On June 15, 2015, Mitchell Englander, Los Angeles City Council president pro tempore writes in the Los Angeles Times:
On June 10, I cast the City Council’s lone “no” vote on the $15-an-hour minimum wage proposal. While everyone agrees that there is genuine poverty in the city of Los Angeles, no wage increase can be high enough to offset the effect of job loss or reduced working hours that will result from a remedy that puts the complete burden on the backs of business.
Having been both a business owner and a low-wage service worker, I know firsthand about the struggles that business owners and their employees face every day. I’ve had days when paying my employees meant that I did not take my own paycheck.
This wage increase may hurt the very people it is designed to help. Most minimum wage jobs are in low profit-margin industries or small businesses that are easily relocated to one of more than two dozen cities bordering Los Angeles. Many of these cities have minimum wages substantially lower than $15 an hour. This competitive disadvantage doesn’t support local job creation or retention.
BloombergView referred to the City Council’s minimum wage vote as “L.A.’s Minimum Wage Experiment.” My colleagues on the council have expressed their hope for this experiment’s success, but I have to note what the possibility of failure may bring.
Representatives of both the business and nonprofit/charitable communities testified that they will be forced to reduce hours or staff size to comply with the new policy. Some job providers testified that they will be required to make tough choices on reducing or even discontinuing worker protections, including employee pension and healthcare benefits. What then for low-wage workers?
The wage increase may not help low-income workers as much as proponents claim. Beacon Economics reported that “less than one in four dollars paid out by Los Angeles City businesses and consumers through this plan will actually benefit the workers who are targeted.”
Moreover, until the region gets serious about creation of affordable housing, a $15 minimum wage will not enable workers to live locally and use their increased buying power here. The average apartment rental in the city is more than $2,000 a month and, according to affordable housing advocates, requires a salary of $33 an hour if the occupant is spending just 30% of a paycheck on housing.
Minimum-wage increases by themselves do nothing to expand the middle class. In order to do this we need to create an educated workforce, bringing back trade training and shop classes to our high schools and encouraging a clear and affordable pathway from two-year colleges to four-year universities and beyond.
On the city’s part, we need to eliminate the draconian gross receipts tax and raise the small-business tax exemption to $500,000 from $100,000. We also need to create an incentive for hiring local workers that was lost when the state’s Enterprise Zone designation was eliminated.
The very last thing that we should be doing as a city is creating a competitive disadvantage for our businesses with those in neighboring cities. That move can only hurt job creators and reinforce the belief that Los Angeles is closed for business.
I voted no on the increase because cost-benefit analyses show that the disproportionate burden to business is not balanced by a guaranteed benefit to the impoverished, or to the local economy.
The solutions to poverty in Los Angeles require all sectors — public, private and nonprofit — to have skin in the game to benefit everyone. This means an ardent commitment to exponentially increasing affordable housing in the region, to providing tax incentives for job creators to hire local workers, and to educating a workforce destined for middle-class careers, not long-term minimum wage jobs.
http://www.latimes.com/opinion/op-ed/la-oe-0615-englander-minimum-wage-20150615-story.html
Unfortunately, Mitchell Englander fails to also address the impact on inflation by raising the minimum wage.
The whole focus on raising the minimum wage is misguided. Instead, imagine that the focus is to oppose raising fixed wage costs and instead focus on securing personal ownership stakes in businesses and profit-sharing.
Back in the late 1960s labor-statesman Walter Reuther testified before Congress on the ideas of Louis Kelso, noted as the inventor of the Employee Stock Ownership Plan (ESOP). Reuther noted that if workers relied on raising fixed wages to increase consumption income, they would end up worse off than before. Raising wages simply adds to the cost of producing marketable products and services, which are always passed onto the consumer.
What did Reuther suggest instead of raising wages? He was, after all, head of the United Auto Workers, and could hardly be expected to champion the rights of owners and management against workers.
Reuther’s answer was profit sharing. Profits are what is left after all costs have been met and the product sold, so profit sharing does not increase costs to the consumer. An increase in earnings compensation that comes from profits (non-wage income) is thus a genuine increase in buying power.
