Sunday, August 5, 2007

Wage reform part 4 – the Day after

Democrat or republican, conservative or liberal, right wing extremist or left wing nut job, or something somewhere in between I believe most people would answer the following questions the same way. That is if you made them chose between the two options and not spout on as politicians often do trying to qualify, justify and basically cover their ass on an answer.

Would you rather have a national healthcare plan or citizens that could afford to pay their own bills as they come along? Would you rather have a fully funded social security plan or citizens who were able to save enough money to fund their own retirement? Which is better for the economy, a 12 million dollar mansion or 12 million dollars invested by a company into the stock market? do you really believe that every citizen has the mental capacity to become a doctor, a professor, or a rocket scientist? After the mentally handicapped take up all the positions needed to fulfill lawyers and politicians job, would you rather they make more money working at Wal-Mart or sitting at home pumping out babies to collect a bigger welfare checks? Who should be the primary teacher of a child’s social skills, the school or their parents? Would having less cars on the road reduce energy consumption, greenhouse gas emissions, and reduce dependency on foreign oil supplies?

How do you make it possible to have people pay their own medical bill? An average wage must be established that is comparable to the cost of most medical bills. Could you imagine if just getting tires for your car cost $4000? Yet a simple physical can cost that much. If a company like Wal-Mart is forced not to pay $12 million dollars to its CEO, as well as many other people on its upper management staff, they will be forced to do something with it. Maybe they will invest it in a child daycare on campus for their employees. At the very best they can afford to offer full time hours to their employees. If the wage is such that a family can scrape by with one parent home, many may make that decision to raise children with more self worth and direction. More educated families make better decisions when it comes to family planning. More one parent working homes means less people on the road. SO how do we get there?



Alright. I am president, (god I like the sound of this already) I have pushed my minions to work with the legislative to get this bill through. For the paranoid nervous left I promised to submit a temporary "minimal living wage" for 2 yrs as a catch net. It could be reissued if things go bad. (Every good plan has a built in understanding that not all things work as they were figured out on paper.) To the puddle deep thinkers from the right I promised to "shit can" welfare all together, a promise to add more accountability to the disability program once the system settles, and reduce their tax rate to 1/2 of what they pay now one year after the official implementation date. They all agreed and passed it despite the fact that the insurance companies spent hundreds of billions in lobbing money seeing that the reformed economy would mean that people would be able to pay a medical bills, accident repair, home damages, and funeral expenses out of pocket.


Months even up to a year has gone by with teams of economist and finical law experts mauling over every possible way that might open a loophole. Employers have been informed how to figure their minimum wage. A final statement that every new law should have accompanying it, making blatant and negligent attempts to circumvent the stated objective of the law or rule would be considered criminal. As of April 15th all industries must be in compliance. And so it happens. April 15th dawns and the result is a big fat nothing. Nothing changes because the introductory minimum percentage is the same as the biggest wage disparity anyway. For example, if Wal-Mart at a disparity percentage of $23 million to $16,000 or basically .07% is the largest in the country. That would be the starting rate.

The real change will be in the hands of the governing branches. The following year will bring an adjustment in the wage. Say that the adjustment is a .05% change. If Wal-Mart wants to pay H. Lee Scott $23 million that year, they will have to pay all of their employees a wage of at least pay their lowest paid employee $17,250. Wal-Mart will have a choice. They will have to increase the payroll on all of the employees making less then $17,250 or and equivalent hourly wage based on a 40/ 52 work year. This works out to around $8.30 p/h. Wal-Mart has about 1.2 million associates. That includes everybody from the CEO to the janitor, full and part time. Obviously, many of the employees make more then that. The true cost of such a move would be hard to determine. Many extenuating circumstances such as the increase in pay would directly translate to an increase in sales at Wal-Mart would exist. It would be far less then straight figure of 1.2 million times $1,250. A $500 million cost might be an accurate guess at the cost. That from a business that produces sales figures that equate to $256 billion. They could easy save all that money by decreasing the wage of their CEO to $21.33 million dollars. Yeah, I know the Scott family will really have to tighten their belt that year.



Wal-Mart is a vast and large and extreme example. Most employers’ payroll will not be effected by these changes. A restaurant owner that makes himself a salary of $70,000 a year will only be required to pay his employees $66 per year. Of course he will have a hard time keeping employees when they could go work for Wal-Mart, McDonalds, or any of the other big box retailers in the area. He will probably continue to pay the same wage. Many of them already pay more then Minimum wage, not because the law says they have to, but because "market forces" says they have to. Eventually the goal would be to get to a point around that 3% mark. As the disparity gets closer together the buying power of the middle class will also increase.



So what effect will it have on the economy? Since the system is generally closed the money has to go somewhere. The small changes will have little effect at the onset. However, when the rate is raised to a more profound rate, changes will be evident. Going back to the Wal-Mart example, they will most likely choose to pay the CEO less. That will give them $1.66 million dollars to play do something else with. For a company like Wal-Mart they will probably invest in a couple of million more boxes of Cornflakes. It isn’t until the companies are squeezed to the point of having to reallocate profits that the economy will get really spinning. When the disparity rate gets to be such that of about .5% the economy will have an influx of cash that won’t be easily dammed. At that point, in order for a company to pay its CEO $7 million per year, they will have to pay their lowest paid employee $35,000. The people this is really going to hurt at the people like Richard D. Fairbank for instance. Who was only the 10th highest paid CEO at Capitol One financial, and only made 56.7 million. The problem there is that on Capital One’s staff is populated by plenty of janitors, computer techs, card makers, and bank tellers, credit consultants and other jobs that are not making .5% of their CEO. However, try to run the company without them. Capital One Financial would have to find something to do worth any salary over whatever acceptable rate they decided. They couldn't keep paying their CEO nearly 57 million dollars per year. "Hey Bob, what have you got in your wallet?" $2.8 million. He would be the lowest paid employee. Corporations will be forced to make decisions of what to do with the money it is disproportionately distributing. Ether they will be forced to compensate their employees more equally or they will have to invest money into the economy. Wages at the bottom end will be driven up and closer by market forces and competition. Then we can start concentrating on leveling the international field.


There is so much more depth to this idea. When I offer this idea one question I often get is "Why shouldn’t a CEO be able to make as much as he can get?" The answer is he can as long as he brings his employees with him. A person making $258 million dollars a year including the stock options didn’t get there on his own power. You are not going to tell me that the golf playing CEO of ford plant works harder and is that much more deserving them my father who busted his back on the assembly line. There were plenty of hard working employees below him. I also get a lot of comments about the poor just spending their money on socially unacceptable items. "So what, as long as they are spending it. A politician is not concerned how rich or even how poor you are directly. I am to design policies that keep the economy healthy. If I design a policy that causes a billionaire oil baron looses his mansion but 10,000 gas station attendants can afford to send their kids to college, I did a good job. I will earn 10,000 votes to his one. The policy doesn’t infringe on the rights laid out by the constitution. America will be a stronger and more free country because of it. That is the job of the elected official. If it did infringe on constitutional rights, in this case then a minimum wage law would have been declared unconstitutional years ago.

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