Collective answer to the points raised here:
1. The idea that someone on a minimum wage can just acquire a marketable skill to improve his income is highly questionable. How should someone earning $7.50 the hour sustain himself (rent, food etc.) and be able to attend any school/college? Without help from parents etc. essentially impossible. It also neglects the fact that someone born into poverty went to a crappy school in a crappy neighborhood and will rarely have the grades (SAT scores) to apply for financial aid.
2. Most low wage jobs ARE needed. We need farmworkers, janitors, cashiers, trash haulers… Just saying they are paid low because no one needs them is neglecting reality. And if we even need only half of those jobs we should still pay those people liveable wages. Because otherwise we condone the establishment of an underclass where an individual may advance but collectively that class still needs to exist to provide us with the goods and services we desire.
3. When there is money to pay a better educated workforce then there is money to pay a higher minimum wage. We have about 140 million employed in the US. Total labor income is ~60% of GDP so that puts it at ~$9 trillion. Let’s say 10 million are low wage workers earning about $20,000 per year for a total of $200 billion. Increase their wages by 25% we would need to pay $250 billion. But stop: “There is no money for that”. Ok, they all take the advice here and get an education. Now those 10 million will want a real salary, let’s say $40,000/year for a total of $400 billion. Now, where is that money suddenly coming from?
4. Low wages/unemployment have not much to do with “skills” but are a monetary phenomenon.
Take a simple model economy only consisting of households (HH) and businesses (B). Assume full employment at the outset. Businesses pay wages (W) of 100 that are household income. Households spend their total income on businesses’ products. Thus:
a) B expense = wages = HH income = 100 = HH spending = B income
Now households get unsure about the future and decide to save some (10%) of their income. Thus:
b) B expense = wages = HH income = 100 but HH spending = 90 = B income and H saving = 10.
With only 90 as income the businesses can only pay wages of 90 which leaves them with two options:
Option 1: General paycut; everyone receives 10% less. (lowering of wages)
Option 2: 10% of the workforce gets cut. (involuntary unemployment)
Could the low-wage/unemployed workers change anything about that by acquiring a better education? Had this outcome anything to do with bad job skills? No, in both cases. This outcome was simply a result of the household’s desire to save part of their income.
Let’s spin this model further:
If the businesses feel that future HH spending may be higher they will want to borrow those savings back to keep producing as before. Thus:
c) HH spending = 90; HH saving = 10; B income = 90; B debt = 10; wages = 100 (90 +10)
Now the HHs can maintain an income of 100 while still saving 10. Keep those ratios constant and in the next year we have:
d) HH spending = 90; HH saving = 10+10; B income = 90; B debt = 10+10; wages = 100 (90 +10)
Every year, household spending, business income, and wages stay the same but HH saving and business debt increase by 10. If that sounds too good to be true let’s introduce interest. If that would be an (outrageous) 10% every year the businesses would need to pay an increasing amount to the HHs. First 1, then 2, then 3 and so on. To pay that interest, the businesses have to reduce wages by the same amount. After e. g. 5 years we get the following:
e) Bs: debt: 50; new borrowing: 10; income: 90; wages: 95; interest expense: 5 (10% of 50)
HHs: income 100; wage income: 95; interest income: 5; savings: 50
And with every passing year we get exactly what the paper I linked to earlier (
http://www.clevelandfed.org/research/commentary/2012/2012-13.cfm ) describes: A decrease in labor income as % of GDP and an increase in capital income. With other words: A redistribution of income from workers to savers/capital holders leading exactly to the changes in wealth distribution we have seen over the last decades. This causes a steady downward trajectory on wages and/or increases in unemployment. A raise of the minimum wage will not stop that trajectory but it is pretty sad that even this little “band-aid” faces such an opposition.
