28 February 2005

What would happen if we doubled the minimum wage?

If a $500 tax rebate stimulates the economy, imagine what an extra $700 per month plus health benefits plus paid vacation for millions of employees would do for the economy, and for the spirit of our nation.
So in our hypothetical company, we have 100 executives making $400 million per year. We have 20,000 employees making about $200 million per year. If we simply cut the average executive pay from $4 million per year to $2 million per year, we can double the pay of rank and file employees in this company.

Could the executives manage to survive on $2 million rather than $4 million? Yes, they could. They could also survive on $1 million a year, or $500,000. Their pay is completely arbitrary. It has risen by a factor on 10 in the last 20 years -- In 1980, these same executives would have been making $400,000 instead of $4 million.

A common complaint about doubling the minimum wage is that it is "inflationary." The point of this example is to show that employee wages can be doubled without raising prices at all. Executives are now redistributing wealth from employees to themselves at such a remarkable rate that employee wages have fallen considerably. Simply by reversing this concentration of wealth, employee wages can rise to reasonable levels without changing consumer prices.

Of course, there are those who argue that the poorest of the working poor should continue to wallow in poverty despite the fact that the current minimum wage is at its lowest level since 1949 and empirical evidence illustrates that raising it would not cause job loss.



Concise Guide to Economics, The
"Large format paperback, 167 pages. Second edition with six new chapters. With remarkable succinctness, this common-sense economics handbook packs a wealth of useful information into 37 brief, clear, and straight-to-the-point chapters. Humor, plain language, and vivid real-world examples help bring economic theory to life. This book can be quickly read and easily understood and enjoyed, even if you've never read a book on economics before. "



"Here's just some of what you will learn:

" What politicians know about the minimum wage that keeps them from raising it no more than a small amount at a time.

" A fascinating economic proposal that would enormously benefit the working poor in America. (Hint: it's not the minimum wage.)

" What percentage of minimum wage earners actually support families on their salary.

" The fatal flaws in one of the most widely cited economic studies in defense of the minimum wage.

" Why racist South African labor unions supported minimum wage laws for black workers.

" What groups secretly benefit from the minimum wage. (Hint: it's not the poor and the unemployed.)

" How the minimum wage renders racism cost-free.

" What socioeconomic group is in a minimum-wage-caused full-blown economic depression -- right now.

" Whether or not the minimum wage law is actually a "victimless crime" law.

" What happened to elevator operators and movie ushers -- why they have virtually disappeared.

" Why businesses don't pay everybody just the minimum wage, and why they already pay most people well above that.

" How minimum wage laws give doctors, lawyers, executives, artists, college students and other people privileges and opportunities that are legally denied to unskilled workers.

...and that's just a taste of what awaits you inside."



The Ugly Truth About the Minimum Wage Law

by Jim Cox

"Just as a worker will only offer his labor time for a wage he finds beneficial, so an employer will only be willing to pay workers a wage that permits him to earn a profit. The higher the wage, the fewer workers the employer will employ. This is what economists mean when they invoke the law of supply and demand.

Unfortunately, there are hundreds of thousands of low-skilled workers and potential workers who will not find jobs at a higher wage rate (a local newspaper recently ran an article stating that there are 600,000 functionally illiterate adults in metro Atlanta alone!).

However, supporters of an increase do not accept this well-established economic view. Instead, they claim the increase is a way to provide a livable wage and to fight poverty.

But, the question must be asked: If raising the minimum wage from, $4.25 to $5.15 is so good for low-income people, why stop there? Why refrain from an even greater generosity, an even more livable wage, and an even greater fight against poverty? Why not raise the minimum wage to $10 or even $100 an hour, so everyone can be well-off!

This is no idle question. After all, the same reasoning that justifies an increase to $5.15--that Congress can generate prosperity through legislation--certainly also justifies an increase to $10 or more.

The reason politicians and other supporters of an increased minimum wage law don't follow their own argument to its logical conclusion is political, not economic."

About the Author: Jim Cox is an Associate Professor of Economics and Political Science at Georgia Perimeter College in Atlanta. He is the author of The Concise Guide to Economics, and has published articles in The Orange County Registers, The Cleveland Plain Dealer, Creative Loafing, The Atlanta Journal-Constitution, and others.