Tradewinds March 2015 Web Final

Labor, Wages, and Prices by Matt Morrison
Recently, a friend of mine commented on the trend of fast food workers demanding $15 an hour. His contention was that if no one was laid off, the food
prices at restaurant chains would have to increase so much to support these high paying jobs that far fewer customers would walk in the door (or, well,
drive through the human cattle chute). He was right to make such an argument - wages are only worth as much as their purchasing power. If everyone
were paid at least $50 per hour tomorrow, poverty would not disappear, but inflation would increase, adversely affecting the entire economy. Mathematics
dictate that profits, jobs, or prices must be changed to support raises, and public/investor opinion usually dictates that it’s not the first two. Workers
near the bottom of the pay scale may see some net benefit from an increased minimum wage, but everyone else already making more than the new rate
would suffer from inflation. High prices hurt everyone because they don’t discriminate based on income – if you make less than $20,000 a year, go to a
Starbucks sometime and try asking for a discounted Frappuccino. Furthermore, wages are very slow to catch up to inflation because employers often have
to start losing workers before raising their pay. If gas prices went to $5 a gallon tomorrow, do you think your boss would give you a raise the next day
(or month)? If you said yes, write in to this publication letting me know where I can submit an application. If you said no, you now know what the sticky
wage principle is.
TJ Maxx and Walmart recently announced a wage increase for their lowest paid workers. TJ Maxx announced this would come with a concurrent decrease
in their projected earnings. To me this demonstrates two things: funding wage increases always results in some change to prices, jobs, or dividends;
and minimum wages always make themselves obsolete. Eventually, inflation and competitive job markets create a higher effective wage floor than what
the government has set. Some of that inflation is caused by the minimum wage; ironically, the minimum wage contributes to making itself irrelevant and
far below the market value of labor. Anytime someone calls on an increase in the minimum wage, you can guarantee in five to ten years they’ll be asking
for another.
Part 2 next Month
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12 Albemarle Tradewinds March 2015 albemarletradewinds.com