I disagree with Hightower.

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Saturday, November 9, 2013

Minimum Wage

The President has proposed a federal minimum wage of $10/hr.  I have never been in favor of a legislated minimum wage because I perceive it and its results as follows.

1.       It is inflationary by definition.

2.       It has a temporary negative impact on commerce, especially the food service industry.

3.       The increase in purchasing power for those who get a raise as a result are muted because the increased  salary cost  will be reflected in the cost of goods and service which they too buy.

4.       The benefit to those who get a raise is temporary because once the increased salary expenses flush through the system (6 mo. – 2 years) their net purchasing power will be the same as before.

5.       It is a thinly veiled redistribution of wealth scheme.

6.       The politicians clearly understand the above and are simply pandering for votes.


  1. I have some concerns about minimum wage laws that are similar to Tom's.

    However, I cannot oppose them enthusiastically until I see a good way to reduce the growing disparity in income between the top and the bottom. I don't mean the very rich and very poor. I mean the second and fourth quintiles.

    1. The mention of income quintiles sent me scrambling for numbers on the internet. I found this article http://www.advisorperspectives.com/dshort/updates/Household-Income-Distribution.php which looks at income from 1967-2012, adjusts for inflation, and bases the discussion on purchasing power, which I think is what we really intend to address.

      In the second graph “Real (inflation –adjusted) mean Household Income” the difference between the 2nd quintile (the gray line) and 4th quintile (the orange line) does not seem to have an alarming RATE of differentiation over the period covered. However, the accompanying chart shows Real Income (purchasing power) increases of 37.9% for the 2nd quintile and only 11.5% for the 4th quintile.

      Here is what I think the numbers say:

      1. Both the 2nd quintile and the 4th quintile have more purchasing power than they did in 1967.
      2. And to Wayne’s point, the 2nd quintile’s purchasing power (not the differentiation rate) has increased substantially more than the 4th quintile.
      3. Since the RATE of differentiation in purchasing between the 2nd and 4th quintile is marginal (gray line vs. orange line) I suspect this means that whatever real world factors separate the 2 groups in purchasing power has been in place since at least 1967.

      I will admit to being surprised at the difference in “real Income growth” between the 2 groups (37.9% vs. 11.5%). I would have imagined a similar percentage for discretionary income (purchasing power minus the cost of the basic necessities of life), but that is not what the numbers say.

      I will give this some more thought, but it appears that the current economic model in the US “MAY” have given the 2nd quintile a bump in purchasing power they did not earn and I MAY share Wayne’s concern for the disparity. My objections to a legislated minimum wage remain.