9 votes

Minimum wage is not the problem, Government is!


Minimum Wage Increase Means Minimum Employment Increase
by Misterash13 12/7/13
The White House has recently shown support of the Harkin-Miller Bill also known as the Fair Minimum Wage Act, which would raise the federal minimum wage to $10.10 an hour, from its current $7.25
“The president has long supported raising the minimum wage so hard-working Americans can have a decent wage for a day’s work to support their families and make ends meet,” a White House official said.
As expected, public reaction to this has been positive. It is logical that people would be accepting of higher pay for their labor. But as with all seemingly well intentioned Government intervention, there are quite obvious unintended consequences that will come along with raising the minimum wage. Putting aside the fact that it is not the role of the government to regulate wages in a free market economy, raising the minimum wage will in fact hurt the job market rather then help.
For starters, we have record numbers of people who the job market has declared un-qualified to hold jobs paying $7.25 an hour. How can we expect these same people to be qualified for a job that starts at $10 an hour? What employer, in a struggling economy, is going to hire more workers at a higher wage when they can barely pay the people working for them now? Furthermore, the higher the minimum wage, the higher the payroll tax. This is yet more money Employers will need to shell out. This money will either come from raising prices or layoffs, neither of which help the people struggling to make ends meet.
Senator Tom Harkin, one of the Congressmen for whom the Fair Minimum Wage Act is named after said the following, “Raising the minimum wage is also about growing our economy. With an increase in the minimum wage, workers will have more money to spend. This is just basic economics: increased demand means increased economic activity,” Harkin continued. “They will spend their money in their communities, giving a boost to Main Street and generating new jobs.”
His logic in this statement is wrong in that he assusmes first that the extra income will be spent on goods and services, second that the price of those goods and service will remain stable, and third that new jobs will be generated as a result of the added spending.
These assumptions are reaching at best. The average American is $4,000 in credit card debt. Add to that Student Loans and Mortgages and Americans have over $11 Trillion in debt to pay off. Yet Harkin believes an extra hundred bucks a week in someone's pocket is going to make a difference on the entire economy. We already stated that prices of goods will go up as a result of Businesses passing the higher wages cost on to consumers. And none of this will create a single new job. It is more likely that layoffs would occurr as a result.
Look beyond your emotions and you will see what this bill is really about. Raising more revenue for the out of control government spending machine. Higher wages means higer payroll taxes paid to the government from Businesses. Three dollars more per hour for you means a dollar more per hour paid to the government in income taxes.
When you think rationally about what is really going on here, you can not help but realize that we are focused on the wrong problem. The problem is not that wages are too low, the problem is that government is destroying the value of those wages through taxation and inflation.
I'm not going to try to pertend I understand how people must feel trying to raise a family on $20,000 a year and I can empathize with people who work hard 40 hours per week and earn 100 times less then their boss. However, making wealthy businessmen less wealthy will not make you more wealthy and it certainly isn't the government's responsibility to divide that weath. Afterall, if you take away a businessman's profit, there is no reason to continue the business and now all jobs are lost; everyone suffers.
Perhaps if the government did not tax, fine, and regulate those businesses to the brink, they would have more money to spend on employees. Perhaps it would be easier for people to earn a living if the government didn't tax its citizens nearly half of their wealth (Do the math. By the end of the year nearly half, if not more, of your money is gone due to the many taxes you pay). And certainly, life would be easier if the value of the dollars you earn were not inflated away and destroyed by the endless money printing.
The problem of how much money we earn is but a small portion of the underlying structural foundation of economic problems caused by an over-reaching government. They invite themselves to dinner, clean out the fridge and pantry and offer us our own leftovers. And we thank them for it and invite them back again next week.


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When they raise the minimum wage....

People only feel the good effects for a month or two. Then you start seeing landlords raise rents, prices everywhere start going up to compensate for the raises. The only way you could make the effect good is if they put a price freeze on everything in the world. And that ain't gonna happen.

So the problem is greed....

...that is what you are saying.

