High Minimum Wage Boosts Economy
Credit: Dicky Neely’s Blog
As Labor Day approaches think about this:
Does raising the minimum wage kill jobs?
Doesn’t look like it.
In 2014 these states raised the minimum wage: AZ, CA, CT, FL, MO, MT, NJ, NY, OH, OR, RI, VT, and WA.
Compared with the rest of America, these states also had more robust economies, higher employment, and higher wages for low income workers.
Check out this graph:
When San Jose raised the minimum wage the unemployment rate fell to 5.4% from 7.4% and the number of restaurants rose. San Jose’s economy also fared better than surrounding communities.
Nobel prize winning economist, Paul Krugman says,
Every time a state raises its minimum wage while neighboring states don’t, it, in effect, performs a controlled experiment. And the overwhelming conclusion from all that evidence is that the effect you might expect to see — higher minimum wages leading to fewer jobs — is weak to nonexistent. Raising the minimum wage makes jobs better; it doesn’t seem to make them scarcer.
Here’s why economies get better:
When the poor make more money, they spend more money. So businesses must hire. These new employees spend more. More hiring… and the economy spirals upward.
Yet business groups — and the conservative legislators they fund via campaign contributions (aka legalized bribery) — insist that rising wages will raise unemployment and recklessly jolt the economy.
Oh, and high pay makes workers lazy.
???
But don’t BIG BOSSES also say that they need high earnings to motivate their own work — so they require generous incomes and big tax breaks?
Who has more power to deliver this contradictory message? Why employers, of course.
The message is good for employer pocketbooks since the incomes of the richest Americans skyrocket when wages are kept low and when unions are busted.
A lower minimum wage nicely lines the pocketbooks of rich business owners and managers. But the overall economy improves with a higher wage.
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Posted on September 4, 2015, in feminism, politics/class inequality, psychology and tagged class issues, economy, feminism, minimum wage, psychology. Bookmark the permalink. 33 Comments.
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This is a very interesting article and I found it very fascinating. Does raising the minimum wage create a better economy? According to your post, it allows low income families the needed funds and provides them the ability for more purchasing power. With this extra money, they would spend their extra money on homegrown businesses and hopefully increase the local economy. I believe everyone should make a decent living, no matter where you live. The war on raising the minimum wage is being fought around America. For example, there are demonstrations by workers in the fast-food industry–demanding that they get paid 15 dollars an hour. I see both sides of the coin, side one you have an employee that is working below the poverty level and struggling to get by on a minimum wage job. So the 15 dollars would really help and raise his standard of living. On the other side, you have small business stores that would be crushed and would have to lay off workers because the pay increases. In Seattle, they just implemented the 15 dollar minimum wage and I’m looking forward to see what happens in a few years. Thanks for your post.
So far increasing the minimum wage has done more good than harm. The cities that increase the wage are better off economically than communities surrounding them. More jobs created than lost. And it’s just not right for people to work and still be in poverty — slave labor.
Earlier today my brother and I were talking about the upcoming democratic debate and the topic of minimum wage came up. While I feel as though I have more research to do to really understand the topic there are some fundamental things that I think raising minimum wage address. At the current level a person working full time is living at the poverty line. That is not okay. A person with children working full time cannot always feed her family because they do not have enough income. That is not okay.
My brother brought up some economist, the name I cannot remember, but it was along the same lines as what is written above. From raising the minimum wage some employers will let off their employees because they do not feel they are worthy of the increased pay. I find worthiness a horrific word to use in this context. So, you are essentially saying that a person at minimum wage is unworthy of living a healthy life? A mother working full time for minimum wage is unworthy of feeding her family? I think this is horrendous. Especially, in the United States where we have the “right to purse happiness” I would think being paid a fair price for the work that you do would be apart of that.
Also, in this context when saying one group is worthy of pay and another is not it creates this horrible divide that some are better. The more educated and the more privileged are worthy of this pay but others are not. But does this take into account the social problems that many groups of people cannot go to school for any number of reasons. So, because of so many politics that put groups down your going to further put them down a hole and keep them in poverty? And therefore powerless? Unable to support themselves or their families? God, I personally think that is so wrong. And hey, maybe raising minimum wage isn’t the correct way to fix problems of injustice but I think it is one hell of a leap forward that we should take to ensure that our people in this country have the right to happiness.
There’s pretty much no evidence that raising the minimum wage Harms the economy. Thanks for your thoughts.
Minimum wage in America is unacceptable because there are people that are working full time and still are considered to be living in poverty. If someone dedicates most of their time working for a company, they should at least be able to earn a wage that they can live comfortably in. It’s saddening that there are people in the world that believe others should not be paid more than what they are earning now. Additionally, the people who run big businesses and corporations should treat their workers better and pay them a living wage instead of being selfish and hoarding all of the profits for themselves so that they can do whatever they want.
Georgia this is one of those issues, that along with healthcare, I really don’t get about the U.S. It’s just non-sensical. I’ve heard that full time Walmart employees have to take food charity because their full time wage doesn’t cover their basic needs. There are so many other countries that pay their workers fairly, like Australia, and who have also got very strong economies, just like the examples you use.
It’s nonsense to us liberals in the US too. A lot of business owners don’t get that it would actually be good for them to pay decent wages. And they gave a lot of money to politicians for campaigning — legalized bribery — so our politicians do what they want.
Yes, and political campaigns that are funded by donations – what is with that?
Right now we have a conservative Supreme Court that supports business interests over peoples interests. A number of organizations are trying to change things but it’s difficult because Congress doesn’t want to lose their funders.
Thanks for this post…a few years ago in Seattle the owner of the company I worked with up here was the main architect in pushing the higher min-wage here in Seattle and there were electric arguments from both sides. This is a great post showing that the arguments against are not as strong as people assume. Cheers ~
Thanks! Business interests have a lot of reasons to argue against it, And a lot of resources to get their arguments out into the public.
Interesting discussion, Georgia. The entire issue may appear to be a dilemma of sorts, to raise wages or not. For sure it sets off a chain of higher costs of doing biz and spirals inflation if not handled prudently. Be it at the level of shop floor worker, or manager, or corporate head or the ultimate investor, higher wage or emolument must link to higher productivity, which in turn translates to lower per unit cost and higher profits and a win-win for all concerned. This again can reach a saturation point given the size of markets and its ability for consumption. The demand may plateau at some level, and here the management has to step in, to either enhance product features to increase sales, or expand into newer markets, or create new products, and / or diversify into newer businesses. It is an ongoing dynamic cycle. For sure, the wages must increase, but it must tie in neatly with all of above, with greater realisation on the part of shop floor worker that he or she is also an equity holder in the respective enterprise. Otherwise the notion that higher wages pushing up consumption is delusional, because it will only increase cost of products, cost of administration and establishment, leading to a situation of too much money chasing too few goods as in banana republics…best wishes.. Raj.
A lot of the problem in the US is that wages had not been tied to productivity, So that as productivity increases all of the profits have gone to the top 1%, Without the workers who helped to create the profits sharing in the reward.
And at this point we are still struggling to keep out of depression so that we have no fears of inflation at all right now — well if you go by facts and not antigovernment ideology.
“all of the profits have gone to the top 1%”
This is the assumption which seems to underlie this discussion, but is the assumption true? While it is certainly true that some businesses and corporations are owned by wealthy individuals, and it is certainly true that the heads of corporations are being paid large salaries, it is also true that most major corporations are owned by stockholders, and most stockholders are pension funds. Cutting profits to businesses and corporations will take some of the profits from the top 1%, but it will take more of the profits from the pension funds which own more of the stock of those businesses, and as pension funds run out of money, that will harm the retirees, elderly, widows, and disabled persons who live on fixed incomes and are dependent on those pension funds to provide their fixed incomes.
Politicians, particularly those on the left, have made a living for years castigating the “top 1%” and calling for higher taxes on the wealthy, without considering all of the consequences.
