Biden has called to raise the minimum wage to $10.10. Illinois just voted to rase the minimum to $10 and other states voted to raise the minimum wage.
With corporate profits as a % of GDP at all time highs, has anyone encountered an article that discusses how raising the minimum wage would effect U.S. corporate profits? obviously negatively, but to what degree? if the minimum is raised to $10, does that mean all jobs that were $10 go to $12 or $13? Would raising the minimum wage start the trend of falling corporate profits that would show the equity market as being very overvalued? i wonder if it’s this simple…
clearly, with corporate profits at all-time highs and with government spending at abnormally high levels, isn’t raising the minimum wage a bipartisan compromise? corporations pay more of their fair share to labour and governments pay less… basically higher tax but smaller government. everybody wins… and loses. perfect.
Given the wide cost of living disparities across the US, a national minimum wage is a stupid idea. States or municipalities, if they feel it necessary, can set their own minimum wages.
^ the problem with the “the corporation/money goes where it is most useful” statement is that it isn’t exactly the best option from a long-term planning POV. sure, money will go to highest IRR in the short-term but it will neglect the needs of labour and government, the other two pillars that make up a nation’s spending. clearly, with corporate profits at an all-time high, and naturally with government spending at elevated levels and income going to labour at multidecade lows, something is out of whack (i.e. labour and government has been historically far to favourable to corporations) and corporations need to take a hit or governments will fail and/or labour will either degrade (loss of skills, etc) or rise up and take what it needs back from the corporate pillar.
i’m all for capital being efficiencly allocated but neglecting 2/3rds of what makes a nation is just asking for trouble and is not actually efficient over the long-term.
Minimum wage is so stupid. It literally distroys jobs. I bet there are hundreds of jobs that have been priced out of the market. It’s only a matter of time before bank tellers are 100% automated.
^ I agree. But in the absence of government assistance, what is a society to do. Its not sustainable to have a block of the population starving to death. There are better ways of addressing the problem than minimum wage, but none would fly in America.
it’s simple. if corporations don’t employ enough or pay labour enough for labour to survive and continue to work then the government must spend to make up the difference. the discussion of minimum wage is the hallmark of this issue. if minimum wage households cannot afford basic necessities, it is the government who ends up funding programs that allows these households to endure. same can be said for many things. there are some things that corporations just can’t or won’t provide so government spending exists to provide this good or service. it’s the whole basis of government spending. issue should only arise when politicians argue over what basic necessity means.
if a government is in deficit, it is in effect either funding elevated corporate profits or income to labour. since we know income to labour has been on the downtrend for decades, government spending is clearly funding corporate profits.
From John Hussman:
" The deficit of one sector must be the surplus of another.
This is not a theory. It’s actually an accounting identity. But the effect of that identity is beyond question. Elevated corporate profits can be directly traced to the massive government deficit and depressed household savings that we presently observe.
I should note that this result is the outcome of hundreds of millions of individual transactions, so it’s tempting to focus on those transactions as if they are alternate explanations. For example, one might argue that corporate profits are high because people are unemployed, many workers have been outsourced, and government transfer payments are allowing corporations to maintain revenues from consumers despite low wage payments. That’s a perfectly reasonable of saying the same thing – but the transaction detail does not change the basic equilibrium that profits are elevated because government and household savings are dismal. One will not be permanent without the other being permanent."
It is not clear that raising the minimum wage will have a net improvement on government finances. If we raise minimum wage, many people will get fired if their marginal productivity was at the old minimum wage level. This will increase the burden to the government, which will have to provide more welfare and assistance.
The way to help low wage earners is to empower them and make it easier for them to be employed. Unfortunately, raising the minimum wage will only disenfranchise and alienate job seekers who are willing to work for less. Not only will they be unemployed, but they will not be able to work up from $8 an hour, to $9 an hour, and so on, eventually earning more than what would have been minimum wage.
A higher minimum wage will only help entrenched workers for whom employment levels are non-elastic. This works to the detriment of everyone else. It is in our best interests to make the labor market more efficient, not less efficient.
How many Americans here really believe in the let the poor suckers starve to death answer to this problem? In the absence of a minimum wage, how do you prevent socially unacceptable outcomes?
If individuals are willing to supply labor at a certain price, who is the government to say they are not allowed? As long as individuals are efficeint and productive, there wages will increase to retain their employment. A firm is not going to continue to pay a trained and experienced employee minimum wage forever at the risk of them leaving and having to find and retrain other individuals.
if this is actually the case in practice, my question is, why do businesses employ so many people who are entirely expendable? i mean, a 20% increase in your labour costs, and a successful McDonalds franchise fires employees? no way. maybe barely profitable McDonaldses will go under but would this business have gone under eventually anyway? i’m not sure the effect is as linear as it may seem considering the major disallocation from historical norms between corporations/labour/government at the current time.
i’m not all for increasing the minimum wage but i am 100% for greater allocation of capital from corporations back to labour and government so that we can actually enter a period of economic growth again. it’s pretty tough for economy to grow when wages are stagnant, corporations are barely making capex (yet have craploads of capital) and governments are pulling back. maybe the solution would be to tax incredibly profitable companies at the top. the only mechanism that i can ever come to is a global wealth tax on individuals.
Employment is sticky in the short term, but less sticky in the long term. If McDonalds labor costs increased by 20%, they would not fire employees right away, as the employees would still be needed to maintain operations, even if this means sacrificing short term profitability. However, in 5 or 10 years, the average number of employees per McDonalds store will probably decrease, as they are replaced by automated assembly lines, electronic cash registers, or other new machines. In New York, CVS and other retail chains are switching from human cash registers to automated “self checkout” lines. Human employees, after all, are increasingly expensive compared to computers, and must be provided with many other benefits. If human employees were cheap, CVS would not face the same pressure to automate their stores.
Corporations will not compromise profitability in the interest of their own employees. This is against their duty to shareholders. If labor costs increase, over the long term, corporations will change their whole operation to accomodate the new variables, and this will almost certainly result in a decreased emphasis on the variable that has become more expensive. If plastic bags become prohibitively expensive, stores will use paper bags. They will not blindly subsidize the plastic bag industry.
Technology is the reason that labor on the low end is increasingly devalued. Why hire call centers when you can use voice-activated phone systems that eliminate the need for most employees, for example? Low-level jobs tend to be monotonous and they can often be automated. Do you really think that many McDonalds employees can’t be automated away? Do you think that a marginal increase in wages wouldn’t encourage automation?
This past weekend I went to a new Whole Foods which had a restaurant upstairs. There were no waiters. Just a couple of point of sale systems with an easy-to-use touchscreen. You placed your order there and a server would later bring you your food. No need for regular waiters/waitresses or a hostess.
These systems are not costly and become cheaper all the time. Increasing minimum wage just increases the incentive to do this.
I like the idea of zero corporate taxes in theory, but in practice, I think it will be a disaster.
If the corporate tax rate was zero, then I would find a way to have my employer make me a 1099 employee. I would set up my own corporation, and every single dollar I spent (personal residence, car, country club, beer, cocaine, hookers) would be a business expense. I’d pay no taxes again, ever!!!
“But Greenman–what if you get audited?” If I’m in the unlucky 1% that get audited, I’ll worry about it then.