While doing a little research on the fair wage movement, I came across an article that addressed the problems of QE3 (Quantitative Easing) and why stimulus money will not affect our problem of aggregate demand. The article points out that QE3 is a questionable tactic for a couple of different reasons. First, QE3 is nothing more than trading bank assets and will have very little impact on demand for products. QE3 is meant to lower interest rates and encourage consumers and companies to spend. Second, Ellen Brown, the article author, suspects some political motivations for the policy. QE3 drives up the stock market and commodities market in anticipation of the new policies. Stock prices are driven up with expectations of more money in the market, and commodities are driven up due to the potential for inflation.
So what? I hope I haven’t lost you already. I promise I will let you know what QE3 and fair wages have in common.
What makes the Fed think that QE3 will be effective? According to a June 18th article by Susanna Kim, Median Household net worth is down 35% as a result of the housing boom and bust. That is a huge drop in household net worth. Furthermore, households have experienced wage stagnation. Dylan Matthews writes that wages for people with some college has fallen by a third and earnings for high school dropouts has fallen by 66% since 1969. Now, we may need to have a discussion about how people need to finish high school and college, but that is irrelevant right now. Most of the largest employers in the United States consist of jobs that don’t require a high school or college education. Here is a look at the top 10 employers (# of employees).
So how will individuals, who are underwater in their homes with stagnating incomes, be able to spend their way out of this economy? The general consensus is that wealthy individuals cannot spend our way out of this economic stagnation. Their numbers are limited. As Nick Hanauer points out that he can only buy so many cars or go out to eat so many times. It will take a larger middle and lower class to get out economy kickstarted.
How do we get more money in the hands of the individuals most likely to spend it? I do not think government action is an efficient or appropriate way to achieve this goal. Tax breaks should not be given and raising rates is tricky. People need to make more money. I believe the only way for people to make more money is to correct the demand problem, and in order to do that we must have a conversation that includes the question, “What is a fair wage?”. I think most people realize that a government imposed wage of $7.25 per hour isn’t the answer. I would argue that a government imposed wage is not even part of the equation. Companies are becoming fabulously rich because they are only required to pay employees that low wage. They are not passing those wage savings along to the consumer. Instead, they parlay those gains into huge profits for their shareholders.
Here’s a hypothetical:
You walk into a restaurant. You look down at your phone and notice that the business pays hourly employees on average $7.50/hour. You also notice that the company or business owner collects around $700,000 a year from that individual business. While on your phone, you are presented another eating option. The food is similar, but the second option pays employees an average of $9/hour. The owners still collect around $400,000 per year. If you had those options, quality being similar, which would you choose? Can you intelligently make that choice now?
Better wage information in the marketplace and enlightened consumers will force large service and good providers to pay employees more or risk losing business as a result. That conversation needs to start now! Share this post if you agree.