The top 1% have a lot of money that they’ve put into messaging so that people will vote against their own interests.
If you wonder whether my point is true, Do some research and see whether or not this graph is correct (link) which shows increases in productivity and increases in income for the top 1% versus everyone else. https://broadblogs.com/2012/11/02/vote-to-help-the-rich-hurt-yourself/
As I mentioned in the post: redistribution of wealth from the middle-class and the poor to the rich, via outsourcing, offshoring, union-busting, technology replacing workers and failing to raise the minimum wage, for instance. (Not to mention big tax cuts, loopholes and shelters for the wealthiest).
Does that not make sense to you? Does it not make sense to you that the top 1% would give big campaign contributions in hopes of getting something in return like big tax cuts for themselves, loopholes, tax shelters, union busting, pressure to not raise the minimum wage… etc?
You say: “If you wonder whether my point is true, Do some research and see whether or not this graph is correct (link) which shows increases in productivity and increases in income for the top 1% versus everyone else. https://broadblogs.com/2012/11/02/vote-to-help-the-rich-hurt-yourself/
As I mentioned in the post: redistribution of wealth from the middle-class and the poor to the rich, via outsourcing, offshoring, union-busting, technology replacing workers and failing to raise the minimum wage, for instance. (Not to mention big tax cuts, loopholes and shelters for the wealthiest).
Does that not make sense to you? Does it not make sense to you that the top 1% would give big campaign contributions in hopes of getting something in return like big tax cuts for themselves, loopholes, tax shelters, union busting, pressure to not raise the minimum wage… etc?”
Your reference is to claims by Paul Krugman. I say “claims” because the graph you refer to, and the paragraph you quote, are based on Krugman’s assertion that welfare takes 1% of the federal budget. That is intentionally misleading and results from his limited definition of “welfare.” Krugman is describing only AFDC, cash assistance to poor families. If he were to include Medicaid, Food Stamps, WIC, Section 8 Housing Assistance, Energy Assistance, and other Federal programs, the percentage of the Federal budget which welfare takes is well above 25% and growing. In Connecticut where I live, for example, a person on welfare receives an average of $53,000.00. The minimum wage would have to be increased to $35.00 an hour to provide a net income after taxes which exceeds $53,000. If Krugman’s definitions are factually incorrect, and his conclusions and graphs are based on them, how can those conclusions and graphs have any credibility?
Here’s more from the New York Times:
income flows to the top of the economic ladder, while languishing for everyone
In a healthy economy with upward mobility and a thriving middle class, hourly compensation (wages plus benefits) rises in line with labor productivity. But for the vast majority of workers, pay increases have lagged behind productivity in recent decades. Since the early 1970s, median pay has risen by only 8.7 percent, after adjusting for inflation, while productivity has grown by 72 percent. Since 2000, the gap has become even bigger, with pay up only 1.8 percent, despite productivity growth of 22 percent.
Why has worker pay withered? The answer, in large part, is that rising productivity has increasingly boosted corporate profits, executive compensation and shareholder returns rather than worker pay. Chief executives, for example, now make about 300 times more than typical workers, compared with 30 times more in 1980, according to the Economic Policy Institute. Other research shows far greater discrepancies at some companies.
Worse, flat or falling pay is self-reinforcing because it dampens demand and, by extension, economic growth.
http://www.nytimes.com/2015/09/07/opinion/you-deserve-a-raise-today-interest-rates-dont.html?action=click&pgtype=Homepage&module=opinion-c-col-left-region®ion=opinion-c-col-left-region&WT.nav=opinion-c-col-left-region
During the campaign, Mr. Romney accused President Obama of favoring redistribution of income from the rich to the poor, and the truth is that Mr. Obama’s re-election did mean a significant move in that direction. Taxes on the top 1 percent went up substantially in 2013, both because some of the Bush tax cuts were allowed to expire and because new taxes associated with Obamacare kicked in. And Obamacare itself, which provides a lot of aid to lower-income families, went into full effect at the beginning of 2014.
