So What Are You Doing by Raising the Minimum Wage?


McKiosk?
McKiosk?

It really seems simple.  People need more money, so you just require that they get paid more.  You say that it costs about a $15 per hour job to live in the city, so you raise the minimum wage to $15 per hour.  Of course why stop at $15 per hour?  Why not just raise the minimum wage up to $100 per hour so that they could live in style and pay lots in taxes?

Obviously people know that you can’t just raise wages to $100 per hour.  The business would need to raise prices dramatically to pay those high wages.  But even raising wages from $7.50 to $15 per hour has a similar effect, although more subtle.  You can’t just arbitrarily raise wages because the person who is making $7.50 per hour isn’t producing enough to earn more.

You see, everyone who is earning a salary is actually engaged in a bartering transaction with everyone else in the economy.  They perform some task or make some product and then trade the value they create for something else they want. Maybe a McDonald’s worker in NYC enters orders into the cash register for ten minutes and trades that service to a farmer in Nebraska that grows an ear of corn he eats that night.

Of course he doesn’t actually meet with the farmer in Nebraska.  The farmer in Nebraska takes his corn to market somewhere in Nebraska and trades the corn for cash.  The McDonald’s worker goes to his boss at the end of the pay-period and collects a check.  There are several transactions that take place between people to connect the McDonald’s worker who wants an ear of corn with the farmer who grows it.  Cash just makes it easier to trade since the McDonald’s worker doesn’t need to make several trades himself to finally get the ear of corn he wants.

Now let’s say that you just raise the wages of the McDonald’s worker to $15 per hour since that’s what he needs to pay for things.  Now the farmer needs to trade two ears of corn for the same ten minute period of order taking.  He needs to do twice the work to get the same thing in return.

Now the price of an ear of corn compared to the amount of time spent pushing buttons on the cash register isn’t arrived at arbitrarily.  It is based on how much the farmer must earn after he has paid for all of his expenses to motivate him to go through all of the trouble to grow the corn in the first place.  If he is not paid enough, he may decide to stay in bed a few more hours.  He may decide to plant 50 acres instead of 100.  He may decide to trade his corn overseas where he can receive more per ear.  He may decide to do something else rather than grow corn. Or he may decide to just grow crops for his family and stop trading.  When any of these things happen, the amount of corn available declines, so now even though the McDonald’s worker earns enough to buy two ears of corn each time that he works for 10 minutes, he may go to the grocery store and find there is no corn to buy.

Note that Venezuelans a few years ago decided to vote in a government that went out to the farmers and demand they charge less for their crops.  In fact, they even went so far as to chase the farmers off of their land and give the land to squatters who were supposed to use the land to grow crops and feed themselves.  Because the squatters didn’t know how to farm, plus they probably lacked the drive and work ethic that the farmers had, the country went from one that was an exporter of food, meaning that they grew more than they needed to feed their people, into one where the people are starving.

And it extends beyond food into toilet paper, medical supplies, gasoline, and even electrical power.  There is a shortage of everything.  Today it was announced that state workers would only work for two days a week to save power and women are advised to not blow dry their hair.  Of course, the capital, where the ruling class live, has first dibs on electric power and they aren’t experiencing the same kind of blackouts that they are seeing other parts of the country.  The rulers in Socialist societies always take care of themselves first.

Now there is another possibility and that is that the farmer will simply raise his prices and require more money in exchange for each ear of corn.  In that case you soon end up with the McDonald’s worker making $15 per hour but needing $30 per hour to have enough to live on.  He may earn more per hour numerically but he still gets the same amount of value per hour of work because that is what the service he provides is worth.

The only way to improve the life of the McDonald’s worker is for him to learn new skills that will allow him to produce more per hour.  He can then get a higher salary without forcing someone else to pay him more than he is worth.  Millions of people do this during their lifetimes, starting from a minimum wage job but using that job to learn and develop skills and experience so that they can get that next job and that next one.  Maybe they even start a company and generate even more money, eventually becoming a wealthy person.  The trouble is that some people want to stay in that same job, doing a minimal amount, taking on the minimal level of responsibilities, and using a minimum amount of skills but get paid enough to support a family.  That is just not a sustainable plan.

Got an investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

What do you think?  Please leave a comment?

Contact me at vtsioriginal@yahoo.com

Follow on Twitter to get news about new articles. @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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