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We had a maximum wage in the 70s via the 70% tax rate, to which I fell victim.
My company had the choice of paying its labor force higher wages, or paying the IRS a penalty for efficiency.
I chose to pay the higher wages. My employees regarded their high wages as a "status only" benefit, because their net pay didn't increase by much.
What my company was prevented from doing, was saving or investing profits for expanding or acquiring new business. The banks showed up at my door, with the government tailing behind, offering me loans at 17% interest rates. I threw them both out.
Yes, maximum wages cause stability by inhibiting quality, growth and efficiency.
My competitors ran their companies like plantations, very low wages for very many, but very lazy, employees. Laziness is spirit death, and it's contagious!
The 70% tax rate was a communist-socialist-effecting mechanism.
Too bad the American auto industry didn't choose to "burn profits" by making better cars. Germany did that. So did Japan, but Japan got the mass market, while Germany was engorged with the elite market.
Ya got the American unions to thank for that. "Mutiny from stern to bow".
The government was trying to persuade entrepreneurs into joining the government drug trade, which carried a lesser tax obligation. Well, how else are you going to get people to take risks?
Reagan came too late for me; I was mangled by 1983.
The IRS asked me why I didn't just "bounce back".
I had expended all my energy just crawling away.
Now, I live in a gulch.
Last edited by Hyperthetic; 04-07-2015 at 08:57 AM..
But a cap at the top will bump down all the wages down below the top, thus making up most of the labor cost savings. And with labor cheaper, companies will substitute more labor for capital. It's the production possibilities curve. Lower the cost of labor and firms will substitute more labor for capital. So they will hire two engineers where they hired one before.
Two words that will kill your pipe dream: out sourcing.
Why would I take on the responsibility of a job that should pay $100/hour for $50/hour?
Ok, flip this scenario to minimum wage. If you are getting paid $12 for what you used to get paid $8 to do, will you work harder and better just as you would work less hard if there was a forced decline in your wage?
About outsourcing, yeah, that would definitely happen. What that tells you about a raise in minimum wage is that it would draw people where the wages were raised towards your country.
Again, I don't think the government should actually do a maximum wage, that'd be stupid. The point of this is to think about the minimum wage from a different angle.
@Pedro, ok, so for the minimum wage, you have a company that is already profitable, but has a 5% increase in labor costs due to a minimum wage. Are they going to translate that all to an increase in price? I doubt it. Just like I doubt that companies would translate labor savings into lower costs.
Think about it. Labor is such a huge component of companies costs that any fall in cost will result in lower prices back to the consumer. If labor was capped at $50 an hour, companies are just going to pass their millions of dollars that they used to pay higher management right on back to customers.
No they wouldn't, they'd just use other ways to compensate valuable employees. Company cars would make a comeback, or vastly higher 401k matching - how about instead of 1:1 they did a 20:1, or 50:1 matching, or individual pension funds based on a percentage of your salary (my company currently does that), or housing stipends. There are a thousand ways a business could compensate highly skilled, highly valuable employees while still paying them $50 / hour without passing those millions down to the bottom of the ladder or cutting prices for the consumer.
@Pedro, ok, so for the minimum wage, you have a company that is already profitable, but has a 5% increase in labor costs due to a minimum wage. Are they going to translate that all to an increase in price? I doubt it. Just like I doubt that companies would translate labor savings into lower costs.
Ivars in Seattle is increasing their wages to $15 / hour ahead of the city enforced increase and they are increasing their prices 21% to compensate. You think a business owner is going to take less for himself just because government forces him to pay a higher minimum wage?
I am more and more convinced the world is turning into a mixture of Demolition Man, Nineteen-Eighty Four, and Atlas Shrugged as the day goes by.
The explosive growth of the nanny state, governments openly spying on its citizens and maintaining secret prisons, and the proud ignorance of economics.
If I was going to live in a dystopian (non-)fiction why couldn't it be Brave New World? At least they had plenty of orgies and cocaine...
Think about it. Labor is such a huge component of companies costs that any fall in cost will result in lower prices back to the consumer. If labor was capped at $50 an hour, companies are just going to pass their millions of dollars that they used to pay higher management right on back to customers.
{snip}
Come on guys, this is basic ECON 101.
Sure, it will work just fine if you live inside a bubble in some fantasy world. In the real world if a talented top tier expert in his/her field can find another company willing to pay more than $50/hr, then they will take that job.
We live in a world market now, not a cloistered market from the 1920s where everyone looked for work in a 50-100 mile radius of their home. If the best people in their fields of expertise can find better pay in companies in China, France or Australia, then we will suffer brain-drain, and all US businesses will be left with are the bottom tier of applicants. Then, once the bottom tier learn and progress, other companies will offer them the salary and compensation they are worth on the world market, and off they go.
I am more and more convinced the world is turning into a mixture of Demolition Man, Nineteen-Eighty Four, and Atlas Shrugged as the day goes by.
The explosive growth of the nanny state, governments openly spying on its citizens and maintaining secret prisons, and the proud ignorance of economics.
If I was going to live in a dystopian (non-)fiction why couldn't it be Brave New World? At least they had plenty of orgies and cocaine...
I would limit to wages with a Income tax that applied to all income from all sources and only applied to 95th percentile and above. Let them pay for protecting their corporate monopolies.
I would also install protective tariffs in imports to negate any price advantage created by lax environmental standards (Mahindra Tractors assembled here with iron made in a dirty mill in India), government subsidy (nearly everything in China) and desperation wages (nearly everywhere in the less developed world). This would raise the costs of imports while decreasing the value of investing US derived profits to the advantage of most American workers.
Ivars in Seattle is increasing their wages to $15 / hour ahead of the city enforced increase and they are increasing their prices 21% to compensate. You think a business owner is going to take less for himself just because government forces him to pay a higher minimum wage?
21% for a jump in wages for a more than 50% increase in wages? It's not as bad as some people make it sound. And that's just one company.
About dodging the max wage, companies currently dodge the minimum wage too be labeling people independent contractors and franchisees and by using sub companies who have a lot less to lose if they fail to comply with minimum wage.
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