Conservatives were very clear about what would happen as a result. Raising taxes on “job creators,” they insisted, would destroy incentives. And they were absolutely certain that the Affordable Care Act would be a “job killer.”
So what actually happened? As of last month, the U.S. unemployment rate, which was 7.8 percent when Mr. Obama took office, had fallen to 5.1 percent.
The current unemployment rate is lower than it ever got under Ronald Reagan. And the main reason unemployment has fallen so much is job growth in the private sector, which has added more than seven million workers since the end of 2012.
I’m not saying that everything is great in the U.S. economy, because it isn’t. There’s good reason to believe that we’re still a substantial distance from full employment, and while the number of jobs has grown a lot, wages haven’t. But the economy has nonetheless done far better than should have been possible if conservative orthodoxy had any truth to it.
http://www.nytimes.com/2015/09/07/opinion/paul-krugman-trump-is-right-on-economics.html?action=click&pgtype=Homepage&module=opinion-c-col-left-region®ion=opinion-c-col-left-region&WT.nav=opinion-c-col-left-region
higher employment, and higher wages for low income workers.”
“Raising the minimum wage makes jobs better; it doesn’t seem to make them scarcer.”
“When the poor make more money, they spend more money. So businesses must hire. These new employees spend more. More hiring… and the economy spirals upward.”
Well that’s all good and dandy, you have more poor people making more money and they spend money so businesses must hire. As a result more spending and more hiring and so on. That’s all nice if it’s all about more employment, but there’s a problem. I would be fine with more employment and that would be good if this didn’t effect other things in a negative way. Your emphasis is all about employment and higher employment rate as well as higher wages for the poor.
This is fine if the wage went up say to 8 to 10 dollars or 9 to 11, but from what I’m hearing the wage jump is to go to 15 dollars, which is way too much of a jump. I’m sorry, but I will not be happy and most people I know won’t be happy if that happens. Because while it sounds nice on paper the reality is that what happens when wages go up especiually drastically is a thing called inflation. I’m sorry, but fuck that shit and more employment and higer wages if I’m taking a god damn pay cut. It’s not going to happen with other people’s wages going up. I’ve never happened before, doubt it will now. When ever the minimum wage goes up, and it has the past years, other wages don’t go up even if they are at that wage then. I remember when wage went up to $7.25, people under that went up to that, but the person at .7.25 or worked up to it, well shit out of luck for them,
The problem with this is that small businesses will hurt from this. Your local restauarants and businesses. Well these aren’t million dollar or billion dollar businesses. With the multiple expenses of running a business and not profiting likee a corporation, many restaurants will pay workers under 15 because of that. What’s going to happen if these businesses pay their workers that much? Well food prices will hike up, for restaurants, grocery stores. Let’s not forget apt rent will go up too, probably even gas. So people who are educated or just worked hard to have a career and make something of themselves. Guess what? They will be struggling. The middle class already is hit in all directions. You make 20 dollars and hour, but that sandwich you normally buy is 12 dollars instead of 8, gas is 4 dollars instead of 2 something, your rent is not 800 instead of 600, or 1000 instead of 800.
This is bad. And actually people making 15 now, it will be like they are back to 8 dollars because of the cost of everything so they will be back to the start. They will be spending more, but how long when everything else is more money? Plus this will tell kids a message that it’s ok to not strive to do better and just get by as you can make only a few dollars less flipping burgers compared to someone with a 4 year degree who now just makes 5 dollars more at 20? Mcdonald’s and such are jobs and not supposed to be careers. True some people are disadvantaged and just trying to make a living, but it’s one thing to raise the wage, it’s another to hike it up to 15 dollars. I’m sorry but I’m not having a pay cut, I and others worked out butt off to make a decent living to just make not much more than minimum and for prices go up that would be giving everyone else who is not being bumped up a pay cut. They need to push up everyone’s wage, but they won’t happen.
