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Current Events » in reply to What was wrong with what he said???

Ok, I'll show you what is wrong with what he said.

I see innumeracy and poor economic education isn't limited to America. First of all, if you set the minimum wage equal to the average wage, you run into a few problems. To keep it simple, I'll not use actual wages but rounded off values.

1. Suppose the minimum wage is $6 an hour. For a person who works full time (and that's only a small percentage of minimum wage workers), that's roughly $12,000 a year (52*40 = 2080, so the actual number is $12,480).

2. Suppose for the sake of argument that the average wage in America is $30,000, or $15 an hour. If we mandate that every one gets paid this amount, how many jobs would this eliminate? The answer is - tons of them. You see, many people have marginal job skills and simply don't produce $15 an hour worth of work. Small businesses would have a hard time absorbing a 250% labor cost increase so they'd have to eliminate as many people as possible to try and stay profitable. Their only other choice is to raise their prices to cover the labor costs. However, that's self defeating because if the prices rise enough to pay for the 250% increase in labor costs, the workers at the bottom find their new, larger paychecks don't buy any more than their smaller ones did before.

3. There's also a point of mathematical absurdity in the notion of setting the minimum wage equal to the average wage. You're always going to have some people who have bigger paychecks than others. When you raise the minimum wage to $30,000, those earning more aren't going to take pay cuts. What happens next is that the average income just keeps increasing so that you can never actually make the minumum and average wages equal. I'll try to explain:

Suppose for example that there are 100 million workers in America (approximately right) and the average income is $30,000. That's a national income of $3 trillion. However, suppose 10 million of those workers are earning the minimum wage of $12,000 a year for a total of $120 billion. If you suddenly mandated that they receive the average wage of $30,000 a year, their combined income would increase to $300 billion. That's an increase in the nation's income of $180 billion. Oh, wait. We didn't figure in those who make more than the minimum wage but less than the average wage. Their income would go up, too. There are a lot more people who fall into this category than those who get by on minimum wage. Just for the sake of argument, suppose their combined salary increase amounted to $320 billion for a net total increase in national salary of $500 billion. That means the combined national income is now $3.5 trillion, which divided by 100 million workers (no one is supposed to lose their job, right?) means the average salary should be $35,000, not $30,000. Whoops! We have to start all over and raise the minimum wage again! In the end, we'd be like a dog chasing his tail - every time we try to raise the minimum wage to equal the average wage, the average keeps increasing. What a conundrum!

The only way the mimumum wage could ever equal the average wage would be for everyone to get the same salary. Sorry, but that just doesn't work in the real world. If everyone got the same salary, why should anyone work hard to get an education or advanced job skills or start a business? Why work hard to achieve anything if you aren't going to earn any more than a burger flipper?

The former Soviet Union pretended to create that sort of economic equality. The result was a disaster. One problem was that no one had any incentive to improve or do better. The old joke was, "They pretend to pay me and I pretend to work."

We have actual history to back up our assertion that the notion of Marxism or communism is a dismal failure. I'll take historical evidence over academic theories (especially by people with little experience in the real world) anyday.

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