Wednesday, March 12, 2014

Income Inequality

Many of my readers will be surprised by my stance on this subject. Until now, all of my views have been extremely liberal but I'll go a more conservative route by saying that there is nothing wrong with income inequality. The inequality of income is one of the reasons people come to this country in the first place. The promise of the American Dream: that you can start with nothing and through hard work and dedication rise from the ranks of the poor to provide a better future for yourself and your family. 

The problem with income inequality as people see it is not the inequality itself. Everyone knows that the American dream in the country is about success and to many people (whether rightly or not) that success is defined by money. The fact that some people have taken chances and had those chances payoff is not something to admonish but attempt to emulate. There are, however, issues that grow from that income inequality.

In 1968, accounting for inflation, the minimum wage was $10.56. The actual minimum wage has increased since then, but in terms of purchasing power today's minimum wage earner lives in poverty. While not a direct result of income inequality, it is very simple to make the argument that a mother working two or three jobs (as my mother has done) in order to keep food on the table would be hard pressed to drop everything in order to take an entrepreneurial chance. Not because of the risk of failure, but because they do not have the luxury of time or finance to take a risk that would leave them and their child/children with no food. It is hard to make an argument against raising the minimum wage to levels that it had already been. Historical minimum wage is its own case study.

I saw an interesting video that has gone viral involving the Walton family and senator Bernie Sanders. The video is of Mr. Sanders speaking to the fact that the Walton family, the wealthiest family in the United States, has employees receiving government aid in order to get by. In other words, the government is subsidizing the earnings of private sector employees. You can find the video here or you can see it at the end of this post. The first person to respond to Mr. Sanders question about whether the minimum wage should be raised so that the employees of the richest family in America wouldn't need government aid just to get by was Scott Winship of the Manhattan Institute for Policy Research. His response was, "I think that we should not raise the wage above levels that's gonna cause Walmart to not hire their workers..." Excellent response, right? Companies hire because wages are low, not because employees are needed. That is why companies that have exported their phone services to India (where there are lower wages) NEVER have wait times when you call in. Since wages are so low there, they just hire the entire country.

Obviously I am being sarcastic, but the argument that a company hires BECAUSE wages are low and not because of the necessity is asinine and the idea that raising the minimum wage (or of a company paying their lowest earning employees a living wage without being forced to do so by the government) somehow impacts the employees negatively is equally as ridiculous.

Increasing the spending power of the American population is a good thing. The impact of raising prices on goods and services is offset by the amount of people that can now afford that good or service. McDonald's increasing the earnings of their lowest paid employees by seven dollars an hour (bringing their wages to around $15/hour) would not increase the price of each hamburger by $7.00. In 1968, when the minimum wage was at its peek, McDonalds sold hamburgers for 18 cents a burger. Adjusted for inflation, that is about $1.21. Currently, a hamburger at McDonalds costs about $1. Adjusting for inflation (in reverse) it is about 15 cents in 1968. We can see that the actual price of a hamburger has gone down by 21 cents. Income, however, has decreased by $3.31 per hour. If every company raised the wages of their lowest earning employees to an income that wouldn't require the american people to subsidize those employees (with food stamps, welfare, and affordable housing for example) it would be good for business, not bad. More people with more disposable income is a good thing for our businesses.

I digress. This is an article on income inequality not the minimum wage. There is a reason I mention it, though. As I stated earlier, there is a stigma to being in the top 1% in this country. It isn't because you make more money but how you make that money. Senator Sanders is right in asking the Walton family if it is the American peoples responsibility to subsidize their employees while they continue to make more money than 47% of this country combined. It isn't that you in the top 1% have more money that upsets the rest of us; it is that you do it on the backs of everyone else.

No one has an issue with the Walton families success. Theirs is a story all of us want to live out. Open a store, innovate and run a successful business. Everyone that has ever opened a store, restaurant, bar, beauty parlor, or any other business has done so with the hopes of having their business be as successful as a Walmart, Google, or Amazon. There are, however, right ways and wrong ways to go about running a business. I have written an article before on social responsibility of corporations but didn't touch on employee wages. I think it is an important discussion to have and encourage anyone who reads this to present conflicting information for raising the minimum wage (hopefully based on facts).


1 comment:

  1. Here are two often cited research papers on this topic.

    Minimum wage increases hurts jobs:

    Minimum wage increases does not hurt jobs: