Tuesday, September 27, 2011

On the Minimum Wage... to our elected leaders

I watched some CNN today. I didn’t get the author’s name but a university prof wrote a book about the economy and argues that they should raise the minimum wage.

Of course this was jumped on by the right as killing jobs and how the corporations would be against this.

Her point was that the corporations are currently sitting on their wallets and not spending which would in turn create jobs because the economy is stagnant. Increasing the minimum wage would inject money into the economy with increased spending and create an opportunity for the corporations to open their wallets and start investing in industry again.

This would in turn create better jobs and (hopefully) better pay as these jobs would need to attract employees. The issue in her mind is not that there are not enough jobs, but there are not enough quality jobs.

The novelty in this thought is not that a minimum wage increase benefits the working poor, but that it would benefit the corporate elite.

There is a rule in business sometimes referred to as the 30/30/30 rule or the 1/10 rule. They are basically the same, 30/30/30 is the breakdown of costs for a business. 30% each for wages, operating expenses and “profit”. Profit is in quotes as this also includes the money that needs to be reinvested to maintain and increase business. 1/10 is that an employee needs to generate $10 for each dollar they are paid.

Now the anti wage increase side maintains that the cost of a cup of coffee will be too expensive to buy if you pay the server more.

But let’s really look at that.

If that server is making $10.50/hr, the minimum in Ontario, s/he is likely generating $105.00 in sales for that hour. So a One Dollar increase would increase the cost of a $2.00 coffee by less than 2¢. So the nay sayers go “See! Price Increase!”

Now, we aren’t going to give the increase to just one coffee server, but to everyone in the area who is currently making $10.50/hour. If they are working 40 hours a week they’ll see around $30 extra in their pay. If they are barely making ends meet now, they might have an extra couple of bucks left at the end of the week. Some of them might stop in for a coffee now and then, increasing sales and helping to justify the increase. Some might pick up a few extra groceries with it, or buy the kids something or maybe just save it.

Each of these actions helps the economy. The coffee shop may need to add a server, increasing employment. The grocer may do the same. The bank will loan that money out to someone to buy a car or a house or start a business or maybe build an expansion on their coffee shop.

The governments at all levels have been insisting that tax cuts for business is the answer. They’ve been doing it for years, decades, and it’s not helping. The corporations are seeing bigger profits from this but doing nothing with the money.

One argument is that we are too expensive. We insist on wages that are too high and that wage increases make the problem worse.

At least three Japanese and one Korean automaker have North American plants. There has to be a reason for this, a business reason. They pay competitive wages and have similar benefits. These plants arose when they sold enough cars to make these factories viable.

So why do the corporations not spend all this money and create jobs? The demand for their products is not there. We need to create the demand.

Think of it this way. These corporations are flush with cash. The only way to get the money back is to make it profitable for them to spend it. A business tax cut will put more money in their hands but doesn’t create a demand for their products. So, they put the money in the bank at whatever the interest rate is. The only way to get them to spend it on upgrading equipment, building new factories, creating new jobs is if the investment into these things gives a better return than the bank.

This is like priming the pump. Pour water in from the top so that it can draw water from the bottom. But that only works if there is water in the well. If the water is too shallow you end up sucking air.

We’re sucking air folks.

Low wage earners, the working poor, spend their money locally. They don’t take trips to the Caribbean and they don’t drive hours to the outlet malls. They are economically tied to their area and they spend in their area.

When they spend in their area, the local businesses do better. They may decide to carry better products or a more varied selection. They may need more staff.

When more people are working, the wages offered to attract and retain employees needs to move as well. At each level, if wages move, spending increases.

We’re seeing the opposite right now. People take decreases to keep their jobs so they have to spend less. If wages are frozen, the amount you spend may stay the same, but the amount that you get in return is less due to inflation. Gasoline is up, groceries are up. Every cent spent there is taken from somewhere else.

Maybe you buy one coffee a week instead of two.

If the house is falling down, you don’t put new shingles on. You fix the foundations. With a solid foundation you can deal with fixing the framing on up to the plaster and the shingles.

Minimum wage is the foundation. Let’s improve it.

No comments:

Post a Comment