Two for one: Higher inflation and higher unemployment from higher minimum wage

With the organized push for higher minimum wage rates, Janet Yellen and the Federal Reserve must have mixed emotions.  For with the higher minimum wage will come higher real inflation.  That burger, that burrito, the clothes at the discount store all will rise quickly in adjustment to the higher costs of labor.  Put a number on it.  Ten percent?  Twenty?

But businesses and markets will react.  Employees will be laid off, and retailing will move even farther to the internet and away from the brick and mortar operations.  Fast food franchise owners will fold up shop, unable to cope with the higher wages that dig into their already narrow profit margins. 

The arguments for a higher minimum wage are compelling.  The disparity between CEO pay and line worker wages is historically out of whack.  There are a few reasons for this contrast.

  1. There has been a breach in the arrangement between shareholder control and corporate operations and compensations.  Never has so much stock been voted by so few.  ETFs and mutual funds hold the key to board of director elections and other issues.
  2. The circular nature of the intertwined corporate boards is a big compensation rubber-stamping game.  Ever wonder why so many people sit on so many different boards of directors?  Voting for these massive pay packages for officers appears to be conducted on understandings that the generosity will eventually radiate back to the most generous board members down the road in some direct or indirect fashion.
  3. Streamlining the business by cutting payrolls to bump the earnings, bump the stock price, and ignite the stock options held by the board of directors (voted to them by whom?) is a harsh game.  Profit and share price are the fiduciary responsibility of the management in a capitalistic system.  Yet never have their efforts been so focused on ramping up their own individual wealth while leaving the line worker hanging on the poverty line.
  4. There is an overabundance of cheap labor in this country, and one can point to three reasons.
    1. The internet has cut out many middlemen and hurt brick and mortar operations.  Who needs the salesman with the catalog to walk into the office anymore, show you the company’s line, and take the order?  There are too many examples to enumerate.
    2. Illegal immigration.  The left wants higher wages, but if the borders had been secure – if there were not, by some estimates 12 million illegals – the market would need to bid up the price of labor to attract workers from a smaller pool. 
    3. Overstayed visas.  Illegal immigration is only about 50% Latino.  Who makes up the remainder?  All those who get the permanent visas from India, China, Poland, etc. and forget to leave.  Overstaying a visa is just one more breach of the law that goes unprosecuted. 

In short, what we have is a number of imbalances.  Too many workers coming from too many other countries to take the jobs of the legal citizenry thus driving down wages. And too few people deciding how too few can make way too much money thus driving up executive pay.   There is no good answer why a CEO can make X million a year, then get a 10 times X payout from his stock options while the line workers are 80% minimum wage earners.

Yes, we have a capitalistic economy, and it has served this nation well.  But there used to be a time when people worked for a company because it was a good company, it made good money, and the workers consequently were paid well.  That pleasant arrangement, in too many cases, has been short-circuited.