But what gives a worker the right to receive profits? After all, if an employer generously gives workers a share of profits, he or she can repent and take it away as easily as it was given in the first place ––unless the workers have a legal right as co-owners to a share of the profits! That was Kelso’s point, and what attracted Reuther to Kelso’s ideas.
In that respect, the unions should reassess their role of bargaining for more and more income for the same work or less and less work, and embrace a cooperative approach to survival, whereby they redefine “more” income for their workers in terms of the combined wages of labor and capital on the part of the workforce. They should continue to represent the workers as labor workers in all the aspects that are represented today––wages, hours, and working conditions––and, in addition, represent workers as full voting stockowners as capital ownership is built into the workforce. What is needed is leadership to define “more” as two ways to earn income.
The real importance of Kelso’s ideas is that it is a way to empower workers, not just secure them more income. “Power,” as Daniel Webster pointed out, “naturally and necessarily follows property.”
That’s why the whole “Raise the Minimum Wage Movement,” while well-intentioned, is going in the wrong direction. Income doesn’t confer anything except purchasing power — up to a point. Property ownership confers economic power — which includes purchasing power — but also political and social power.
Let’s take a look at wages, even if just as a way of getting people more income. All things being equal, and if human labor were truly the only factor of production (as the Department of Labor (DOL) statistics suggest by measuring productivity in terms of output per labor hour), a raise in wages would result in a net gain of zero to workers. This is because the price level would rise to compensate for the increase in costs.
All things are not, however, equal, and labor is not the sole factor of production. In addition, suppliers and providers of retail products tend to raise prices in anticipation of an increase in effective demand (i.e., wages), so that workers pay more in real terms even before they get their increases. Customers resist paying more for the same goods or services workers produce, decreasing demand, and thus decreasing the need for workers — which also hits any business with high fixed costs –– such as workers with high wages. The solution is either to get rid of workers to survive (sometimes you can’t), substitute “machines” for human workers, go bankrupt, or go out of business before you lose what you have. The expectation should be that new minimum wage laws will make employers look to robotics as a source of uncomplaining, non-human, and less expensive labor. (This is already occurring in Japan, China and Korea with intelligent service robotics replacing humans.)
But, of course, with less demand for human labor this translates to consumers not spending. Why? Because they don’t have money. Why don’t they have money? Because they’re not paid enough? No, it’s because they don’t own enough.
If you want people to spend money, you need to make it possible for people to make money. And what is doing most of the production in the world today? Human labor? No, it’s technology. And the proportion of technology just gets bigger every time you make human labor more expensive. It means that technology just became less expensive. Not surprisingly, raising the minimum wage makes robotic labor relatively less expensive and reduces consumer spending (if the workers displaced do not OWN the “machines” and no longer have a source of earning income).
As my colleague Michael Greaney of the Center for Economic and Social Justice (www.cesj.org) says, “Think about it a moment. All other things being equal, if you raise the price of something, people buy less of it. If you price something higher than a substitute, people will buy the substitute, especially when it turns out that the substitute does what you want done better and cheaper.”
The only thing that’s going to increase consumer spending is empowering consumers to produce marketable products and services, either with human labor or non-human physical productive capital. With labor jobs disappearing, that leaves physical capital, and ownership of capital assets is the only thing that gives someone the right to receive the income generated by productive capital.
Thus, if you want to “strengthen” consumer spending, make people producers as well as consumers and ensure that the ownership of productive capital never becomes concentrated among the few (as it is today).
We should take the advice of Walter Reuther and shift compensation from fixed wages to variable profits, which not only doesn’t increase costs, it gets the workers more than with fixed wage increases in most cases, so they benefit three ways: they have more money to spend when prices aren’t going up and become able “customers with money” to purchase what the economy is capable of producing using both factors of production –– human and non-human, the company stays in business, and they don’t lose their jobs, or if they do, they are an OWNER of the “machines” that replaced them and earn dividend income instead of wages.
Note also that raising the minimum raise is sure to contribute to the unusually large spike in the number of long-term unemployed that is linked to the decline in manufacturing and shifts in the finance, legal and professional services sectors as globalization intensifies and as super-automation transforms the workplace and technology eliminates jobs that no amount of economic expansion will bring back.
