Category Archives: Economic

Income Inequality / MINIMUM WAGE

Various discussion has recently been generated over the issue of “income inequality”. Ancillary to this has been controversy over the practical repercussions and moral posture of an increase in the Minimum Wage. It is possible that in the noise some perspectives have been ignored. (One which the writer believes can be ignored is the effect or lack thereof on income equality from such an increase, since to this individual it seems clear that any effect would be de minimis.)

In analyzing the questions we should first consider: Who is the Minimum Wage intended to benefit? It would seem a fair conclusion that it is those who are only marginally skilled, either by being new to the work force or by not having had the opportunity or inclination to develop any skills other than the rudimentary. Thus, it would seem that most persons would or ought to be relegated to this category only for a relatively-brief duration. (For those who do not have the capability to develop these skills, due to various physical, mental or psychological deficiencies, there should be provided some type of permanent financial support; since this, hopefully, will only be a small segment, its effect on diminishing overall resources should not be controversial.)

Now, would an increase in the Minimum Wage have the intended effect and the desired efficacy? It may well be doubtful since, by definition, it would only benefit those with marginal skills. The basic and introductory premise, it would seem, is that those with these marginal skills have the least job security since they would most easily be able to be eliminated and replaced, and would only be supplying a limited benefit to the employer. Can we now, from this perspective, further analyze these questions?

This limited benefit to their employer necessitates a conclusion that these employees are of marginal value to the employer. As the differential between the value and the cost to the employer is thus narrow, any magnification of the cost will be material. And if the cost is increased too much so that the cost exceeds the value, the employer may decide termination of these employees, and the investigation of alternatives, is required.

Even if the differential is only narrowed — with the value of the employee still exceeding the cost it is likely the same result will be yielded. For marginally-skilled employees, because of their minimal level of abilities and consequent similarity between equivalent employees, are relatively fungible. Now, even if the differential in value is somewhat diminished, the employer may still continue the relationship out of convenience, habit or tradition. But if the differential between value and cost narrows too much, an exchange for an employee who may be more compatible with the position and of more value may be more easily justified. Thus, the inherent dubious tenure of these employees will be threatened even more under such a regime, viz, where the Minimum Wage is significantly increased.

The above examination of course has proceeded from the position and perspective of the absolute and relative attributes of the employees. It should be at least equally pertinent to consider the position and perspective of the financial status and considerations of the employers.

To this writer it would seem the type of employer who might most often utilize the marginally skilled are also those who experience only marginal profitability. For more skilled employees are of course capable of performing more efficiently and at a higher level of quality. If a person is operating at sufficient profitability, it would normally then be expected they might seek the more qualified (as long as they are not overqualified) employees. If the employer utilizes instead the marginally skilled, it is likely due to it being unable to afford higher-value employees due to their own marginal profitability. Now, if the cost to them of these employees increases, they may be faced with the prospect of becoming unprofitable, resulting in either elimination of some of their current employees or termination of their operations. In either event, the already-questionable tenure of this class of employees becomes even more tenuous.

Thus, it is doubtful that an increase in Minimum Wage levels would in fact attain its objective. Nevertheless, I perceive there being a sound policy that would support and induce such a change. And this would be the pressure it might exert to eliminate or at least reduce so-called Economic Stimulus programs.

A switch of activities or programs to attain this objective from the governmental sector to the structures within society already would be salutary indeed. If this were to result in private, rather than public, organizations being the ones to help others up by their bootstraps, then such a change in policy certainly would be most beneficial.

Now, one could attempt to condition a Minimum Wage increase on an offsetting reduction in appropriations for Economic Stimulus programs. However, it may be sufficient simply to induce a change in the mentality of recourse to resources looking first to and relying upon the private sector by resort to employers rather than government agencies for magnification of disposable income. Thus, even if their is no immediate reduction in governmental expenditures, adoption of such a change in attitude ought to justify obstruction of or even reduction in later expenditures for, much less enhancement of, these programs since the objective thereof ought already to have been attained by the greater disposable income flowing from the private sector. I consequently would think such a Minimum Wage increase should be supported for the above reasons; the conclusion that the purported income inequality reduction argument is merely a phantasmal exercise without weight or logic should not be deemed a reason to refrain from pursuing a policy that has its own good and sufficient rationale.

WAYNE A. SMITH
Forester Twp, Michigan USA
3 March 2014