From: rhinoceros (rhinoceros@freemail.gr)
Date: Sun Oct 26 2003 - 10:05:43 MST
[simul]The money comes out of the profits for the owners of a business.
[Mermaid]Actually, the increase in minimum wages will be passed on to the consumer. So the price of the product increases. The profits of the owner is seldom disturbed.
Also note: when the burden of the 'minimum wage' is passed on to the consumer, the worker who supposedly benefits from this alleged protection of a 'minimum wage' finds himself with a slightly hefty pay check, but also finds himself dealing with heavy prices(higher labour costs=increase in prices of products) which makes his *real* purchasing power so miniscule that it is almost invisible. I'd say that it actually goes down!
Also note that with increasing wages(because of the supposedly increasing minimum wage rate), an increasing chunk of the labour force will also begin to pay taxes further dwindling the real green power of their wallets.
How is the picture so far?
[rhinoceros]
First, I will have to point at my wooden leg, saying that my knowledge on economics are at the level of popular reading material, philosophical considerations, social biases, googling, and an ounce of curiosity and common sense.
That said... Agreed, the burden of the 'minimum wage' is passed on to the consumer, and since the folks who get minimum wage are consumers too, inflation rises and their gains are neutralized. In fact, as Mermaid said, the real purchasing power of the "minimum wage" people is not just neutralized, but actually it even goes down when they get a raise. However...
I wonder (a) why this happens and (b) whether the real purchasing power goes down even faster when they don't get a raise. According to the initial post in this thread:
[Mermaid]
Sixty-five years ago on this day in 1938, the Federal Minimum Wage went into effect—at .25˘ an hour. Now it's $5.15 an hour.
After adjusting for inflation, that's 21% lower than in 1979.
[rhinoceros]
Since 1938, we have an increase of productivity and lots of whole new industries. After adjusting for inflation (which should have taken care of increases in wages and prices) and after taking into account unfavorable factors in raw materials etc, I would expect that the new technologies and the increase in productivity would be reflected in the purchasing power of the minimum wage as well. But instead of an increase, these numbers seem to show a decrease. Why?
Inflation due to wages is not only caused by the minimum wages, is it? *All* wages are passed to the consumer, including those of the middle/upper management and the CEOs. Even "too high profits" are part of the equation which pushes the cost up. If the wages of the CEO's and of the "well paid" ones are raised, a burden is added on those who get minimum wage, even if they didn't get any raise at all. Is it absurd that they would demand a raise too in this case? Or that by demanding a raise they are actually cutting down their losses?
Hence my first post in this thread, where I wondered how many people, in numbers and in percentage, get minimum wage today. I am also curious how the "medium/high" and "high" wages were affected since 1938, and how all of these wages contribute to inflation today.
All this is interesting, since the dominant practice for countering inflation today is maintaining a "healthy" unemployment pool. From what I have heard in our IRC channel, many Virians had the chance to experience this on their skin in the last year (not all of them "minimum wage" people).
[Mermaid]
back to the topic....there have been proposals..in theory at least..that minimum wage workers be given a 'tax subsidy' instead of increase in minimum wage rate itself...i dont know of one single govt which has implemented this despite the sensibility of the idea...any new information on this appreciated
[rhinoceros]
Heh, I used to think that it was a fairly common practice for the state to undertake this kind of redistribution of the burden for the low-income people. They don't exactly say "no raise, but you'll get a tax subsidy", but they have this scale:
Yearly income Rate Tax
--------------------------------------------------------
7,400 0 0
8 ,400 5 50
13,400 15 800
23,400 30 3,800
More 40 (More - 7,400) * 40%
There is pressure from the EU to move pretty much anything under VAT (which is 18% for most things), but it is easier said than done if the governments wants to remain in office.
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