OpEdge Redux: The low minimum wage reduces to a subsidy to businesses

While OpEdge is on a two-week hiatus, we are running some of the more evergreen columns from past years. This blog entry originally appeared on October 16, 2012.

The statistic has been around for a few months now, but I just stumbled upon it and was amazed: Wal-Mart workers collectively receive $2.66 billion a year in food stamps, or $420,000 per Wal-Mart store in food stamps. Year after year, low Wal-Mart wages lead to the government providing food stamps and other assistance to their workers and thus indirectly subsidizing Wal-Mart’s profit.

What would happen if Wal-Mart raised the wages it pays its workers to a level that prevented them from qualifying for food stamps? In asking the question, I assume that Wal-Mart, like most companies, does not carry excess labor and so could not lay off masses of people to keep their profit margin stable. So the company would be forced to raise prices. But if Wal-Mart raises prices too much, people will start shopping elsewhere. After all, the main reason people shop at Wal-Mart is price.

To remain viable as a business, Wal-Mart would eventually have to take the money to pay workers a decent wage out of profit and executive salaries.

That means that there would be less money for the multi-billionaire Walton family and the executives who make millions, starting with $35 million a year for the chief executive officer. Maybe the CEO would have to settle for making 42 times what the average worker makes, which is what the average manufacturing CEO in the United States made in 1960. By the way, the average U.S. manufacturing CEO now makes 344 times what the average worker makes, compared to 25 times the average worker for European CEOs. Wal-Mart’s CEO currently makes more than 2,000 times what an entry-level Wal-Mart employee does.

It amazes me that Republicans like Mitt Romney, Paul Ryan, Newt Gingrich, Rick Santorum and the other good old boys and girls don’t complain about the corporate giveaway that takes place every time someone with a minimum or low wage job files for food stamps.

During the past 30 years, one way that income has been transferred from the poor and middle class is through the deterioration of the purchasing power of the minimum wage. Since the late 1960’s the minimum wage has lost 40% of its value. Most people who lose 40% of their purchasing power would be in real trouble—so imagine what it means to those at the lowest end of the wage spectrum.

It’s been a boon to employers who now can pay a de facto 40% less to get minimum wage jobs done. Since the minimum wage sets the bar for wages and salaries at all levels, it’s no wonder that on average, employees make less than they did 30 years ago, when inflation is figured into the equation.

My proposal is to set the minimum wage at a level so that 40 hours of it would bring a worker above the maximum level for receiving food stamps. That would result in an increase in all wages. It would also take money out of the pockets of the rich folk who save a significant part of their income and put that money into the hands of the poor, near poor and middle class, who would spend more of it, thus creating more jobs. Don’t worry, the rich and upper middle class would still do pretty well.

The fly in the ointment is the possibility that Wal-Mart and other large companies would offshore even more jobs to Asia than they do now. Which brings us to the second part of my proposal: that no good or service be allowed to be imported into the United States unless the producer/seller both paid its workers the prevailing U.S. wage and provided a similar level of safety and environmental protections.

My two proposals would lead to a more equitable distribution of wealth, in the United States and probably worldwide. Studies of 20th century America, 14th century Europe and 16th century Spain demonstrate that a more equitable distribution of wealth leads to a stronger economy.

The alternative is to continue on the path we are on and end up having an economy and society that look like those of a third world nation.

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