Saturday, June 28, 2014

Minimum Wage Should Be Relative Wage

As with most great failures to solve problems, many people focus on all the wrong things for solving the economic crisis. We've got a dial for minimum wage so people tend to think it might be useful to tweak it. It's like having fuzzy reception on an old tube TV and turning the volume knob to solve the problem just because the knob is there. Raising minimum wage to $15 isn't going to solve anything. It may have some positive effects and likely some negative effects to boot, but it's not going to be a huge game-changer for closing the income gap.

The fact is, the rich enjoy being rich. In 2009, people started losing their jobs. Of the companies laying off workers, how many of the CEOs first took a wage cut so that they could sustain the jobs they "created" by their wealth? I don't know the answer but I'm willing to bet very few if any. The 1% doesn't make jobs with their wealth. Their money has extremely little to do with job creation. If it did, 2009 would not have yielded a reduction in jobs seeing as the rich were richer than ever before and yet still they canned people. The rich are not in it for job creation. They're in it for running their business as lean as possible to bring them the most money. Creating jobs is their last resort to demand that they can't fulfill--not their first resort because they have money laying around.

Now I won't say that minimum wage won't help at all. In some cases it very well might. Perhaps demand will be high enough that the CEOs can't fire people and they might be forced to reduce their own paycheck. I doubt many will experience that, but it's possible. In these cases, the workers might better be able to become participants of the economy and it will thrive a little better. But this is likely to be very limited successes. I might venture that many minimum wage workers are in smaller companies that truly can't afford higher minimum wages. So while raising the minimum wage on Walmart might be useful, raising it on a Mom and Pop shop might just doom them. So now we're taking from the poor and giving to the poor. Further, raising minimum wage often raises prices which then harms the middle-class as well. It more often than not distributes wealth among the poor and middle-class rather than affecting the 1% much at all.

The rich will not part with their personal wage so easily such that minimum wage alone will lower their paycheck. So instead of focusing on minimum wages which harm and perhaps help simultaneously, maybe we should focus on relative wages. I'm no economist so I won't suggest my own percentages or exact wording of laws, but imagine signing into law that within every company any one person cannot make X% more than Y% of others. Or perhaps X% above the next highest paid employee. Or X% above the average of the next highest Y% of employees. It's a law that requires the company to more fairly share the wealth while still rewarding talent and hard work. A lot of thought may need to go into it, but a more even distribution per company would yield much greater economic results than merely raising the minimum wage.

In the short term, companies may try to release workers in order to keep a larger percent, but those with significantly increased wages will begin increasing the demand such that they have no choice but to hire them back. Imagine all the poor and middle-class suddenly demanding twice as much and we'll note that the money going to them will simply come right back to the companies shelling out the higher wages. With higher wages, people can afford to go to college and become even more productive in companies to make even better products that the people with the greater wages can now demand. The whole concept of economy is that the money must fluctuate and go around from person to person so that everyone has everything they need. The goal is not for 1% of the people to shove all their money in a bank account and extort the poor by giving them loans with high interest rates just so they can store even more in their banks where it grows stagnant and moldy just because they earned it and "deserve" it. They need to spend it. And what better way to spend it than on their employees who can't seem to make ends meet?

I propose we stop tuning the minimum wage knob and start creating new dials of relative wages to close the gap. It will be better for everyone even if the 1% is reduced to only a few million dollars in their bank accounts. They may have less cash on hand, but their companies will show higher income and be that much more successful which is far more rewarding than an untouched number sitting in a bank account.

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