Just like he did in 2011, President Barack Obama is taking another stab at increasing the federal minimum wage in order to help the lowest income earners in America. With the President’s proposal to raise the minimum wage to $9.00 an hour by 2015 from the current $7.25, in theory, the move upward shift should help, as it translates into roughly $3,640 extra annually. The proposal also links the level of the minimum wage to the inflation rate after 2015.
The rationale behind the President’s thinking makes sense, and I truly wish it could work; but my view is that the impact of higher jobs market wages on the lower level service and manufacturing jobs across America could likely drive prices on goods and services higher for the consumer, which means greater inflationary pressure. If this becomes the case, you will need to start investing in gold.
For instance, higher jobs market wages for service jobs, such as restaurants, will likely not be absorbed; rather, the higher wage costs will mean higher food costs at all levels from fast-food to high-end restaurants. The impact will be especially hard on the low income earners who, in general, may be more inclined to eat fast foods. The same goes for other goods and services, which means that while the lower income earners would earn more money with a rise in the minimum wage, they’ll end up paying more for goods and services.
But something needs to be done due to the widening income gap between the rich and the middle class and the poor in America. In America, the rich are getting richer, while the poor are getting poorer. The proposal to drive up the minimum jobs market wage makes sense; but as I said, the impact of potentially higher costs for goods and services could offset the benefit.
Moreover, don’t forget that higher minimum jobs market wages in America will also give the world’s cheap labor areas an even greater price advantage in the manufacturing of goods. At $9.00 per hour—even at the current $7.25 per hour—the U.S. cannot compete on the jobs market wage front with countries such as China, India, Mexico, and Latin America.
Similar jobs numbers comparisons are found in the other poor developing countries. The reality is that wages in the jobs market are already too high in this country to compete with the lower-wage countries. Global companies selling mass market goods require low jobs market wages in order to compete on price, while also delivering results to shareholders who demand profits.
The bottom line is: raising the minimum wage for Americans is great in theory, and I’m a big supporter of it; but the impact on the expected higher cost of goods and services, along with the disadvantage of there being much cheaper labor worldwide, needs to be considered.
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By: George Leong
Posted: February 15, 2013, 7:28 am
We believe the stock market and the economy have been propped up since 2009 by artificially low interest rates, never-ending government borrowing and an unprecedented expansion of our money supply....