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Why does our Gov. come up with these "good ideas" like $15 mini wage and amnesty when both ideas simply do not make any economical sense?
A: Because people aren't rational creatures. They just want what they want, whether it makes economic sense or not. Same reason why 2/3 of America lives paycheck to paycheck, including a surprising percentage of high earners.
You can't stop people from being delusional. Sorry to say, but we're just going to have to crash into a wall very hard and fast before enough people wake up.
When the $15 minimum wage goes completely into effect in 2022 - it will have doubled from its 2007 level. That's 15 years - completely in line with prior increases. It is only an aggressive increase compared to the 1980-2000 period. All California is doing is going back to what it used to do.
The problem is we don't live in a pre 1980 world any more. We're competing with machines, software, and 3rd world countries for labor now.
Why does our Gov. come up with these "good ideas" like $15 mini wage and amnesty when both ideas simply do not make any economical sense?
A: Because people aren't rational creatures. They just want what they want, whether it makes economic sense or not. Same reason why 2/3 of America lives paycheck to paycheck, including a surprising percentage of high earners.
You can't stop people from being delusional. Sorry to say, but we're just going to have to crash into a wall very hard and fast before enough people wake up.
Increasing the minimum wage is like beauty, it is in the eye of the beholder. Giving 50% of the workers in the US a raise sounds like a good idea to me. The velocity of money is falling and upping the minimum wage far enough should get it moving. That is a king of economic sense that escapes most people. Also wages are a small % of the cost of business so upping wages gets more spending than cost increases.
Because companies will often pay with as little as they can get away with, even if it's to the detriment of the community they're in, and the economy they're competing in. If businesses go unchecked, "free market forces" won't necessarily be enough to keep wages from going down to $1 an hour, working 14 hour days. Or, they just give you "company credit", and deem that you can only spend this "company credit" in stores that THEY'VE set up. It isn't US dollars, so no other store will take them, and you're effectively locked into their market.
In a healthy, competitive job market there would be no "race to the bottom." Companies pay what market forces dictate they must pay. Failure to do so would result in excessive turnover and the costs associated with that. In my companies (I've built 3) we typically pay about 10% above our competition to prevent turnover.
Increasing the minimum wage is like beauty, it is in the eye of the beholder. Giving 50% of the workers in the US a raise sounds like a good idea to me. The velocity of money is falling and upping the minimum wage far enough should get it moving. That is a king of economic sense that escapes most people. Also wages are a small % of the cost of business so upping wages gets more spending than cost increases.
Wages being only a small % of the cost of business is not necessarily correct. It depends significantly on on the type of business. In some service type industries it can well exceed 50%.
Last edited by yellowbelle; 04-18-2016 at 09:40 PM..
Reason: fixed quote tag
Increasing the minimum wage is like beauty, it is in the eye of the beholder. Giving 50% of the workers in the US a raise sounds like a good idea to me. The velocity of money is falling and upping the minimum wage far enough should get it moving. That is a king of economic sense that escapes most people. Also wages are a small % of the cost of business so upping wages gets more spending than cost increases.
Wages being only a small % of the cost of business is not necessarily correct. It depends significantly on on the type of business. In some service type industries it can well exceed 50%.
In the economy as a whole it is 45%.
So the math on the whole economy goes like this. Doubling wages means the cost of everything only has to go up by 45% to cover it but we have 2X as much income to spend. Adding income to the bottom is disproportionately more effective at increasing spending.
I understand what you are saying, however, there are other forces at work and some industries will be disproportionally impacted by the higher cost of labor. Let's take an example: Let us say that cleaning a house has an "elastic" demand-people are only willing to pay so much to have it done. So-----A maid service pays its employees $10/hr. It takes them 3 hours to clean for a total labor cost of $90. Under the "new" guidelines, their hourly wage is now raised to $15/hr. The time to clean the house does not change but at $15 per/hr. we now have a labor cost of $135. An increase of $45. Prior to the increase, the service charged the client $175 (keep in mind that they are paying taxes and benefits and well as having some amount of fixed and variable costs (such as auto). In reality, the "owner" doesn't net much after paying all the expenses but that is the going rate. With the increase in labor cost, the business owner will now have to increase prices significantly. Not only did the labor rate increase but so did the SS and medicare tax liability and oh yes, the cost of insurances, which are typically based on payroll dollars, has also gone up. For the sake of argument, lets assume that the majority of people who use this maid service DID NOT get a substantial increase and maybe they were on the fence about this expense (as if often the case). What will be the outcome of higher labor costs? Will the maid service business continue at the same revenue level? Quite frankly that is unlikely! What typically happens to employees when revenue drops??? Generally some of them end up no longer employed!
... Generally some of them end up no longer employed!
Initial contraction followed by increased growth.
We are in a demand limited economy. Increasing wages increases demand. Minimum wage workers are real good at spending their money. The more they get the more they spend.
We are not in a debt (liquidity) limited economy. Zero prime for 6 years and no explosive growth or big bubble. Liquidity isn't the limit in this economy.
You can't make an omelet without braking some eggs.
A marginal luxury service would be the first to go in a recession as well.
We are in a demand limited economy. Increasing wages increases demand. Minimum wage workers are real good at spending their money. The more they get the more they spend.
We are not in a debt (liquidity) limited economy. Zero prime for 6 years and no explosive growth or big bubble. Liquidity isn't the limit in this economy.
You can't make an omelet without braking some eggs.
A marginal luxury service would be the first to go in a recession as well.
Many of those businesses did indeed survive the recent recession, however they may not necessarily survive an increase in the minimum wage of any significant size. There are 10's of thousands of businesses cut in that mold and they are not all marginal luxury services. One must keep in mind that those "eggs" are real people and a lot of them will get broken. When they (and the former employees) lack income to spend, what happens to the demand? Should the government, with their policies, be able to choose the winners and losers?
Yes, we are demand driven but with all the economic variables, the net gain to the economy is not a straight forward or by any means a "sure thing."
Understand that I am not totally adverse to some increase in the minimum wage in areas that would support it but it is by no means a panacea for everyone and the laws of unintended consequences will apply.
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