There should be no question that as the minimum wage level moves upward so will the costs of living.
To Illustrate this point, during my extended trip throughout the month of May 2015 to England, Scotland, Sweden, Switzerland, France and Belgium, all of which have much higher wage floors than the United States, I observed the following:
Sweden
Unlike many other European countries, Sweden does not have a legal minimum wage. Salaries are negotiated by collective bargaining between trade unions and employers.
Most collective agreements include a minimum wage, which is relatively high compared to the rest of Europe and the United States. Ninety percent of workers in Sweden have a minimum wage in their collective agreement, which tends to be at least 60 to 70 percent of the average wage. Most employees belong to a trade union. Working hours are also fixed by collective agreement, although the working week was limited by the Swedish Parliament to 40 hours. The law also guarantees 25 days of paid holiday per year plus 16 days of public holidays and 6 de facto holidays (usually an afternoon off). Additional holidays are agreed with one’s employer. Overtime is also regulated by collective agreement. It is usually paid at a rate of 50 to 100 percent more than the normal wage, but can also be exchanged for free time or additional holidays. It often depends on the time and day of the overtime (for example public holidays). The minimum wage is about $19 per hour and it only goes up with seniority. Also in Sweden is a Value Added Tax divided into three groups: 25 percent normal VAT, 12 percent VAT on food, and 6 percent VAT on cultural activities, books, all travels and hotels.
The costs overall are far more expensive than in the United States. A McDonald Big Mac hamburger on its own costs typically around $5.00 versus about $3.40 in the United States (California). Beginning wages at a Swedish McDonalds is 80 Krona per hour or about $9.67 per hour; but many workers earn 90 Krona per hour or about $10.87 after a few months.
The tax rate is 0 tax for incomes less than 120,000 Krona or about $14,500 per year; 40 percent on incomes of 120,000 to 240,000 or about $29,000; 24 percent on incomes of 240,000 to 360,000 Krona or about $43,500; 28 percent on incomes of 360,000 to 480,000 Krona or about $58,000; 33 percent on incomes of 480,000 to 600,000 Krona or about $72,500; 40 percent on incomes of 600,000 to 800,000 or about $96,600; 58 percent on incomes above 800,000 Krona.
Sweden provides nationalized healthcare and university education.
Switzerland
In Switzerland, while there is no official minimum wage, typical workers start at 3,500 Swiss Franks per month or about $3,750 or about $27 per hour, based on a 35-hour workweek and 140 hours per month. The Swiss had tried to raise the minimum wage to 4,000 Swiss Franks per month but there was not sufficient support. Unions argued that surviving on less than 4,000 Swiss Francs a month is not possible because rents, health insurance and food are all prohibitively expensive. There is no national health program and university education is tuition-based.
The costs overall are unbelievably more expensive than in the United States. A McDonald Big Mac hamburger on its own costs typically around 11.70 francs or about $12.50 versus about $3.40 in the United States (California).
Great Britain
The minimum wage in Great Britain is 8.3 pounds or $12.75 per hour. Health care is nationalized as well as education through university.
The costs overall are far more expensive than in the United States. A McDonald Big Mac hamburger on its own costs typically around $7.00 versus about $3.40 in the United States (California). Taxes are 0 percent on incomes below 20,000 pounds or about $30,700; 20 percent from 20,000 to 50,000 or about $76,800; and 40 percent on incomes over 50,000 pounds.
France
In France, a worker on the minimum wage can earn $22.237 a year, working 35 hours per week, which means anyone who works in France can make $1,853 a month or about $13 per hour.
The costs overall are far more expensive than in the United States. A McDonald Big Mac hamburger on its own costs typically around $9.50 versus about $3.40 in the United States (California).
Belgium
A new employee makes a minimum of $23.104 annually for working 38 hours a week in Belgium. This translates to $1,925 every month or about $12.50 per hour. I was unable to visit a McDonalds to price a Big Mac.
If you have read to this point you should be asking yourself how do we solve these problems and put ourselves on the path to inclusive prosperity, inclusive opportunity, and inclusive economic justice? The answer is to implement Capital Homesteading (http://www.cesj.org/learn/capital-homesteading/).
