Raising minimum wage offers a momentary "feel good" moment that is deceptive as in the long term more people including those it was intended to help suffer.

in #informationwar2 years ago (edited)

I have been toying with the idea for a couple weeks that maybe people should all learn to play chess. An important part of learning to play chess is to learn to think ahead several moves to predict outcomes. If you can't learn to do that then you'll be decimated by anyone that can. That is a lesson worth learning.

Minimum wage is one of those things where clearly the advocates for it are only thinking about the first move. They clearly do not think any farther than that. I'm going to take a stab at simplifying one of the problems with increasing the minimum wage.

Let's consider a simple product:

That shirt on Amazon is currently $19.99 and prime available. Let's for the sake of this discussion assume that shirt is manufactured in the U.S. and not some third world slave factory.

For ease of math let's call it an even $20.00.

Now let's consider people we think are being underpaid and assume they make $10/hour.

If they work an 8 hour work day then they would make $80 before taxes. If we don't include taxes just for ease of the example then they could buy 4 of those shirts for an entire day worth of work.

Now let's consider someone who may have worked their ass off for years and they are now making $20/hr. If they work an 8 hour work day then they would make $160 before taxes. In this hypothetical situation they could buy 8 of those shirts.

Let's now say that $15/hour minimum wage is mandated across the board for everyone. That is a 50% wage increase for those that were making $10/hour.

They for a brief period will think things are great. They can buy 6 of those T-shirts. The guy making $20/hr due to earning raises and working their ass off for years still can buy 8 shirts.

The manufacturer finds they cannot survive selling those shirts for the price they were. Gradually, or perhaps quickly the price will drift up an additional 50%.

This means the shirt will now cost $30.00. The people that were originally complaining and wanting that minimum wage increase now are able to only buy 4 shirts just like they were before the minimum wage increase.

You may think. Okay... let's increase it again. NO! Wait. I'm not done with the results of the increase. How about the person making $20/hr?

They can now buy 5 shirts and be 1/3rd of the way towards a 6th. Since we can't buy a 3rd of a shirt we'll simply call it 5 shirts.

So now the original people can buy 4 shirts like before, yet we now have a person that could purchase 8 shirts before that can now only afford 5 shirts. As we continue to do this we essentially create MORE poor and struggling people.

For that momentary feel good moment, in the long term the situation becomes much worse.

As I stated above. That is only one potential outcome. I call this the eroding the middle class from below effect.

There are other possible outcomes. The person might determine they can use robots, industrialization, or simply work employees harder and keep the price at $20/hr per shirt if they instead fire some people. So now we have some people that are unemployed and needing to be supported with taxes taken from your paychecks because they no longer have a job.

The thing about wages. They are supposed to be a negotiation between the employer and the potential employee. What are you willing to work for? Is it better that you have no job?

What if I don't have a job and I'd gladly do it for $10/hr but now it is not permitted. So instead I am unemployed and sucking off the taxes and corrupted welfare system?

Long term thinking is important.

Stop buying into the short term one move offers for free stuff, or the government giving you things.

The government only can do a few things. They can go to war, they can create laws to restrict, they can tax (you have no choice so it is "legal" theft) you, or they can take out debt owed by you and all other citizens. They have no product that they can sell to come up with the mystery money to pay for FREE things.

Anyone promising you free things from the government is lying to you. They are trying to convince you to put on shackles you are not even aware of for the promise of free things, more money, etc.

Instead of offering you free things, they could be encouraging training, and other things to help you earn better wages, and be skilled enough to qualify for positions that employers are willing to pay higher wages for due to demand.

Long term thinking is important. The world seems to have a dwindling supply of people who can do that.

EDIT: An old saying that it is better to teach people to fish than to give them fish applies here. It is better to teach people to be more valuable and to be able to negotiate for better wages than it is to simply give them a wage.

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I agree, we must look at things from the 'big picture'. If you can leverage a short term advantage and turn it into a long term advantage, then when the short term opportunity goes away, you won't miss it!

Ideally it makes sense to include the total income and expenses for an individual. For example, if that person currently is paid $10/hr in San Francisco, they would not be able to afford the high cost of living in that area and would then be dependent on welfare. If an individual makes $10/hr in another area, that may be perfectly fine. I think some companies take advantage of desperate workers and can make more profit by underpaying, but the flip side is also true that if I were college-educated and making $20/hr, I would be upset if the minimum wage is now $20 and I did not receive an equal percentage raise in my pay. No different than saying that we should just erase all student-loan debt. I'm sure many would be happy that they don't have to pay back all of that money, but someone who already paid off their wouldn't be benefited the same. I see the argument of teaching people to fish and negotiate for better pay, but I also see how some situations can make that difficult or impossible to do.

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Great explanation...

If you are a business owner, every time there is a wage increase, you need to make a decision, raise the price of your product or decrease staff. If raising the price of your product decreases sales, you'll need to decrease staff. lather-rinse-repeat

Good explanation old friend! I think long term thinking went the way of the horse & buggy in the world of instant gratification that isn't even capable of checkers!

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