“Those who make peaceful revolution impossible will make violent revolution inevitable.”
- President John F. Kennedy

Prices won't rise out of greed, they'll rise because labor

cost is now higher.

Let's look at an example of the proverbial widget:

Retail Price = $1.00

MINUS Cost of materials = 50¢

Gross profit = 50¢ (50% margin)

MINUS Labor cost per widget = 15¢
MINUS Operating expenses per widget = 30¢

Net Profit = 5¢

Corporate Taxes = 1.75¢

Profit After Taxes = 3.25¢

Now, you want to raise minimum wage 39.3%? That's 5.9¢!!

Where does the money come from? The 3.25¢?!

That's the only place it CAN come from without a price increase and there's not enough there!

But this means no profits for the owner/investor.

This means your retirement account doesn't increase like you need it to because it's invested in businesses via stocks and bonds, and you just sucked up all the dividend money for a pay raise, or ate up all the profits for that pay raise so their is nothing left for the business to use for expansion or to make their going concern look like a worthwhile investment. So people start dumping the stock and the price drops. *POOF* there went your retirement savings!

And yes, in the above example I increased ALL labor cost, not just "minimum wage."

Why? Several reasons:

#1 - although you are increasing minimum wage pay by 39.3%, this also means higher payroll taxes and unemployment taxes which are included in the above "Labor cost" figure.

#2 - OTHER workers will soon see their wages go up as well. Why? Because if you are say making $10 an hour NOW, you will either now be making just minimum wage at $10.10, OR, what is more likely, the employer will feel pressure to raise YOUR pay as well, to keep you at the same relative level above minimum wage. (to say $12-$13 per hour) This is especially true for employees who are already relatively more productive, or who have put in more time or have more experience with a company. So now, either better employees are merely making minimum wage, or else EVERYONE is getting paid more - ALL the way up the chain.

#3 - did I mention this was a union shop making these widgets? Their pay is indexed to a multiple of the Federal minimum wage - increase it and their pay goes up automatically - even for union workers in other industries not making widgets. (which is why Unions push the issue - their workers get paid way more than minimum, so why do they care? Because their wages are indexed to it, raise it and they get a raise too, and the IRS collects more in taxes)

After the smoke clears, we'll approach a situation where nearly everyone is now getting paid more. It won't be 39.3% across the board, but that assumption suffices for the sake of simplicity of the example. If the total increase were even 1/4 of that, the effect would be devastating.

So where does the money come from for the higher wages, higher taxes, and lost profits?


It isn't because of greed.

It's because of MATH.

And now that everything costs more to buy, what good did that pay raise do you?

Bad analysis... Bad analysis

You skew the entire argument by your analysis. Don't worry though, it's done the same way by everyone. Allow me to alter it just a little and we'll see if anyone notices the elephant in the text.

Retail price $100.00
Sales and marketing at retail shop $15.
sales and marketing income taxes $1.50.
Retail overhead $5.
Retail financial expenses $25.
Wholesale price $50.
Retail profit $5.
Taxes to business $1.70.

Wholesale materials $6
Manufacture labor $11
labor income taxes $1.
manufacturing financial expenses $30.
manufacturing profit $3.
corporate taxes $.60.

Add up each of the various categories across retail and manufacturing. It should be plainly obvious afterwards that the entire issue of minimum wage is moot and nothing but a divisive diversion.

bonus question: If the web finally realized one of its goals (to consolidate retail and manufacture, by eliminating the sales and marketing), what would the numbers look like then?

My analysis isn't bad at all - it's a straight income statement.

(or Profit/Loss statement if you prefer that terminology)

Also, your math doesn't seem to work.

Your Wholesale picture adds up to $51.60, yet you showed a wholesale price above of $50. That's selling at a loss. Maybe a socialist would run such a production company, but not for long.

Your Retail picture adds up to $103.20, yet you showed a retail price of $100. That's a selling loss too. Man, you'd be out of business in short order with that math.

