Marc Cuniberti: Inflation and the living wage debate
In a recent Money Matters article, I covered how the Employment Development Department (EDD) and their lucrative bonus payments to the unemployed has essentially made the national $15/hour minimum wage debate a moot point. Another contentious debate, called the “Living Wage” debate, will likely now be turned on its head as the higher wages forced up by the EDD payments will result in exposing the vicious cycle of wage push inflation and its effect on the living wage.
Not only has the minimum wage debate been obsoleted by the EDD payments, those same payments are now causing even faster inflation in the economy than previously witnessed.
We can see this new “wage push” inflation as businesses in many instances are offering over $15/hour to entice potential workers to come back to work.
As inflation takes off, I have seen more and more commentary stating that the $15/hour rate, which was previously determined by some to approach the so-called “living wage,” is now grossly insufficient as consumer prices skyrocket.
There is a reason why what once was determined to be at least close to a sufficient living wage is now quickly being dismissed as grossly deficient. Plainly put, an economic reality is occurring.
Although higher wages are not the sole cause for higher consumer prices, higher wages coupled with the recent spike in commodity prices are crippling business balance sheets as operational costs soar.
In a free market environment, businesses will always pass increased costs onto the consumer through higher prices and that is what is occurring.
Inflation is starting to burn hot and that fact is confirmed by the most recent inflation data out from Uncle Sam, which shows an annual inflation rate of over 4%. Many analysts claim government inflation figures vastly understate the real inflation rate. If that is true, the real rate might be even higher
What happens next is why the living wage proponents are calling for even higher wages. As wages rise, consumer prices follow. Therefore, with each increase in the wage rate, inflation rises even faster, negating the previous increases. A viscous cycle yet a familiar one to astute economists.
Many argue against the very concept of a living wage, saying it is arbitrary and doesn’t consider geographic realities. An example would be the cost of living in New York compared to living in Modesto.
Others claim a more sinister thing is at work here. Wage inflation will always push consumer costs faster and higher than the so-called “living wage.” Because of this fact, many argue, including this analyst, that the living wage debate is a nonsensical argument.
Since it is an accepted fundamental in the study of economics that wages will always lag consumer price inflation, the argument is put forth that the living wage can never be reached by mandating wages ever higher. In fact, those very same mandates may be the cause of the problem. Inflation will always “outrun” wages and it is why some find themselves repeatedly calling for an even higher living wage, and then wondering why it is never enough.
Opponents to minimum the wage mandates, which include opposing the very concept of a “living wage” (which is an arbitrary opinion depending on whose making the argument), point to the fact that an unmolested capitalistic system would correct wage/inflation conflicts. The argument is extended to address the failure of the current capitalistic system and blaming it as the cause of wage deficiencies. Many believe the current system is one that has been highly manipulated away from capitalism because of massive government monetary intervention, which distorts the checks and balances of a capitalistic system.
The result is what we see now: insufficient wage rates exasperated by rising prices, and a constant call for higher and higher wages.
No matter which side of the argument ones believes, we must acknowledge that a true solution to a problem solves it. Conversely, repeated attempts signify failure.
The minimum wage has been raised 22 times to combat inflation. In the face of these increases, it never seems to be enough, and living wage proponents find themselves constantly calling for ever higher wages. The cycle is akin to a cat chasing its tail, which is an attempt in futility.
In conclusion, income inequality is at least partially caused by inflation, which in turn owes its existence to the very same wage policies that attempt to correct it.
Marc Cuniberti holds a B.A in Economics with honor from San Diego State University and is the hose of Money Matters carried on 66 stations nationwide. California Insurance LIc# 0L34249. Call him at 530-559-1214 or visit http://www.moneymanagementradio.com
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