For pure intellectual reason, I got interested in the debate of should we raise or not raise the minimum wage. After watching Walter Block and Bill Quigley debate on minimum wage, my interest in this topic can only be enhanced. The video of this debate is right after the break.
In my opinion, minimum wage is good when you apply it in good time. The key is good time. What is good time? Good time is when the economy is doing good, low inflation on basic need prices (e.g., food, clothes, education, etc…), strong purchasing power at home and abroad (i.e., high living standard in term of strong currency value without the need of devaluing the currency for strong export market), and whatnot. Minimum wage is effective in good time as it can apply some justice on punishing greedy corporations that just only want to maximize profitability rather than pay livable wage to their employees; punishing them to pay appropriate wage for their employees. In good time, higher minimum wage encourages poor people to save less and spend more, but this is a redundant effort since good time doesn’t need the spending of the poor to elevate the economy.
In my opinion, minimum wage is bad when you apply it in bad time. The key is bad time. What is bad time? Bad time is when high inflation prices into everything to raise the prices of foods, everyday needs, rents, housing, and whatnot. Even high inflation in currency would be a bad thing too as it devalues the currency power (i.e., purchasing power), leading to a lower standard of living, comparing to a normal standard living of course. As the weaker the currency the more you have to slave away for money to just get what you need. An example would be high inflation of $1 would require $2 or $3 to buy one lollipop instead of $1 a lollipop. You probably think I have digressed with the inflation talk, but I just want to emphasize that raising minimum wage in bad time can encourage the inflation to go on steroid.
Why raising minimum wage in bad time could supersize inflation? Let’s assume that you are an employer of a small shop. You cannot really afford to hire too many workers. Thus, you want to make sure each worker you hire does have high productivity rate even though you may not be able to measure such a thing in real number. Nonetheless, you want to have a feeling that a specific worker you hire is doing a good job for your business. You know each worker would cost you a lot in term of wage if you have to pay the worker a higher minimum wage. When a government mandates that you need to pay higher minimum wage, it makes the choice of firing a worker easier for you since you have to think about sustaining the profitability, minimizing the cost of doing business and whatnot. Furthermore, you would probably include the cost of higher minimum wage for an employee in the products that you are producing, servicing, selling, and trading. The employees who work for you got higher minimum wage, but they don’t have more money since the purchasing power of their wage hasn’t changed much for the prices of the products they may buy would go up. Not only the employees but the employers themselves are customers, thus the costs of doing business such as buying materials for business would go up. Simply put, raising minimum wage in bad time invites inflation to become hyper inflated. It would be bad for the whole economy.
Big corporations love to have a good public relation image, because they think good public relation image will popularize their brand even more. Furthermore, corporations believe that the more popular a brand is in image, the better the brand would perform in selling whatever. It’s common sense really! Thus in bad time, big corporations won’t mind raising minimum wage for their employees, because their profit margin is already high. At the same time, their brand’s image gets a boost by paying higher wage for their employees in bad time. Smaller businesses will have harder time in playing the PR game of raising wage, because their profit margin isn’t high enough to comfortably raise wage for their employees. Thus, minimum wage encourages big corporations play PR game without taking the inflationary effect into the account.
Should we abandon minimum wage altogether? Once minimum wage got raised, it’s really hard to undo the minimum wage’s level. Don’t you think it’s really ugly for a government to tell her people to work for less than yesterday minimum wage? Lowering the minimum wage isn’t going to be popular at all. Abandoning it isn’t the solution either. I think many things are relative, and minimum wage is definitely relative to changing time (i.e., good or bad time). This is why I think raising minimum wage in good time would look good, and lowering the minimum wage in bad time invites protests. I think since minimum wage is already in effect, the best thing to do is to not messing with it at all. This means you better have a really good reason to raise the minimum wage. Instead of messing with minimum wage to help the poor out, why not aiming for low inflation prices of foods, clothes, and whatnot. Lower inflation would help out the poor in term of purchasing power as long the currency of a country isn’t already devalued to the point of near worthless. After all, cheaper foods and whatnot would be a good thing for the poor and everybody else!
In conclusion, I don’t think minimum wage is the same thing as high productive wage. I think individual company can do good by paying high productive wage (i.e., paying more) for employee who has done a stellar job in his/her role, because retaining a good employee from leaving the company for a competitor would be a good thing, in the consideration of having good, long term, business prospect. When raising minimum wage without thinking about the consequence in having inflation on steroid would be extremely irresponsible thing to do. In my opinion, instead of messing with the minimum wage, the government should worry about controlling the high inflation in everyday needs for the poor. I don’t think the argument of minimum wage encourages productivity makes any sense, because productivity is a self-fulfilling-prophecy kind of thing. Higher productivity will always be in demand in the business world, thus the competition for higher productivity will be abundant. Higher minimum wage may encourage employers to fire employees easier and hire employees with better productivity rate. Without raising minimum wage, the employers may give the employees with low productivity rate a second chance in retaining their jobs. After all, retraining new employees would disrupt the flow of productivity anyway! In general, the less poor people out there on the street, the better the economy and the society will be more stable. If raising minimum wage can make inflation goes on steroid, then raising minimum wage is just an illusion for having done something good.