You also don't explain what "retail financial expenses", and "manufacturing financial expenses" are. Do you mean OPERATING expenses? Please, there is standard language for these things to avoid confusion. If you want to use a different terminology, please provide definitions.

Also, you expressed a desire to eliminate "sales and marketing" as unneeded.

Tell me, where does the money paid to sales clerks, shop hands, managers, customer service reps, et cetera show up in your lists? (most of which make at or near minimum wage) I'd say it falls in both your alleged superfluous "sales and marketing" expense line, and your "retail financial expense" line.

You are making the errant assumption that you can dissolve retail and go straight from manufacture to the conusmer. Yes, you can collapse the functions all into one company, but the expenses won't go away from the total cost of delivering product to the end consumer. (they might be reduced, but not eliminated, not even close)

Doing so also violates a very important principle of economics called the "division of labor."

Some people are really efficient at making things. Others are not, but they are efficient at distributing and selling them.

You want to create a situation where the producers do the distributing and selling. This will by definition, proven by historical experience, result in less goods being sold, AND produced. Everyone will be poorer for the change.

You want to go backwards. The only result of that will be serfdom in a new feudalism.

You're still doing it the right way but not thinking correctly

In other words, you're helping hide all the financial expenses. If you separate things like I did, you'll see how much financial expense goes to the banks in the entire chain.

Btw, those overages are taxes that the company doesn't pay directly so they don't get rolled into the prices.

What I did wasn't meant to be an accurate cash flow analysis but more of an explanatory overview. To understand it better, try to find all the bank fees, finances, charges, interest and dividends that are hiding in both wholesale and retail. Add in those that are in your suppliers and their suppliers. Add in your investors and their fees. Basically, everything that would go away if you were making enough to pay up-front cash for the entire production chain should get counted. If we could eliminate all of them by some free market process (like crowdfunding, bitcoin or more) then you'll easily see just how profitable manufacturing could be.

That is the point I'm making. That over the last century, we've come to expect them, when technology should have been eliminating them. This is why the free market hasn't worked of late. We've been getting robbed at every turn, more and more each year. Had we halted this trend, costs would have fallen by more than half. And when that translated into higher profits, some of that would have gone into higher wages and some of it into lower retail prices. This is the free market competition that should have been occurring for the last hundred years. ...except we got the Fed.

The second topic (eliminating sales and marketing) would then be subject to more changes. You say we can't get rid of them but now think in terms of the last paragraph already coming to pass.

With sound financial practices, lower business costs, higher wages, lower prices and the stress removed of perpetual growth, how would businesses operate differently? Well, my contention is that two factors would be major players.

First is that there would be more wealth equality. Those higher wages would first go to eliminating individual/worker bank expenses (interest on car, school loan, home, CC, insurances) and then on investing costs (broker theft, mortgage management, retirement, social security and even social programs like welfare eventually). This alters the very balance of power of society, putting the people much higher and virtually eliminating all finance types but that's not all...

Instead of there being a social trend of working later in life and getting less ahead because of it, leading to the need for more jobs and buying lower quality goods, that would all be reversed. People would avoid debt, pay things off from savings, purchase lasting quality items, retire earlier and reduce the number of jobs needed to support healthy employment. Gone would be the attraction of cheaper and short-lived. It would be replaced with paying for quality so things could last multiple generations, being passed down. This is what technology can now offer but one thing gets in the way.

That is cyclic consumption caused by the growth paradigm. But you see when we end the financial robbery on workers, consumers and businesses, there's so much left over that businesses no longer need endless growth. If an owner makes half a mil and has no board to answer to, he won't need to compromise the process by going public. He can now live a good life and retire with steady or even falling production. So can his workers. In this way, production can now be better matched to what is required, not what can be pushed on the people. Over and hyper commercialization would go away. If his business only needs to sell locally for this profit level, he wouldn't need to expand. This leaves room for a similar self sustainable business to prosper in the next region.

