Friday, April 22, 2016

The Essential Nature of $15 Minimum Wage

Wages paid to employees for their time producing goods and services definitely have an impact on the cost of buying those goods and services. By the same token, executive pay and profits for the owners do the same. Cost of raw materials, energy, rent, and other cost centers all add to the price one must pay. Non-productive hours are likewise a big burden on the sales price of everything.

Every business venture has both internal and external costs associated with their operations. Internal costs are the payroll, taxes, utilities, accounting, materials, etc. They are all rolled into the "market price" of whatever the business does. External costs are for such things as the town downstream having to remove the waste products in the river water so they can sell it as potable. The business who dumps the chemicals in the river doesn't have to pay those costs and they do not include them in their pricing.

Similarly, businesses who pay workers less than the poverty wage rate for labor are making it necessary for someone else to pick up the tab for the costs they account as external. In 2016 the disputed consensus is $15 per hour is the base wage necessary for a full time worker to be paid so he or she doesn't not need wage subsidies paid by taxpayers. This $15 per hour results in an annual income of about $30,000. If an employer pays less than that amount, the employee probably needs wage subsidy in the form of Food Stamps (officially called SNAP), rent subsidies and Medicaid coverage to make ends meet. The employer can account the wages-not-paid as part of its profit margin for owning and operating the enterprise.

One big argument against raising the Minimum Wage to $15 per hour is that it will "kill jobs". Yes, the near doubling of wages for businesses which are now paying $7.35 an hour will cause the businesses to re-evaluate their staffing levels and product/service prices. Not every employer who is paying sub-standard wages is paying as low as the Minimum Wage, therefore their problems will not be as great.

The claim by businesses is paying the $15 rate will require they cut staffing. This may be true if the company is already operating close to break-even and/or they cannot increase the prices they charge. Their arithmetic says, "If I must pay my workers twice as much in wages, I'll have to cut half of the positions."

Two employees earning only $15,000 per year each need another $15,000 in subsidies to match the $15 minimum wage that is being proposed and legislated. It would be better for one person to be paid the new minimum and not need subsidies. What about the other guy who is full unemployed as the result?

The person who loses his job because the employer can't or won't realign his operations will need full support of the order of $1250 per month ($15,000 per year) until he obtains a replacement job. Taxpayers may have to provide his income during that period but at least when he does become employed again it will be at a wage to pay all his living expenses. Employers need workers. When they want to expand operations or production, they will seek more employees and will have to make their decisions based on a wage which doesn't require subsidy by taxpayers. In this manner new jobs won't require subsidizing the business owners with tax dollars. Those businesses will not be able to "externalize" the true cost of their operations and make everyone else pay for that privilege.

Large and influential corporate businesses do this all the time. Or at least try. Mining operations extract the minerals and leave the land in poor condition which many times includes toxic mine drainage. Hydraulic fracturing extracts the gas and oil while creating billions of gallons of toxic water laden with the fracking chemicals and core cuttings. Those businesses eventually all go bust and use bankruptcy to discharge their financial obligations.

Small businesses claim they create millions of jobs, but if those jobs pay sub-standard wages, the owners are being afforded a taxpayers funded subsidy in order to be allowed to pay low wages. If the low wages are absolutely essential to the viability of the enterprise, then at least we ought to acknowledge the facts and call the wage subsidies what they are: subsidies to the business owner.

All SNAP funds go to the food producers. The people who get the allocation are mere agents for who gets the money and they assure the producers actually do something for the subsidy. Every rent subsidy dollar goes to a land and building owner in order to make their investment property businesses profitable. Without the rent subsidies many dwelling units would be vacant or at such a low rent the owner cannot afford to maintain the property.

The bottom line is we as a society want people to have food and shelter even when the purely economic market factors dictate a lower income for businesses than it costs them to operate. We need farmers to plant and grow food no matter how much it costs to do it. We need the food prices to be affordable so everyone can eat. To accomplish these to conditions we must have farm and rent subsidies or we must increase the income of people who provide their labor for an hourly wage so they CAN afford the market prices.

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