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Clarification of the Minimum Wage

There have been numerous articles discussing minimum wage regulation. The argument against them is a microeconomic one that it hurts the bottom line of businesses and will cause them to lay off employees. The question is how far down do wages have to get before we get to slave labor for them to be happy.  The argument for a minimum wage is a macroeconomic one, as a businessman, I want a lot of well paid customers and clients coming into my business to increase my sales and profits.

There seems to be a significant economic conflict that has to be reconciled. First, there has to be some level of wages (and fringe benefits) to create a quality customer, client, consumer and citizen. Reducing low paid employees (or slaves) does little to decrease the quality customer base as they are basically not part of this base. Businesses have to have the flexibility of the amount of employees to hire and fire in order to compete and increase productivity. Here is the key! Businesses should not compete on the basic wages of its employees because it hurts the overall economy and their sales. We have seen this happening in the outsourcing of jobs to Asia. They can compete on higher wages for more qualified positions and the utilization of its labor force as long as we are not talking about increasing the 40 hour work week.

Over the last 150 years, we have seen companies and whole economies crash because there are not enough quality customers and clients. The private sector is so productive that it produces everything we need but there are not enough consumers. We saw this in the many business bankruptcies because of reduced sales. This is the second problem. Companies, as they should, attempt to pay their employees as low as possible to create more profits for their managers and owners. The reason is that labor and employees are an expense and should be subject to the open market. But, the current global open market for unskilled labor is extremely vast of over 2 billion (this is a conservative estimate). Hiring people at 71 cents an hour as we did when we started to move to China means that theses employees can hardly purchase anything from their labor! This outsourcing is NOT trade!

Therefore, minimum wage regulations have to be based on geographic regions and age. The other argument is if the minimum wage is too high, employers will not hire younger employees as trainees, interns or apprentices.

The UK has solved this by having a lower minimum wage for the youngest in their work force. Of course, this is not as necessary as this is the first time in history that the youngsters are teaching the older employers because of their computer knowledge.

Macroeconomic history has shown that minimum wages has sustained economies since their modern inception about 80 years ago. Every statistic I have seen proves this point. What is important to businesses is that their competition does not compete against them with significant differences in basic wages. They can still use the many other ways to compete like labor utilization, pricing, marketing etc.

Another argument against minimum wages is that increases in wages causes excess inflation. First, wages are only one part of the pricing decisions of managers. In manufacturing, only 20-30% of their costs are in wages. Therefore a 50% increase in wage costs would only translate to a 10-15% onetime price increase. A 5% increase would only translate to a 1-1.5% price increase. This assumes that a business could pass it right through. There are many other factors in pricing, like competition, cost of raw materials, energy costs etc. They can also absorb the increase within their profits.

Therefore, the solution is that governments (as they do now) continue to pay for more basic benefits to the population in terms of education, health care, food, and shelter. This reduces increasing wage pressures, increases the quality of our customers, reduces inequality, and provide for a far better society and economy.

The objections are several. One is how can we afford to do so. The answer is in our Monetary Reform Section at www.cpe.us.com, also in our article on our blog titled Inequality & Solutions. It is too lengthy to discuss here. The second objection is that it is another government program-socialism. Socialism is the ownership of production by the government which the USA is probably the least in the world. Providing these benefits is not ownership. The government does not have to delivery these benefits either. It has to pay for them!! The goods and services can still be delivered by private organizations. Then, the objection is everyone will be lazy and not want to work. For a very few this will be the case but who cares, let them have only the basics! For the vast majority who want nicer cars, big flat screens, vacations, quality residences etc, they will still have to work. Also, most people enjoy their work and like to have a purpose in life other than lying on the beach.

In summary, we need a quality customer minimum wage and protective wage tariffs to protect our customers and the economy from extremely low wage/slave labor operations.


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