Minimum Wage and Wealth
Column #54
Food production and meat marketing are like other private sector businesses. Survival depends on profitability and small businesses are especially vulnerable. Anytime government makes rulings, we fear the consequences and wonder if we will survive the transitions “Big Business” can handle.
Wealth creation occurs by harvesting and extracting commodities then converting those commodities into products. Services and retail rely on wealth creation for their existence. Commerce only exists if profitable. Governments never provide market-tested profitable services.
Because every action has a reaction, when government interferes in a marketplace there are always unintended consequences.
Private sector jobs are value-related and determined by skills, knowledge, reliability, honesty, judgement, etc. All private sector jobs depend on the activity being profitable. Complex enterprises have pay scales that run the gamut. Competition, business cycles, and innovation rule. That’s why some industries pay more than others, and because conditions change, some industries flourish while others die.
A government dictated minimum wage generally applies across all businesses and regions regardless of circumstances. Some businesses already pay higher starting wages. Some, in order to survive or because their needs are basic, pay the minimum. An increase in the minimum wage forces ALL wages up. If higher-ranking employees get $15 and beginners get $8, raising the beginner to $15 means the senior employee must also get a comparable raise. In addition, higher wages also inspire automation to replace employees.
Higher wages mean higher taxes and withholding which forces enterprises to raise product and service prices. Higher prices and taxes devalue wages and savings. For decades this approach has helped boost government payrolls and benefits beyond what at the private sector can provide.
In February 1972 President Nixon toasted Chairman Mao and Premier Chou, thus initiating talk of trade with China. At the time, some domestic industries (such as television manufacturing) had already been devastated by Japan’s low cost of labor. Therefore more “free” trade talk meant more wealth-creating jobs would soon leave our country. And leave they did! In 1992 Ross Perot explained how free trade agreements would continue to gut the creation of wealth and associated high-wage jobs in America.
In 1970, American workers had the world’s highest incomes and debt burdens. Since it was obvious it would take decades before foreign wages would rise to US levels, conferences teaching domestic businesses how to outsource to other countries sprang up overnight. Today, even though foreign wages have increased while domestic wages have stagnated, the advantage still rests with lower-priced foreign laborers.
If our country dictates higher wages, the gap with foreign labor will widen unless higher tariffs are set. Our founding fathers established tariff walls to protect domestic industries to make America self-sustainable. At one time, tariffs and the luxury tax provided most of the government’s revenue.
Starting with 1950 our nation’s wealth-creating industries came under increasing foreign pressure as the minimum wage increased faster than the rate of inflation. The latest studies by The Federal Reserve Bank of San Francisco and the University of Washington confirm that recent sharp increases in the minimum wage, even in high-cost communities, had a negative impact on hiring.
An artificial increase in pay could result in no job at all! Be careful what you wish for.
To your health.
Ted Slanker
Ted Slanker has been reporting on the fundamentals of nutritional research in publications, television and radio appearances, and at conferences since 1999. He condenses complex studies into the basics required for health and well-being. His eBook, The Real Diet of Man, is available online.
Don’t miss these links for additional reading:
Minimum wage since 1938. Note that in 1938, the minimum wage was $0.25, which is $4.19 in 2015 dollars. Starting in 1950 it was jacked up significantly which slowed the growth of domestic wealth creation while low-cost countries benefited significantly.
The Effects of Minimum Wages on Employment by Federal Reserve Bank of San Francisco
Median Household Income in the United States
One Big Difference Between Chinese and American Households: Debt
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