Monday, September 24, 2012

A Progressive Minimum Wage

The wage is a mechanism that gave great flexibility to modern commerce.  It allowed people engaging in business relationships to trade a medium that gives access to resources instead of resources themselves.  Wages ran into problems when they because so small that people were literally unable to support themselves with what was available.  This was, in many ways worse than being a slave or worse than living on a Lord's farm during the Feudal Age in Europe.  At least then, your master or owner allowed you to care for your basic necessities.  We now are running into a time where the minimum wage no longer meets the needs of our citizens to maintain a minimum standard of living.  

The minimum wage, in it's day, was designed to ensure that the unskilled could find work that would support their basic and most necessary needs: housing, Food, the basic amenities of life.  In 1971, the minimum wage translated into a real dollar wage (the inflation-adjusted wage into today's dollar) of approximately (assumed 40 hours * 52 weeks) $20,000 a year.  Now $20,000 a year today is enough to live in a basic manner.  Most major areas have rudimentary housing available that can be sustained by a $20,000/year salary with very little effort if you live within your means and perhaps a little frugally.  But, in today's day, the wage of $7.25/hr is very much incapable of sustaining a minimum standard of living.  Currently, the minimum wage, with the above same calculations only grosses $15,080 per year.  With the costs of housing, food, medical care, and transportation going up by record numbers every year, we must consider the affect this is having on society.  Currently, if you're single and you work 40 hours, you may qualify for SNAP after a state's deduction.  

So arguments against the minimum wage are the following:  

1.  It increases the costs of businesses.

2.  It's a disincentive to do quality work because of the lack of ability to leverage higher wages in exchange for better performance.

3.  It standardizes wages across several industries.

4.  It can cause unemployment.

5.  It causes a small increase in other wage categories forcing businesses to raise their wages to compete with minimum wage jobs.

6.  Hurts business profits constraining the ability of businesses to expand.

Now, the arguments above are pretty standard for most people opposed to or opposed to increases in the minimum wage.  However, there are some things you need to consider about these arguments.

1.  It does increase the costs of businesses...however, keeping the minimum wage in pace with purchasing power is important to ensure that people who are not falling further and further behind the curve.  Such a problem will cause more people at minimum wage to qualify for public assistance.  If the goal of conservatives is to keep people off the public dole, then, they should be encouraging higher wages to keep that hope alive rather than letting people pay abnormally low wages.  Furthermore, with less people on the public dole, that means lower tax demands from businesses and tax payers in the long hall.

2.  Wages are not the only benefit gained from hard work.  Many times, even in companies that pay minimum wage, there are promotion opportunities.  I would hope that any company seeking to raise a worker up to a higher tier of responsibility would warrant higher wages.  The benefit of promotion or benefits are perhaps better incentives than just a raise.  Simply put, this is the company trying to be cheap...usually unnecessarily so.

3.  It is true that the minimum wage does standardize the wages for many industries.  But such a standardization is kind of a non-issue.  You cannot expect someone to work for 5.15/hr, as the minimum wage would still be at if it had not been raised during the Bush Administration to 7.25/hr.  There is a point where the minimum wage becomes nearly unpalatable and is regarded is highly unjust.  Many businesses will pay minimum or just slightly above minimum if they can get away with it.  It's simple psychology.  With a shortage of jobs and a surplus of workers, there's no bargaining power to negotiate a higher wage.  So, many businesses can get away with paying whatever minimum is, because they know people will take it out of desperation.  The minimum wage loses it's buying power every year due to inflation, and, as a result...people are more and more unable to get ahead and move up.  While many conservatives will say "If they don't like the wage, they'll need to find another job."  And while that sounds all well and good, it's not an excuse for paying the least amount the law will let you.

4.  The argument that "it causes unemployment" is used OVER and OVER again by conservative economists, but, they leave out one very important piece of information.  The statement "It causes unemployment" is true ONLY when the Job seekers vs. Job creators are in Equilibrium with each other.  Personally living in a state with a high minimum wage, Washington State, I can personally attest that businesses, while they hate the minimum wage at $9.04/hr, they pay it, and they still hire just fine.  Furthermore, Washington's unemployment rate has been in step with the national average if not actually slightly lower.  The assertion that the minimum wage causes unemployment is under most scenarios, false.

I recommend the following articles in support of my claim in item 4: - Minimum Wage does not affect job creation even in hard economic times. - Employment and the Minimum Wage—Evidence from Recent State Labor Market Trends - Job Slayers or Fact Slayers? The Wall Street Journal’s flawed argument against raising the minimum wage

5.  Just like with union wages in a particular area, non-union wages actually get dragged up with union wages indirectly, the same is true with the minimum wage.  When you raise the floor of wages higher, workers will often refuse to accept employment where their wage is only slightly above minimum wage.  So, to give further incentive, employers will raise their wages proportionately to make sure that prospective employees don't feel their being paid, what is viewed as, the bare minimum.  So this is actually a good thing for all wage earners up to a certain level.  It also creates some wage competition where, if a worker feels a job that requires less energy pays only a little less than the job they're seeking, their bargaining power is increased because if they choose, they can go work for a job with less scruples for a little less or the same money and make just as much.  This forces employers to be more competitive on wages closer to the median wage.  

6.  I will concede that businesses will have increased costs in the short term from an increase in the minimum wage.  There is definitely no debating that point.  However, what other businesses will have to realize is that, a minimum wage increase can actually increase another business' profits and in retrospec, their own as well.  By requiring higher wages, more people are moved into a more middle-class income level giving consumers more disposable income to spend on things beyond the absolute minimums.  Businesses fail to realize that their own low wages are actually a self-perpetuating problem.  Low wages equal low costs, but low wages also equal low amounts of disposable income, which lead to lower profits, and lower expansionary outlooks as well.  The wage issue is something to be approached with careful considering, as to not over-mandate wages, but also under-mandate them either.

Now, to move onto the actual meat and potatoes of the point of this article:

The progressive minimum wage is a function that may or may not be practical, however, I hope that someone of some influence reads this, and perhaps puts some of my assumptions to the test to see if it'd work out.  Now, just like an income tax, which I believe should be based on net profits (Including payouts to investors and and not gross profits just as I would favor a Single-rate tax system that leaves a lump of income not subject to taxation.  The same should be for the minimum wage.  There are reasonable justifications for having a lower minimum wage to foster growth in small business.  

There are many small businesses which lack the capital to pay a full livable wage.  And I'm reasonably sure that the good and hardworking small business workers/owners would indeed love to pay employees a livable wage.  However, to foster growth in a small business, I would like to see a progressive minimum wage which incorporates size and profitability.

A business which makes only a little money should not have to pay huge minimum wages in that it will hurt their ability to be competitive.  So, based on post-tax profits, the minimum wage should be determined at a set rate.  For companies that have larger post-tax profits, their minimum wage obligation should be much higher.  Now, many might say "What right does government have to tell a private business how much in wages they have to pay?"  My answer is this:  If a business is allowed to pay a bare minimum wage that doesn't even provide for a minimum standard of living and leaves the worker asking the public dole for assistance.  It has now it becomes a government issue.  Walmart is notorious for helping it's workers get on the public system because they refuse to pay livable wages and provide good working conditions.  While Walmart does pay higher than most retailers, they also provide lower amounts of hours, meaning that, the hourly rate is semi-competitive, but the time worked doesn't provide for enough income for a person to live in a semi-reasonable manner without public assistance.  It seems reasonable to me, that companies, such as Walmart which net $16 Billion in profits (2012) world wide, has a moral obligation to share more of it's profits with it's employees.  Just because you own a company doesn't mean you don't justly compensate them for the work they do.  I don't know how many have worked retail, but, it's no the easiest of work to do.  Walmart pays from about $7.55/hr to as high as $11-12/hr for hourly managers.  Hourly managers are generally full time, but associates are usually not, and given that their average hours are somewhere between 20 hours and 32 hours, depending on the store and region, They don't even make the $15,080 per year which is the salary someone at $7.25/hr would be making with 40 hours of work per week.  Ultimately, the goal of the minimum wage is to keep people off the public dole and help them build their finances to be self-sufficient.  Keeping the wage at 40% of median wages does not help bring the poor into the middle class.  People who's basic needs are met will stop trying to meander the system for more.  They will start working on other areas of their lives for self improvement.  In areas of the country where the cost of living his even higher, it's an even bigger problem.  The problem being where single bed apartments cost $1000 or more a month or two bedroom apartments cost nearly $1600 or more a month.  Someone making minimum wage cannot afford that kind of rent.  

The progressive minimum wage is a workable solution to ensure that businesses who are starting out don't drown under an excessive wage obligation, and have room to grow into a successful firm, while also raising the income floor for people who work for very successful companies who disproportionally disperse their profits.  The case for a more progressive minimum wage ensures an increased standard of living for the poor and lightens the load and burden on the welfare system which should be serving those that are truly unable to work.  Welfare benefits given to people that are essentially at, what I would call, full employment simply means that full employment's wages are not high enough and need to be brought up to par.  

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