By doing so, individual companies no longer have to reach every consumer on the freakin' globe to make ends meet. Marketing stays local if needed at all. Sales constantly diminishes as the local word spreads openly. Harley Davidson doesn't advertise much in S.E. Pennsylvania. Sure, they do community awareness things there but that's because most people know someone who works there. It's more of a family/community thing than a push marketing campaign. So when someone wants a bike of theirs, that wasn't because of sales or marketing. It's because everyone there knows the company and its products. This is how to eliminate that next huge chunk of costs built into today's products. More localized businesses.

Combined with this trend can be the technology we have today of using a universal (an actual private business) web site for highly categorized advertisements. This allows two more things. Ads aren't as costly so they can't be used to fund the likes of Google, etc., so those media sources no longer grow to global monopolies. The other benefit is that the public is no longer pummeled with ads for products they really don't want or need. I hope I don't have to tell you all the societal benefits that will yield!

I hope you can see that this now changes the balance of the worker side of supply and demand. For so long now, we have advocated the free market in support of businesses (while including banks in that group!), but we forgot to look at worker power as well. Now you see this isn't socialism or crazy math or other games. It's just the way the world should have been working for a very long time now, had we kept control over our finances and fostered prosperity for everyone like the genuine free market allows us to.

If you disagree, please state exactly where this analysis goes wrong and I'll explain that part better. I've put thousands of hours of research into this and had to defend every piece numerous times so I'm pretty sure the remaining 'holes' are minimal.

Do you or have you ever, owned or managed a business?

Have you ever compiled financial statements for that business?

You need to provide more concrete explanations of "financial expenses" with hard examples and numbers.

I understand the concept of "embedded taxes" quite well, but that is a different topic.

Are you suggesting there are embedded financial expenses that are somehow avoidable and unnecessary? If so, please provide proof with a real example, containing actual figures. You can keep the identifying info confidential of course.

I'm not discussing the rest until this point is resolved or made more clear.

And for the record, as noted below, we aren't discussing cash flow at all here. That is something entirely different. We are discussing the proper accounting and categorization of income and expenses and how that exposes the flaw of the concept of "minimum wage" and the flaw in the scheme to raise it from current levels.

Exactly, embedded financial expense

That's the point I'm trying to get across. Thanks very much for naming the term.

I don't think anyone needs to prove they exist to show they're real. Let me just compare it to another couple of examples. You know the concept of embedded energy, right? Absolutely nothing in this world happens without using some form of energy. So, in light of the short story "I Pencil", everything involved in making said pencil not only takes labor and energy but financial expenditure as well. It doesn't matter if it's labor, admin, building overhead, resources, sales/marketing, transportation, retirement plans, running loans, insurances, stock programs, government red tape or bathroom handsoap... they ALL have embedded finance costs. When I add them up from my experience (yes, as a former and future company owner), I find that without any of them, we could drop prices by 40-60% (rough average).

I think that's huge and 100% completely unnecessary. I admit it hasn't always been that way. A century ago, much of it was necessary (albeit it wasn't as massive) but as time progressed, it has become increasingly large AND increasingly unneeded. With today's technology (online cooperation, bitcoin, kickstarter, kiva/prosper, mint, etc.) I can't find a service that can't be easily automated into being free.

If so, where would all that profit go? This is the trick question, imo. If we allow it to go to the business owners, the whole of society loses because technological unemployment will relegate them to the group of useless eaters. If we foster locally accountable businesses, we can direct the majority of it to wage increases, returning the balance of equality among all. The latter is the solution I'm advocating and working towards.

In either case, the minimum wage issue is ultimately moot. In the former, we'll be fighting an endlessly growing opponent. In the latter, wealth equality (and its floor) will rise organically above any mandated wage increase.

This is such complete and utter nonsense

That it’s not even coherent. There is no cognitive thought to even follow…..its absurd. Since you said you spent thousands of hours studying this please provide the sources you were studying.

If you want to follow me around and stalk my comments

try doing so with a logical argument of exactly what you disagree with.

"nonsense", "not coherent", "no cognitive thought", "absurd" followed by a diversion taunt is not valid debate.

