Monday, March 29, 2004

The concentration of wealth depends on a low minimum wage

Title: Wage Against the Machine
Source: Tech Central Station
Date: March 29, 2004

This article disparages Wisconsin's plan to raise the minimum wage, and contains all of the classic arguments against raising the minimum wage. The article claims that raising the minimum wage increases unemployment and that it increases the number of people on welfare. That is because it causes employers to cut back on workers, replace workers with automation, etc.

Because of arguments like these, the minimum wage has not changed since 1996. And since the minimum wage acts as a foundation upon which other wages are based, wages for most workers stagnate.

In the meantime, one group of people has seen the opposite of stagnation for their wages. As pointed out here: "The average chief executive of a major corporation now gets $10.8 million a year, almost 20 times as much as in 1981, as the result of a classic market failure." Simply review the posts in this blog to see where all of the money generated by stagnant wages is going.

The fact is that we could double the minimum wage tomorrow with zero effect on the economy. Prices would not increase at all. The way we do that is by taking the factor of 20 increase given to executives and give it instead to employees.

The article entitled What if we doubled the minimum wage? describes the process in very simple terms:
    Imagine a hypothetical company with 20,100 employees. At the top are 100 executives who pay themselves an average of $4 million per year. The other 20,000 employees make minimum wage -- $5.15 per hour -- for 2,000 hours per year of work.

    Those executive numbers sound top-heavy, but today they are not. Executive pay truly has been rising at a spectacular rate. For example, when Enron collapsed it had about 20,000 employees. According to the book Pipe Dreams by Robert Bryce:

      "Enron filed documents in bankruptcy court that showed total cash payments of $309.8 million to a group of 144 top Enron executives during 2001. In addition, those same executives cashed in stock options worth $311.7 million."

    That's more than $4 million per executive across 144 executives.
    So in our hypothetical company, we have 100 executives making $400 million per year. We have 20,000 employees making about $200 million per year. If we simply cut the average executive pay from $4 million per year to $2 million per year, we can double the pay of rank and file employees in this company.

    Could the executives manage to survive on $2 million rather than $4 million? Yes, they could. They could also survive on $1 million a year, or $500,000. Their pay is completely arbitrary. It has risen by a factor on 10 in the last 20 years -- In 1980, these same executives would have been making $400,000 instead of $4 million.
A common complaint about doubling the minimum wage is that it is "inflationary." The point of this example is to show that employee wages can be doubled without raising prices at all. Executives are now redistributing wealth from employees to themselves at such a remarkable rate that employee wages have fallen considerably by comparison. Simply by reversing this concentration of wealth, employee wages can rise to reasonable levels without changing consumer prices or firing anyone.

The key lies in the voting public -- voters simply need to understand what the concentration of wealth is doing to this country, and then vote to reverse it. As soon as this happens, life in America will be significantly better for everyone.


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