Does High Minimal Wage Make a Country Rich?

Does High Minimal Wage Make a Country Rich?

 

The Left leaning English daily, Moscow Times, published an article aimed to once again show the negativity of Russia. This is their standard operating procedure, to always at any opportunity, humiliate their own country and do it in a foreign language. They pander non stop to any enemy and make excuses for any slight to Russia or Russians, a wave of the so called "intelligentsia" whose predecessors gave us the Revolution and who themselves were first to flee their Frankenstein.

 

But I degrees.

 

Now back to the topic at hand. As with all Leftists, there is ever a very shallow understanding of economics involved. The Moscow Times correspondent goes to great lengths to point out that Russia has the third lowest minimum wage rate in Europe, in USD $223 (70% of subsistence level), while the European average wage is $823 and the American is $1,340. Of course, right off the bat, one notices that the article ignores giving the wage's percent of subsistence levels in Europe and the US. Why so? Mayhap this will not paint such a pretty picture?

 

First, lets keep in mind that only 20% of the Russian population lives below the poverty line, which makes Russia on par about average with the West. In the US, the official statistic is 16% (from the supposed richest nation in the world) and in the EU poverty levels vary from 9-28%, the median being 16.4%. There are two trends that should be viewed, however: 1. the average wages in the West are falling and falling rapidly. January saw the biggest drop in US wages, with a decrease of 3.6% and the poverty level is surging up, with 49 million Americans on food vouchers. Europe is in a similar boat in most nations, with over 1/3rd of Greeks alone already dependent on government handouts for daily survival. In Russia, 2012 saw a salary rise of 10-13% in the secondary cities and a 15% rise in Moscow and St.Petersburg, while inflation was around 7.5%, thus salaries are rising well ahead of inflation.

 

Now, lets look a bit closer at the minimum wage debate and its effects on the economies. Doing a little research, one comes up with the following statistics: the poverty income level in the US is considered $11,170, so the minimum wage at $16,080 is actually 144% of subsistence level. In the EU, the average poverty income level is considered 6,000 Euros or around $7,300 USD. With an average minimum wage of $823, that's $9,876 or 135% of subsistence levels.

 

Looking at just the snap shot, we Russians look vulgar and poor, and yet the economic indicators, such as income growth, poverty rates and debt (Russia's national debt is $48 billion out of a $1,6 trillion economy (about 3%), vs European and American debt levels of 80-200% of debt (nation dependent, Germany being the lowest and Italy the highest and the US in the middle) would indicate that high minimum wage levels are not a positive force.

 

Indeed, in all sense, all Western nations (and Japan included), that is all the G7 of the G8 are broke. As such, one must recognize that minimum wage and especially, high minimum wage has a negative impact over all on the economic growth of society. Sure this may sound counter intuitive but it is not. Minimum wage is a hidden tax on business and in this case, on small and medium business. Large businesses already pay above minimum wage, on average.

 

Why is this significant? The majority of the population is normally employed in small and medium businesses not in the large and super large (usually transnational) corporations. Equally, most of the new technology and new products come from the smaller sized layers and are eventually bought up by the larger sized businesses. But often enough, the smaller businesses grow and create new and serious competition to the larger businesses. However, the reason for large and mega corporations supporting something like an increase in minimum wage, when they already pay over it, is simple: a direct impact on up and coming competitors, which lowers the threat to them.

 

But why does this hurt the average minimum wage worker and the rest of the middle class and specifically lower class society? The reason for the decline in socio-economic standings is simple enough: a higher minimum wage is good for employees, those employees who get to keep their jobs and at the same number of hours, however, quite a few will be either down sized in hours or laid off to cover the higher wages of others. Further, this cuts into investment spending and growth. In a growing market, at least part of this can be passed on to consumers through higher prices, which of course then continues to trickle down and deprive the poorest of purchasing power. Yes, its a circular process that does hurt the very people targeted for help with the increase. However, when the market is already shrinking, inflation: wage and thus product/service cost, is not the correct way out.

 

Right now there is a typical Keynes approach in the Americas and EU, to the crisis of growing poverty and we should look at the analysis that is coming out of it. The drive is to raise minimum wage to supposibily increase wealth of society and cut down on the middle class. Typical leftist Keynes approach and as typically ignorant or ignoring the repeating evidence of policy failure. This interview from the American addition of Voice of Russia, sums this up nicely Analyst: Raising Minimum Wage Will Force Small Businesses to Lay Off Employees

 

Thus, once again, instead of deciding with emotions, as is common with the Left, let us look at actual economic results of previous programs and not be influenced by Western backed, Leftist media to follow the Western Pipers down the road to economic self destruction.