Since we stopped doing things like raising the minimum wage, increased profits have all been going to the richest 1%. Income for everyone else has been flat. See the graph over here: https://broadblogs.com/2012/11/02/vote-to-help-the-rich-hurt-yourself/
To maintain their advantage the richest 1% invest in think tanks to spread messages that get the lower 99% to back the top 1%. So the paid think tanks come up with reasonable sounding ideas that they spread through media like FOXNews and Rush Limbaugh. And then people at the lower end of the economic spectrum push policies that benefit the richest and hurt themselves.
The one exception is that small businesses might be hurt by this, and so I think these policies should maybe be modified in that regard.
What seems to happen is that once the higher wages are implemented a few businesses do shutdown. But most don’t, and their workers have more money in their pockets to spend, spend it, and then businesses need to start hiring. So that in the short run you do get a loss but in the long run you get a gain of jobs.
So if it’s too hard to modify increases in minimum wage to take account of small business, you still seem to be better off as a whole to just go with increasing the minimum wage.
Now instead of all of the profits going to corporate heads and owners the money is shared with the workers to help create the profits. And you don’t get graphs like you see over here: https://broadblogs.com/2012/11/02/vote-to-help-the-rich-hurt-yourself/
And companies that provide good pay and benefits to employees can be just as profitable as companies that don’t. Costco is doing just as well as Walmart. Also see this:
Good pay + good profits
Companies that provide employees a decent living, which includes not just pay but also a sense of purpose and empowerment at work, can be every bit as profitable as companies that strive to keep their labor costs low by paying the minimum wage with no benefits.
http://www.nytimes.com/2015/07/07/opinion/joe-nocera-the-good-jobs-strategy.html?emc=edit_ty_20150707&nl=opinion&nlid=41602665
And companies that provide good pay and benefits to employees can be just as profitable as companies that don’t. Costco is doing just as well as Walmart. Also see this:
Costco..that’s my exact point. Costco is a good company, I know someone who works there. This is the problem of going to 15 dollars. Costco already subscibes to the good pay and good benefits for workers. Which it’s 11.50 an hr start off pay plus time and a half sunday is a good start for workers. Still, only a few people get full time there and most or many are part time, Luck for workers, part time people still get benefits and health insurance, though not as much as full time. But as a result of lesser hrs, the raises will be at a slower pace, because of meeting goal hours.
So the problem with that is someon knowng costco could be a place for them to have a career and works throuhg the years and work up to 15 dollars an hour. But then what seems that going to happen in NY is in 6 years they will go to 15 dollars. So say someone who is part time works up to 15 or maybe 16 dollars an hour, you know they are feeling good with this pay or where they are heading. Oh wait, the us just raised minimum to 15 now. So all those years of hard work, just lead them to….minimum wage? That;s good?…hell no. Costco is a good company, but you think they are going to bump the workers who have years on them and worked up to 15 dollars to be bumped accordingly? No they won’t. That means a new hire coming in would start at 15, that means someone at mcdonalds would start at 15, while someone working a few years at costco just worked up to 15, is not anymore than the newbie.
Like I said, it’s a pay cut. ” then businesses need to start hiring. So that in the short run you do get a loss but in the long run you get a gain of jobs.”
It’s nice to have more jobs, but frankly, I don’t give a fuck about that if the result of this is it’s taking away my damn money that I worked hard for, only to be cut. I’m sorry, but I’m not ok with working up to a certain amount only to have higher prices and inflation regardless if it gives other people more jobs.I’m not ok with seeing a new worker come in just hired or seeing other people like me working up to a wage and the new person hired starts out at what I’m making, but I’m not compensated accordingly for my time. I guarentee they won’t bring up other people wages accordingly, they’ve never done it before with raised minimum wages. I’m sorry, but don’t lower the value of my wage and hard work, just because these people can’t do better in their life. It sounds harsh, but my feeling isn’t much different than others. I’m not about that pay cut , regardless of more jobs. I feel bad in a sense, because people just want to make a betting living and it’s not their fault, but simply them being gullbile to how things really work. On paper it sounds good and would be good if everything followed. But it won’t and doesn’t. There will be a raise in prices, especially from small businesses and as a result everyone else will be feeling the hit.
