Is Inflation the Only Flaw in Paying Everyone a Livable Wage?
The argument that paying everyone a livable wage would lead to inflation is often dismissed, with the belief that market mechanisms would naturally solve the problem. However, a deeper examination reveals that the root issue lies not in the concept of a livable wage but rather in the definition itself.
The Flaw in the Term "Liveable Wage"
The term "liveable wage" itself is problematic. If a wage is inadequate to sustain life, then by definition, the recipient would be unable to support themselves, leading to a significant decrease in labor supply. As a result, this would push wages upward, addressing the issue within the free market system. It is important to clarify that if the lack of a livable wage were indeed an insurmountable problem, it would be resolved spontaneously through natural market forces.
No Reason to Expect Widespread Inflation
Another misconception is that paying people a livable wage would directly cause inflation. In reality, inflation is more likely a product of uncontrolled banking systems rather than wage increases. For instance, in the United States, total wages paid per year are around $9 trillion. During the Trump administration, the federal government spent about $8 trillion over four years, yet there was no significant inflation until the second quarter of 2021. This suggests that inflation is driven more by monetary policy rather than wage increases.
Furthermore, central banks could potentially flood the market with more money, but the impact of increasing wages on inflation remains relatively minor. The real dilemma lies in the trade-off between wages and profits, as higher wages reduce corporate profits and vice versa. It is the owners of large businesses who set the policies, influencing this delicate balance.
Wages are Based on Value and Skill
The idea that wages should reflect the value of work and the skill of the employee is a valid point. Wages are the result of a two-way negotiation between employers and employees. Companies do not have to accept offers that pay insufficiently, and employees can seek higher wages from employers offering better salaries. Similarly, employers do not have to pay more than a worker's intrinsic value; they can always hire someone else for lower wages.
The Challenges of Defining a "Liveable Wage"
Defining a "liveable wage" remains a complex and subjective issue. What constitutes a livable wage varies greatly based on geographic location, cost of living, and the type of work involved. For instance, what is considered a livable wage in California might differ significantly from what is considered livable in Mississippi, considering their distinct economic conditions.
Additionally, many low-wage jobs are performed by individuals who are either illegal immigrants or teenagers engaged in temporary work like summer or afterschool jobs. These workers might not benefit as much from a standard livable wage since their work may not be essential for business operations. Jobs like flipping burgers or washing dishes are often low-skilled and can be performed by anyone, making it challenging to justify higher wages based on skill levels alone.
Addressing the Issue through Economic Policies
Instead of mandating a national minimum wage, which would increase costs and potentially lead to inflation, policy-makers should consider existing mechanisms for addressing low-income issues, such as the earned income tax credit. This mechanism already subsidizes low-wage workers without forcing individual businesses to do so. If the government wishes to provide additional subsidies, it should do so through the federal budget rather than through wage mandates.
To summarize, the debate over paying everyone a livable wage is more complex than the fear of inflation suggests. The market would naturally adjust wages if they were not sufficient, and economic policies should focus on existing mechanisms that effectively address the needs of low-income workers without distorting the free market.