Wage Disparity- and Outside The Box Approach

This is going to be a rehash of my main economic soapbox. But A) I don’t write here often so not even John is looking anymore I don’t think, and B) I am working on a new more readable writing style for these complex idea posts.

The problem:

There isn’t enough wealth flowing through the system to generate the needed revenue to run all the government responsibilities and culturally driven expectations. Being aware that the government only collects taxes on money that changes hands between American citizens (at least at the federal level) and all attempts to inject “cash money” that was empty and void of actual wealth (determined by taking ones assets then subtracting liability obligations and coming up with ones “wealth” amount) has failed. A way to encourage that flow while respecting the constraints of a free market society is in order.

The proposed solution:
Exchange the current practice of requiring a minimum wage for one of a minimum percentage of highest income. This would be known as a “minimum percentage”. This would require a company to pay its employees no less then at least a minimum percentage of its most highly paid employee. For purposes of this policy all incomes will be considered to be on 52 weeks with 40 hours worked.  Overtime will not be considered when determining a company’s minimum pay rate. This rate once assessed will apply to all wages paid not only to direct employees, but to contractors and subcontractors. The 1099 environment will be abolished or limited to those who make more then $60,000 a year. A specific date will be assigned at which all stocks will be considered at that days rate. (Hey, they are stocks, they are a gamble.) Say Dec. 31st. everything that an employee was paid in cash other compensations and benefits. This will result in attaching the success of the top income earners to the backs of those laborers people they employ.

A real life example.

The CEO of Wal-Mart made nearly $19 million last year. Divide that over (52) forty hour weeks and you have a rate of $9134.61 per hour for Michael Duke, the CEO. His in store workers made and average of $250 a week or 6.26 an hour. That is a wage disparity of .07% (that is not a typo. That is 7/ 100ths of a single percent). (Note: this doesn’t consider an audit of every company that supplies goods and services, either foreign or domestic to Wal-Mart subject to this policy.) He made many thousands of times more then his least paid employees.

As an example, the policy is enacted with a requirement of all companies to pay .4% (4/10 of a percent). So, the janitor, the stocker, and the clerk will all be paid at a rate of $36.54 If Wal-Mart chose to continue to pay its CEO $19 million dollars. Instead, Wal-Mart could choose to pay its CEO less. For instance they could choose to pay its CEO $1 million dollars and the employees $1.92 an hour. (.004 *$1,000,000)/52 weeks/ 40 hrs per week.) Of course the CEO will have to accept an $18 million pay cut and its employees will be very undependable if they pay the minimum. (That is until the price of everything started coming down.)  At the end of the day, they will still have to offer their employees enough money to keep them interested in work. They will have to compete with McDonalds who is paying its employees 19.23 cents an hour since they pay their CEO $10 million.

What will the corporation do with all that money?:

If a company chooses not to raise their employees’ wages, (or to lower them) they will have a surplus of cash. Some companies will be obligated to pay out that cash in dividends. Those are taxed. If those dividends are paid to employees, then that is considered part of their compensation. Others are taxed at a standard rate. This can be anywhere from 15 to 39% depending on your tax bracket. They could use the surplus to negotiate a benefit for all their employees. They could let it sit in a bank, which would allow for more money to loan at a lot cheaper rates. That would spur small business. They could donate it to charity. They could lower their cost on their products leaving more money in the pockets of the consumers. They could lobby for a tax increase. Any of these would put money back into circulation.

What about the employee making $2 and hour?:

First, nobody is going to work for such a low wage in this economy. (Only 50 years ago minimum wage was under $1 an hour.) Most likely the CEO won’t take a $18 million dollar cut. If Wal-Mart tries 2 things would happen. 1) their employees would seek work elsewhere, their customer base would shrink as much of their sales come from their own employee. More then likely something like paying Mr. Duke $3.5 million and continue to pay their employees the same wage. But for all the reasons above there will be money circulating in the system. However, we could leave in place a minimum wage as well, or a phase out of it over years. Somebody will open a resteraunt selling burgers to the local carpenter and pay their employees more then these low wages.

Who decides that actual rate?:

This would be a legislative passed plan. It is designed to give the legislator control of economic flow. Just as the minimum wage might be preserved, the initial rate may be in the area of the current wage disparity. A “phase in” period designed to bring the economy to a rate of 1% wage disparity should be considered. This would allow the policy to come in with no impact at first. But, corporate America would know it was coming. After that, the legislators could use this rate as an open and direct tool in order to squeeze money back into the economy. The economy starts to stall, increase the rate. The government starts making more then it spends, relax.

Who determines if a company is following the regulations?:

Like any other tax obligation, steep penalties for anybody caught intentionally violating the minimum percentage policy would be assessed. A hiring of auditors who not only go through the US corporations records, but also those of their overseas suppliers to ensure that every employee in a Chinese factory makes as much as the Wal-Mart clerk. We will need a lot of accountants and ones that speak foreign languages. That can’t be a bad thing in DC.


The US economy will be awash with cash. Cost of goods will be driven down. Small business will be able to compete with the giants. US manufacturing will be able to compete with its foreign counterparts. It does it all without raising a single tax.

Remember to pencil in "LOL" for president.



charles biddie said…
I like this idea. I believe it could work, but you know as well as I do it will never happen.
charles biddie said…
I like this idea very much. If it was implemented into place inside just a few short years we would have a surplus of money and the economy would be booming. Unfortunately, we know it will never happen as the CEO's will refuse to take the pay cut or give their bottom of the barrel employees that kind of pay. I could not see as how a cashier should make $31/hour. It was a well written piece overall.
Lord of Logic said…
Charles, The point is that cash and pays have relative values. IF you could go back to 1955 and tell a coal minor that a clerk would one day make $7.00 and hour, miner would laugh as he was bringing down a healthy $1 an hour.

If the CEO doesn't take a "pay cut" he can go work elsewhere. I am willing to bet there is somebody out there willing to make a cool 2 million a year and clerks would make 20,000 a year at 1%. Lots of farmers said they would never support a country where salves were free. Yet they did.

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