When the minimum wage goes up it pressures an increase of wages across the board. So if the proverbial “You” were working for $15 an hour and then the minimum wage was raised to $15 dollars an hour, it should pressure and employers to raise the more experienced workers wages, too. When people have more money in their pockets and buy more stuff then sales and profits increase, Which allows higher wages. But let’s say that “your” wage didn’t increase. “You” won’t be out anything just because someone else’s income increased.
For some reason instead of being angry at employers who won’t pay them enough people tend to get angry at the people just behind them, who are struggling even more than they are. I’m wondering why that is.
You were also talking about inflation, which I just remembered. The right wing has been trying to create fear of inflation for years for ideological reasons. They keep saying if X happens then we will get inflation. And X keeps happening but we haven’t gotten an inflation. See this from economist, Paul Krugman:
Confronted with a conflict between evidence and what they want to believe for political and/or religious reasons, many people reject the evidence. http://www.nytimes.com/2014/07/07/opinion/paul-krugman-conservative-delusions-about-inflation.html?hp&action=click&pgtype=Homepage&module=c-column-top-span-region®ion=c-column-top-span-region&WT.nav=c-column-top-span-region&_r=0
“When the minimum wage goes up it pressures an increase of wages across the board. So if the proverbial “You” were working for $15 an hour and then the minimum wage was raised to $15 dollars an hour, it should pressure and employers to raise the more experienced workers wages, too. When people have more money in their pockets and buy more stuff then sales and profits increase,”
What’s missing in this argument is the answer to the question: “Where does the money come from?” To be able to pay employees higher wages, the money has to come from somewhere. Most businesses raise the needed money by raising prices on whatever it is they sell. So, if workers get higher wages, they have more money to spend. but the items they purchase have higher prices. The net result for the sellers is no change in profits. Gross income is higher because of higher prices, but net income remains the same because of the higher expense of higher wages. Profit is unchanged.
Here’s where the money comes from:
When people have more money in their pockets they spend more money so sales and profits go up. And then business owners have more money to give their workers — so long as they don’t pocket it all for themselves.
Right now even some business interests are beginning to worry that there is too big of a gap between the rich and poor, Which will eventually destabilize business and our political system. See this post:
Conservatives Want Less Inequality https://broadblogs.com/2015/01/23/conservatives-want-less-inequality/
You say that raising the minimum wage will give the recipients more money to spend, which will benefit the economy. I asked where the money would come from.
You replied: “Here’s where the money comes from:
When people have more money in their pockets they spend more money so sales and profits go up. And then business owners have more money to give their workers — so long as they don’t pocket it all for themselves.”
The problem is with the assertion that profits will go up, which is based on the assumption that business owners will not raise prices. That is simply not true. All business owners and business managers have to maintain a reasonable level of profitability. If expenses rise because of the need to pay higher wages, a business owner will respond by either cutting costs, raising prices, or both, to maintain the same level of profitability. If a worker’s wages increase by $100, but the prices of the items the worker buys increase by $100, sales may increase but profits are unchanged. One major risk is that the business owner will cut costs by laying off some employees, leaving some employees with increased wages while leaving some employees with nothing. A second major risk is that prices will rise throughout the economy, so the worker who receives $100 more in wages has to pay $110 in increased prices.
You keep missing the point that the wealthiest 1% is pocketing all of the gains to productivity and not sharing with the workers who helped to create the profits.
Some businesses, however, do raise prices. But not by much. Pizza my heart raised their pizza slices a few cents and people didn’t even notice.
very, very interesting. we’ve just had legislation passed here in the UK for another minimum wage rise and everyone is saying it’ll slow down the economy – I’m now hopeful it will boost our economy!
Hope so! That’s what has been happening over here.
I can’t speak about other states but the assertion about Connecticut’s economy is not correct. Overall, Connecticut lags behind the rest of the US, as it has in every recent recession and recovery, because of the state’s high taxes, extensive regulation of business, high wages and high cost of doing business.
The question with respect to raising the minimum wage is: where does the money come from.
