MINIMUM WAGE INCREASES MAY MAKE YOU FEEL GOOD, BUT...
Steve Chapman, a Chicago Tribune columnist, points out "The Illusions of the minimum wage" at Real Clear Politics. His point is that raising the minimum wage does nothing that it is supposed to do, except keep a segment of the population beholden - due to their not understanding Mr. Chapman's points - to the Politicians!
I strongly believe it creates another major problem that I think is receiving no attention. This may be a bit of my Economist education showing through. That is "COMPRESSION".
Raising any wage has the immediate effect of causing "compression" on all wages above it! If you increase the wage of the entry level McDonalds employee, then you must increase the wage of the next level of employees, and the next, and the next, ad infinitum!
When I started working in the mid 1960's, the minimum wage was $1.25 and the President of a large semiconductor company was paid $80,000 annually. Today the minimum wage is $6.75 and the same executive makes $432,000. These facts are not unrelated.
Is the entry level employee any better off? No! Inflation has taken all his gains. Is the President any better off? Theoretically no, since inflation takes the value out of his income also, but in his case he does get more disposable income beyond the effect of inflation, so there is some gain. This, in my opinion, is why the Politicians push minimum wage, to increase income for all of their constituency who do not realize the long term effect, and benefit in the sort term - ripe for picking in the next election!
Remember, wages are not absolute, they are related to each other. Therefore, raising minimum wage is a short term illusion.
WORD FOR THE DAY: sophistry
HINT: "Arguments in favor of minimum wage increases are sophistry."
I strongly believe it creates another major problem that I think is receiving no attention. This may be a bit of my Economist education showing through. That is "COMPRESSION".
Raising any wage has the immediate effect of causing "compression" on all wages above it! If you increase the wage of the entry level McDonalds employee, then you must increase the wage of the next level of employees, and the next, and the next, ad infinitum!
When I started working in the mid 1960's, the minimum wage was $1.25 and the President of a large semiconductor company was paid $80,000 annually. Today the minimum wage is $6.75 and the same executive makes $432,000. These facts are not unrelated.
Is the entry level employee any better off? No! Inflation has taken all his gains. Is the President any better off? Theoretically no, since inflation takes the value out of his income also, but in his case he does get more disposable income beyond the effect of inflation, so there is some gain. This, in my opinion, is why the Politicians push minimum wage, to increase income for all of their constituency who do not realize the long term effect, and benefit in the sort term - ripe for picking in the next election!
Remember, wages are not absolute, they are related to each other. Therefore, raising minimum wage is a short term illusion.
WORD FOR THE DAY: sophistry
HINT: "Arguments in favor of minimum wage increases are sophistry."
posted by Jim | 10:44 AM
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