Not stalking

……looking for other economic post to understand where your head is at……and I found it, its up some nuts rear end. I am thinking maybe Marx, or maybe some pre Reformation obscure thought of the sins of Usury. So I asked you to source your post and you refused….must not be too proud of it.

Here is a link to Gary North. He spent a quarter of his life dissecting the Bible for the best analysis of Usury and Capitalism.


The link between of the “Invisible hand” and Capitalism is real including the concept of Usury. Only a “Humanist Socialist” believes in that “Absolute Statist’s” crap you are spewing.

You may have been through 3 election cycles but I have been doing this for thirty years….long before they had this thing called the internet. You know how many books you have to wade through before you understand enough to start putting the puzzle together. Wading through all those book exposed me to just about every absurd thought that exist….yeah I have seen your crap before too…just can’t put a finger on it. That’s why I asked for the source……so which YouTube video was it?

BTW the other person provided you with an income statement analysis not a cash flow analysis……. So provide something coherent and I will debate you on this topic……but let’s start at the beginning….source your information!

What you think are “financial expenses” that should just be washed away is one of the corners stones of capitalism. The only sources of wealth creation are human capital (labor) natural resources and capital formation. Capital formation is defined as the investment in just about anything the makes the other two sources more productive……including the formation of "money" ( with a return on investment)as a way to purchase productive assets. These things can also include things like roads (where there was no roads before) bridges, buildings, machines, computers…….etc…..etc…etc.

That isn't what he said.

That isn't what he said. When the price of labor goes up. the price of the products of that labor also goes up, including housing. Therefore instead of raising minimum wage increasing ones discretionary spending amount, it actually decreases the discretionary spending amount of everybody else, because their wages didn't increase. Had all other wages increased in proportion with the minimum wage increase then there would be literally no difference with the exception of the value of ones savings had decreased and it would then had been easier to pay off previous debts.

One cannot be raised out of poverty by increasing Minimum wage. One cannot be paid the least amount and be rich at the same time. The person making the lowest amount of money will always be poor, no matter what the nominal amount of their wage is.

I agree

I agree with most of this post . The Federal Reserve is the main problem and really the only solution . We the people must put a end to the FED. Then and only then can the people of this Nation rise back up . We then can put America back in its place as the GREATEST country in the world. Return to gold backed money that is printed by the people's government NOT the banks!

I understand all the free

I understand all the free market principles you mention, but in the real world it is not that simple. Since the government is creating inflation through the fed, perhaps it has a responsibility to help wages keep up with the inflation they create. I have seen the minimum wage raised several times in my lifetime but I do not recall a corresponding rise in unemployment. It normally goes up a little at a time over a period of years and seems to have no negative effect on jobs.Prices will have to go up a little, but people are used to that.
Yes it is all about more revenue for the government. Higher wages and prices net more taxes and higher GDP. If the GDP goes up, then obama can claim that the economy is growing, even if not one new job is created.

Fast food jobs can not be sent overseas and I do not think McDonalds hires anyone to just stand around and do nothing.Their employees are all needed or they would not be there.
The garment industry is already gone and it won't be back. There is no way to match the 50 cent an hour wages they earn in Bangladesh. Would you work for 50 cents an hour? Most people in this country would rather starve or steal.

>I do not recall a

>I do not recall a corresponding rise in unemployment

uhh, look around. actual unemployment is somewhere around 13%. we have the largest percentage of unemployed workforce since 50 years.

I meant that I saw no rise in

I meant that I saw no rise in unemployment shortly after the minimum wage was raised each time. I do not think that the minimum wage was a big factor in the recession of 2008 which we are still recovering from.

You will soon see more and

You will soon see more and more expensive low-skill labor replaced with automation. Why do you think there are ATMs instead of tellers? Why are there self-checkout lines instead of more cashiers? Right. Costs of employees exceed the value to the company versus automation.

If people want to take home more money...

They should claim exempt on their taxes. It is like an automatic raise plus you help the cause of starving the beast.

If everyone did that the

If everyone did that the government would be screwed. You may have hit on a way to defeat the government instead of a violent revolution.