The first answer is from raising prices. A business which has to pay higher wages has to raise prices to generate more money to use to pay the higher wages. Do higher prices benefit the economy? Actually those hurt the most are the poor who can least afford to pay higher prices. While some studies show that raising wages does not cause a loss of jobs, there are just as many studies which show that raising minimum wages do cause a loss of jobs.
The second answer is from profits. Raising the cost of a business by raising wages lowers the amount of money available for profits. While it is certainly true that wealthy individuals can easily afford to live on lower profits, there is some truth to one trickle down theory – that wealthy individuals with less money to spend will not spend money on expanding businesses. More important is the fact that most corporations’ stock is owned by pension funds – the money that supports the elderly, retirees and widows, who live on fixed incomes. Just like Social Security which is running out of money and may have to lower monthly payments, many pension funds are underfunded and may have to lower payments. Lowering corporate profits lowers dividends and depresses the value of stocks, resulting in lower values for pension funds, resulting in lower payments. Raising wages of working poor results in lower incomes for people living on fixed incomes. is that a reasonable trade off? Also, when private pension funds are unable to pay benefits, federal statutes require that federal taxpayers end up replenishing the funds. When public pension funds are unable to pay benefits, local and state taxpayers have to pay higher taxes to pay benefits. Higher taxes do not make the economy more robust.
I googled a few things and it looks like it depends on what you are comparing. If you compare labor market changes then Connecticut seems to be doing better at employing people. If you compare GDP Connecticut is doing worse. Of course, the US as a whole has been having high GDP but all of those gains have been going to the richest 1%. Income for everyone else has been flat. See the graph over here: https://broadblogs.com/2012/11/02/vote-to-help-the-rich-hurt-yourself/
That graph helps answer your other question. Until the early 1980s productivity gains had gone equally to business owners and managers and the workers who helped create those profits. But after the early 1980s owners and managers began taking all the profits for themselves. And so their incomes greatly increased while everyone else’s remained flat. A lot of the reason for that was not raising the minimum wage, union busting, off shoring and outsourcing. So increasing the minimum wage deals with one of those problems. More of the profits can go into workers pockets instead of everything going into the pockets of owners and top managers.
Of course a decent salary that makes it possible to actually live (and by that I don’t mean just barely making ends meet) boosts economy. When people spend “excess” money on restaurants, traveling, purchases and so on they are spiraling an ascending econony rather than the opposite. This is why it’s so important to avoid letting the private sectore dictate politics alone (I’m not saying you shouldn’t listen to what businesses need at all but they shouldn’t represent the only voice). Of course, from the perspective of each individual firm it’s all about maximising profit while reducing costs as much as possible, including wages. Understandable of course, but this must not dictate the overall development of society.
What we’ve seen the past decades is a development that has resulted in an increasing proportion of the entire _worlds_ quantifiable values (eveything from the most liquid assets such as money to real estate) finding the pockets of those who were already quite wealthy. While I by no means oppose success for individuals at all, such development will strangle economic growth in the end. When fewer and fewer have less to spend beyond what’s strictly necessary you won’t find these people traveling, eating finer cuisines at restaurants nor purchasing any of the gadgets that boosted successful individuals prosperity in the first place; these successful peoples companies are irrevocably dependent on a certain level of purchasing power. In the twelfth hour this development will even affect the minted.
I agree. And some of the wealthy interests are beginning to worry that sales and profits will go down with the huge gap between rich and poor – and a lack of money in people’s pockets. Will see if they are smart enough to correct things before there is too much political and business instability.
Well, that some of them have started to grasp the idea that there’s “just maybe” a correlation between purchase power and declining income sounds great. Over here though, I’ve seen little thought of it among people climbing the corporative ladder.
Offshoring and outsourcing plays a role in this that doesn’t help. Companies don’t want to pay local salaries, thus offshore their activities to low cost countries, leaving fewer jobs at home. Never mind that people at home won’t afford these products in the long run…
Most businesses over here don’t seem to be aware of the problem. There’s just the beginnings of murmurings at this point.