Today's thought question is a simple one: What would happen if we doubled the minimum wage?
Trillions of dollars flow through large American corporations, and executives are making remarkable amounts of money. Executive pay has risen by a factor of 10 in the last 20 years and shows no signs of slowing down [ref, ref, ref]. Meanwhile, the wages of rank and file employees are stagnant. Given all the money available, why is it that companies like Wal-Mart, Home Depot and McDonald's pay their employees so little and give them so few benefits?
Imagine a hypothetical company with 20,100 employees. At the top are 100 executives who pay themselves an average of $4 million per year. The other 20,000 employees make minimum wage -- $5.15 per hour -- for 2,000 hours per year of work.
Those executive numbers sound top-heavy, but today they are not. Executive pay truly has been rising at a spectacular rate. For example, when Enron collapsed it had about 20,000 employees. According to the book Pipe Dreams by Robert Bryce:
So in our hypothetical company, we have 100 executives making $400 million per year. We have 20,000 employees making about $200 million per year. If we simply cut the average executive pay from $4 million per year to $2 million per year, we can double the pay of rank and file employees in this company.
Could the executives manage to survive on $2 million rather than $4 million? Yes, they could. They could also survive on $1 million a year, or $500,000. Their pay is completely arbitrary. It has risen by a factor on 10 in the last 20 years -- In 1980, these same executives would have been making $400,000 instead of $4 million.
A common complaint about doubling the minimum wage is that it is "inflationary." The point of this example is to show that employee wages can be doubled without raising prices at all. Executives are now redistributing wealth from employees to themselves at such a remarkable rate that employee wages have fallen considerably. Simply by reversing this concentration of wealth, employee wages can rise to reasonable levels without changing consumer prices.
A Real Company
Wal-Mart is the largest employer in the United States and provides a real-world example of the situation. Wal-Mart has 1.3 million "associates". A large portion of these associates are paid hourly, at close to minimum wage. [ref]
The next time you go to a Wal-Mart store, talk to the associates. When I go to the Wal-Mart store closest to me in Cary, NC, I am greeted at the door by a friendly person who is at least 50 years old. The associates who work at Wal-Mart are not kids -- they are adults. They have families. They are good, hard-working people from all backgrounds.
For the sake of this discussion, assume that Wal-Mart pays one million of its rank and file associates $7.50 an hour right now. These are the employees who work in the stores, stock the shelves, man the cash registers, sweep the floors and so on.
Let's say that we changed the following:
Would this cripple the company?
To answer that question, you can look at Wal-Mart's financial statements on a site like http://finance.yahoo.com. Here are the quarterly numbers reported by Wal-Mart for 2002:
Quarterly financial results for Wal-Mart [ref]
There are two ways to look at that $4 billion quarterly increase in associate pay:
Let's split the difference. Wal-Mart raises its prices by 3.5 percent, and executive pay and perks are reduced by $2 billion. That means that the price of a can of Chunky Soup at Wal-Mart goes from $1.49 per can to $1.54 per can. Would anyone really care? Several major grocery store chains routinely charge $1.99 or more for a can of Chunky Soup and no one appears to care at all. [a survey of the four major grocery chains in Raleigh, North Carolina found the price of a can of Chunky soup ranging from $1.99 to $2.50 per can. At Target the price was $1.69 per can. At Wal-Mart the price was $1.49 per can.]
Now imagine that we did the same thing across the board, doubling the wages at McDonald's, Target, Home Depot, Toys "R" s, etc., etc.
If a $500 tax rebate stimulates the economy, imagine what an extra $700 per month plus health benefits plus paid vacation for millions of employees would do for the economy, and for the spirit of our nation.
© Copyright 2003-2009 by Marshall Brain. All rights reserved.