Yostivanich

An arti­cle from today’s New York Times¹ dis­cussing the recent decline in real wages and the increase in worker pro­duc­tiv­ity. First of all, what does real wages mean, real wages is not just the amount of money that you earn, but what that money can actu­ally buy. To give a rel­e­vant exam­ple, let’s say for sim­plic­ity you work a job that earns you a $10 an hour, and every year you get a 2% raise. This means that after your first year of work­ing you will make $10.20 an hour, the sec­ond year $10.404 an hour, and so on. Now in our imag­i­nary world infla­tion rises at 3% a year, which is a fairly stan­dard infla­tion rate in the real world for the United States. This means that a major­ity of goods will cost 3% more than last year, now obvi­ously this is just an aver­age as some goods will drop in price, some will stay the same and some may increase in price more that just 3% or so. How­ever you only received a 2% raise so now your wages are actu­ally worth 1% less then they were last year. Real wages is thus the actual pur­chas­ing power of your net income.

Now why is this impor­tant, well if you read the NYT arti­cle, you will see that cor­po­rate prof­its are at their high­est level that they have ever been. So while cor­po­ra­tions as a gen­eral rule are mak­ing a profit they are send­ing that extra profit either back to the com­pany or to their top 10% (in terms of pay scale) or so of employ­ees. This means that the bot­tom 90% of employ­ees are not receiv­ing enough of a pay increase through either ben­e­fits or actual salary to off­set infla­tion. A par­tic­u­larly wor­ry­ing sit­u­a­tion con­sid­er­ing the rapid increase in volatile com­mod­ity mar­kets such as oil.

The other prob­lem is that the min­i­mum wage is at it’s low­est pur­chas­ing power in 51 years². The ques­tion on politi­cians minds and on the vot­ers is what should the gov­ern­ment pro­ceed to do about this. I am con­flicted on this ques­tion, I feel that the gov­ern­ment should try to limit it’s inter­fer­ence in the mar­ket as much as pos­si­ble, yet at the same time I do feel that peo­ple should at least be able to sur­vive on the min­i­mum wage. If you worked 40 hours a week for 52 weeks, a full year of work­ing with no time off, you would man­age to earn, before taxes of course, $10,712, just barely above the poverty line for a sin­gle per­son^3. Now if you work 60 hours a week for 52 weeks, you would eek out $16,068 below the poverty level for 3 peo­ple. A min­i­mum wage job in my hum­ble opin­ion should not auto­mat­i­cally force some­one to being in poverty sta­tus. No, it should not be a hand­out out to peo­ple, but at the same time peo­ple at least deserve the decency of hav­ing a life.

I believe that the best solu­tion would be to num­ber one raise the min­i­mum which hasn’t been done in 10 years. The min­i­mum wage has to be increased or the busi­ness own­ers will wind up spend­ing more money on taxes, then they ever would on salary increases, when you have more peo­ple unable to pro­vide for their fam­i­lies and more peo­ple fall deeper into poverty as their wages stay the same and every­thing begins to cost more and more. You can only cut out oh so much before you start cut­ting back on nec­es­sary items. I do not see the free mar­ket cor­rect­ing this imbal­ance before it gets out of hand, in instances such as this the gov­ern­ment must step in to pro­tect the peo­ple it is sup­posed to serve.

The Dec­la­ra­tion of Inde­pen­dence lists as one of it’s unalien­able rights is the right to pur­sue Hap­pi­ness. When the Dec­la­ra­tion of Inde­pen­dence was writ­ten Hap­pi­ness was inter­preted to mean the pur­suit of prop­erty and mate­r­ial wealth. Even using a mod­ern day trans­la­tion of Hap­pi­ness, our gov­ern­ment should pro­vide each per­son the abil­ity to pur­sue his or her dream. Part of being able to pur­sue a dream is to be able to have time and money to devote towards that project. The more I con­sider this issue the more I come to accept the posi­tion that the gov­ern­ment needs to step in and cor­rect this imbal­ance between wages and pur­chas­ing power, not by tax­ing the cor­po­ra­tions as some have pro­posed⁴ but rather by giv­ing the low­est earn­ers in soci­ety a nudge up.

Ref­er­ences:

1. http://www.nytimes.com/2006/08/28/business/28wages.html?_r=1&th=&emc=th&pagewanted=print

2. http://www.infoplease.com/ipa/A0774473.html

3. http://aspe.hhs.gov/poverty/06poverty.shtml

4. http://news.bbc.co.uk/2/hi/business/4383296.stm

P.S. — I do under­stand and real­ize that by rais­ing the min­i­mum wage that it may increase the price of goods due to hav­ing to pay more in salaries and also that some peo­ple may loser their jobs over this increase. How­ever every study that I have seen shows that most goods and ser­vices do not increase in price enough to can­cel out the ben­e­fits of the salary increase. The major­ity of cost built into prod­ucts is the adver­tis­ing (hence generic prod­ucts are cheaper even though they are some­times iden­ti­cal to the brand name prod­ucts) and in the mate­ri­als needed to make the good. Also you can only get rid of so many peo­ple before your busi­ness can not func­tion prop­erly. Small busi­ness which would be dis­pro­por­tion­ately hit by a min­i­mum wage increase already do not tend to have too many extra employ­ees that can be reduced.