an increase.

On the other hand, doing nothing and keeping the minimum wage at $7.25, serves no end either.  Linking CEO renumeration to both performance and some maximum ratio to their lowest wage could be, however, a game changer.

And, interestingly, people with more income pay more taxes and buy more goods and services.  Hmmm.  What an idea.

 

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2 Comments on “Minimum Wage Rage”


  1. College is not the answer. Let’s go in debt? Hmm no sense again…. huh?


    • Professor, IMO there is no simple answer. Being rock stupid is clearly to be avoided, but it is hard to tell the income difference from a skilled plumber, carpenter, or electrician, and many college grads.

      I am pretty sure that almost all CEO’s have a college education. Being content to take home $15 million while the average salary, in real dollars, of your workers has not changed suggest that college education is not providing sufficient economics and ethics courses.


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