Publius1787
Gold Member
- Jan 11, 2011
- 6,211
- 676
- 190
This would happen if you mandated a "Living Wage"
1) Normal Goods
a. Businesses dealing in normal goods will see an increased demand in sales. In the short term there will be a limited number of these goods, and thus, the increased demand will create a sharp increase of prices.
b. Businesses dealing in normal goods will need to buy more supplies/raw materials to keep up with the demand for their finished goods. The increased demand in supplies/raw materials will likewise raise sharply the prices of supplies/raw materials.
c. Businesses dealing in normal goods will need to hire more workers to keep up with the increased demand. They will do so hesitantly, as the cost of labor has likewise increased. A higher amount of scrutiny will be applied to job applicants as the applicants work experience must justify the new wage.
Ever wonder why we no longer have high school students gaining work experience servicing cars and filling tanks at service stations for small wages and tips? Blame the minimum wage. And fuel is a necessity good.
a. In the short run, the increased demand for normal goods cannot be supplied by U.S. firms. Therefore, we will rely more heavily on imports. This will skew the balance of trade further out of our favor, and therefore, increase the national debt. See section 5 for further analysis on imports.
2) Inferior Goods
a. Businesses dealing in inferior goods will see an immediate decline in demand combined with their shareholders selling their stock. Millions would lose their jobs. The vast majority of employees will not gain employment until the pricing adjustments in the markets settle.
3) Small Businesses
a. Small businesses will not be able to afford the increased price of labor, combined with the increased price of raw materials/supplies. They will simply shut their doors. Small corporations will likewise see their stock plummet and millions will lose their jobs. Large corporations with a lot of reserve capital and large amounts of credit will be able to run deficits in the short run, filling and expanding in the vacuum left by small businesses and small corporations in the long run.
4) Wages
a. Let’s just say for example that the new “living” minimum wage is double the current federal minimum wage: $7.25 x 2= $14.5/hr (+-$30,160 per year). The people who would supposedly benefit the most would be low skilled workers right? Now what about the moderate skilled workers who were making $15/hr already? Would they sweat in the hot sun all day as a construction worker if they knew they could make the same stocking shelves at Wal-Mart? Would they freeze in the winter as an HVAC repairman crawling under people’s houses if they could make the same amount sweeping the floors as a janitor? Would you? Employers dealing in construction, heating/air, plumbing, etc., will need to considerably increase wages to keep their staff on board. Indeed, all skilled labor employers would need to increase the wages of their workers in order to remain competitive in the market for skilled labor, or else, their competitors will grab them. Moreover, high skilled labor would need to increase their pay and benefits.
5) Imports
a. In the short run the new demand for goods and services cannot possibly keep up with the increased demand for normal goods. Those goods will need to be imported if consumer demand is to be met. Thereby, the balance of trade will push the United States further into debt.
b. The increased demand for imports will likewise increase the price for imported goods. Poorer countries would not be able to compete with the United States, and therefore, the result would be more world poverty. Indeed, overseas firms that can make a higher dollar from the increase in U.S. demand will gladly sell to us as opposed to poorer countries that pay less.
This would not be unlike when the U.S. incentivized the production of ethanol, making the production of corn more popular to U.S. based rice farmers. As we filled the gap by importing rice from foreign countries, other countries such as the Philippines had food riots.
Note: increasing tariffs on imports in an attempt to punish foreign competitors will have a reverse effect of further increasing the prices of our limited domestic goods and services.
c. Having established that the increased demand for raw materials will be met from imports, investors will invest heavily in the expansion of overseas firms to produce those imports. With the new minimum wage at 14.50 combined with the highest corporate tax rate in the world, corporations dealing in raw materials are incentivized more than ever before to outsource jobs where the taxes are low, the labor is cheap, and the regulatory environment is more advantageous.
d. There is good news. Some foreign overseas workers will see an increase in jobs and a decrease in unemployment. If the decrease in unemployment is enough, the demand for labor will increase wages and befits for their workers.
It would not be unlike Taiwan, Singapore, Hong Kong, or South Korea during the 70’s 80’s and 90’s whereas they experienced rapid economic growth and became “Tiger Economies.”
6) Assuming that the “living” minimum wage were to work.
a. You would see a decline in college graduates. The largest motivating factor to become educated is so that a future worker can increase his/her marketability in the job market. If a person could make a reasonable living simply by graduating high school, or even dropping out of high school, he or she has lost much of the incentive to seek higher education or become more skilled. This would pollute the workforce with low skilled labor creating an environment of which the U.S. economy falls behind the rest of the world.
