Thursday, May 1, 2014

Minimum wage debate: Are you for it or against it?

Currently, minimum wage debate is going on in the USA. Obama Administration is trying to increase it to $10 plus for Federal workers and employees of Federal contractors. Many states are also working in same direction. Seattle is trying to raise it to $15! Democratic party is for raising it. It is difficult to live on minimum wage these days in many cities. I agree with them.
Republicans are trying to block this move. They are also right in my opinion. This can make some businesses un-viable. Overall, China is giving USA a rough time in manufactured goods and one reason is their low labor costs. Increasing minimum wage in the USA can actually cause some job losses in the USA as some businesses, which are only marginally profitable and have high component of labor cost in COGS, can become un-viable. In increased costs are passed on the consumers, Made in China goods can get comparatively even more cheaper in the USA. I am with Republicans too. Wages, like other things in a market economy, should be left to market forces. Increasing minimum wage is not a free lunch. It costs the economy in terms of competitiveness. So what should be do?

Here is one solution which can partly address to the issue IMO. Labor costs hit any business on the Income statement. This is one line which includes salaries and wages paid to every one in the organization. Can it be a low level employee or the CEO of the company. Did you know that one CEO of a public company on average takes home salaries of 100 to 10000 lowest paid employees in the company? Flip side of the Minimum Wage debate is the CEO compensation. It is not a separate issue. As Minimum Wage is a floor, or a lower limit, on the compensation, there should be a limit, an upper limit too. The limit on the Maximum Pay. When republicans argue that increasing Minimum Wage can affect survival of many businesses, they are forgetting that the money that most CEOs and C level executives take home equally, negatively, affects the same company. By putting a brake on it, we can get a more uniform distribution of wealth in the society. No one in the White House or in congress has courage to touch that holy cow as these are the people who fund most of the campaigns in DC ;)
When an average minimum wage worker in Walmart makes around $15,000 a year, Walmart CEO takes home roughly $10,000,000 a year. That is 6000 times more!!! This is a like one guy doing work of 6000 workers!!!

If I were to act on the issue, I would limit CEO compensation to 25 to 200 times of the salary of a full timer worker in the company. This will free up some more money that can be distributed more equally among other workers or be invested in business.Plus we will have a society where national resources are more uniformly distributed.
Do you have any other ideas?

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