Important Note: I did not truly go into the effects of doubling the labor costs of all minimum wage businesses, and the contributions of $2,307.24 in addition to the full time minimum wage salary of $30,160 per year. (The employer must match your 6.2% Social Security Tax and your 1.45% Medicare tax). So one employee on a “living” minimum wage at $14.5/hr. comes to roughly $32,467.64 per annum. Then the business needs to worry about federal and state taxes, rent, electricity, advertising, legal fees, water, supplies/materials, training, maintenance/repair, interest on loans, insurance, perhaps franchise fees, & etcetera. If you want to take it a step further think about 401K, paid vacation, healthcare, education benefits, and maternity leave, among other perks. The cost of all of this will skyrocket.
Conclusion: The disparity of wealth will still be there, the prices of goods and service will
increase, and in the long run we still have the same, probably more, amount of poverty we started off with. In the interim, however, we accomplished the following:
1) The new poverty line (100% poverty level) is $22,980 per year as opposed to the original $11,490 for a single person.
2) The Consumer Price Index has perhaps doubled if not more.
3) The national debt skyrocketed due to a disadvantageous balance of trade.
4) The rate of overseas investment and outsourced jobs dramatically increased.
5) High unemployment.
6) An increased market share for large corporations at the expense of small corporations and small businesses.
If you can get around all these problems then go ahead, institute a “living minimum wage.”
---------------------------------------------------------------------------------------------
Definitions
Normal Goods are goods that increase in demand as income increases
Necessity Good: A good that we can’t do without. For Example, basic food, electricity, etc.
Inferior Goods are goods that increase in demand as income decreases. Examples of inferior goods are macaroni and cheese, ramen noodles, used goods, generic brand goods, etc.
The balance of trade is the balance of imports as compared to exports. If the balance of trade is negative, or, we are buying more than we are selling to foreign countries, more U.S. dollars are flowing out than coming in. Foreign firms cannot spend U.S. dollars in their own countries. They use the U.S. dollar to buy U.S. debt. As the words currency, however, the U.S. dollar has a strategic advantage over other currencies; somewhat lighting the load of our negative balance of trade.
1) Normal Goods
a. Businesses dealing in normal goods will see an increased demand in sales. In the short term there will be a limited number of these goods, and thus, the increased demand will create a sharp increase of prices.
b. Businesses dealing in normal goods will need to buy more supplies/raw materials to keep up with the demand for their finished goods. The increased demand in supplies/raw materials will likewise raise sharply the prices of supplies/raw materials.
c. Businesses dealing in normal goods will need to hire more workers to keep up with the increased demand. They will do so hesitantly, as the cost of labor has likewise increased. A higher amount of scrutiny will be applied to job applicants as the applicants work experience must justify the new wage.
Ever wonder why we no longer have high school students gaining work experience servicing cars and filling tanks at service stations for small wages and tips? Blame the minimum wage. And fuel is a necessity good.
a. In the short run, the increased demand for normal goods cannot be supplied by U.S. firms. Therefore, we will rely more heavily on imports. This will skew the balance of trade further out of our favor, and therefore, increase the national debt. See section 5 for further analysis on imports.
2) Inferior Goods
a. Businesses dealing in inferior goods will see an immediate decline in demand combined with their shareholders selling their stock. Millions would lose their jobs. The vast majority of employees will not gain employment until the pricing adjustments in the markets settle.
3) Small Businesses
a. Small businesses will not be able to afford the increased price of labor, combined with the increased price of raw materials/supplies. They will simply shut their doors. Small corporations will likewise see their stock plummet and millions will lose their jobs. Large corporations with a lot of reserve capital and large amounts of credit will be able to run deficits in the short run, filling and expanding in the vacuum left by small businesses and small corporations in the long run.
4) Wages
a. Let’s just say for example that the new “living” minimum wage is double the current federal minimum wage: $7.25 x 2= $14.5/hr (+-$30,160 per year). The people who would supposedly benefit the most would be low skilled workers right? Now what about the moderate skilled workers who were making $15/hr already? Would they sweat in the hot sun all day as a construction worker if they knew they could make the same stocking shelves at Wal-Mart? Would they freeze in the winter as an HVAC repairman crawling under people’s houses if they could make the same amount sweeping the floors as a janitor? Would you? Employers dealing in construction, heating/air, plumbing, etc., will need to considerably increase wages to keep their staff on board. Indeed, all skilled labor employers would need to increase the wages of their workers in order to remain competitive in the market for skilled labor, or else, their competitors will grab them. Moreover, high skilled labor would need to increase their pay and benefits.
5) Imports
a. In the short run the new demand for goods and services cannot possibly keep up with the increased demand for normal goods. Those goods will need to be imported if consumer demand is to be met. Thereby, the balance of trade will push the United States further into debt.
b. The increased demand for imports will likewise increase the price for imported goods. Poorer countries would not be able to compete with the United States, and therefore, the result would be more world poverty. Indeed, overseas firms that can make a higher dollar from the increase in U.S. demand will gladly sell to us as opposed to poorer countries that pay less.
This would not be unlike when the U.S. incentivized the production of ethanol, making the production of corn more popular to U.S. based rice farmers. As we filled the gap by importing rice from foreign countries, other countries such as the Philippines had food riots.
Note: increasing tariffs on imports in an attempt to punish foreign competitors will have a reverse effect of further increasing the prices of our limited domestic goods and services.
c. Having established that the increased demand for raw materials will be met from imports, investors will invest heavily in the expansion of overseas firms to produce those imports. With the new minimum wage at 14.50 combined with the highest corporate tax rate in the world, corporations dealing in raw materials are incentivized more than ever before to outsource jobs where the taxes are low, the labor is cheap, and the regulatory environment is more advantageous.
d. There is good news. Some foreign overseas workers will see an increase in jobs and a decrease in unemployment. If the decrease in unemployment is enough, the demand for labor will increase wages and befits for their workers.
It would not be unlike Taiwan, Singapore, Hong Kong, or South Korea during the 70’s 80’s and 90’s whereas they experienced rapid economic growth and became “Tiger Economies.”
6) Assuming that the “living” minimum wage were to work.
a. You would see a decline in college graduates. The largest motivating factor to become educated is so that a future worker can increase his/her marketability in the job market. If a person could make a reasonable living simply by graduating high school, or even dropping out of high school, he or she has lost much of the incentive to seek higher education or become more skilled. This would pollute the workforce with low skilled labor creating an environment of which the U.S. economy falls behind the rest of the world.
Important Note: I did not truly go into the effects of doubling the labor costs of all minimum wage businesses, and the contributions of $2,307.24 in addition to the full time minimum wage salary of $30,160 per year. (The employer must match your 6.2% Social Security Tax and your 1.45% Medicare tax). So one employee on a “living” minimum wage at $14.5/hr. comes to roughly $32,467.64 per annum. Then the business needs to worry about federal and state taxes, rent, electricity, advertising, legal fees, water, supplies/materials, training, maintenance/repair, interest on loans, insurance, perhaps franchise fees, & etcetera. If you want to take it a step further think about 401K, paid vacation, healthcare, education benefits, and maternity leave, among other perks. The cost of all of this will skyrocket.
Conclusion: The disparity of wealth will still be there, the prices of goods and service will
increase, and in the long run we still have the same, probably more, amount of poverty we started off with. In the interim, however, we accomplished the following:
1) The new poverty line (100% poverty level) is $22,980 per year as opposed to the original $11,490 for a single person.
2) The Consumer Price Index has perhaps doubled if not more.
3) The national debt skyrocketed due to a disadvantageous balance of trade.
4) The rate of overseas investment and outsourced jobs dramatically increased.
5) High unemployment.
6) An increased market share for large corporations at the expense of small corporations and small businesses.
If you can get around all these problems then go ahead, institute a “living minimum wage.”
---------------------------------------------------------------------------------------------
Definitions
Normal Goods are goods that increase in demand as income increases
Necessity Good: A good that we can’t do without. For Example, basic food, electricity, etc.
Inferior Goods are goods that increase in demand as income decreases. Examples of inferior goods are macaroni and cheese, ramen noodles, used goods, generic brand goods, etc.
The balance of trade is the balance of imports as compared to exports. If the balance of trade is negative, or, we are buying more than we are selling to foreign countries, more U.S. dollars are flowing out than coming in. Foreign firms cannot spend U.S. dollars in their own countries. They use the U.S. dollar to buy U.S. debt. As the words currency, however, the U.S. dollar has a strategic advantage over other currencies; somewhat lighting the load of our negative balance of trade.
