Saturday, January 02, 2010

Economics Reality Check

What happens to cost-of-living-adjustments (COLA) when the cost of living doesn't go up? If you get an adjustment because costs have risen that isn't a "raise" in pay. It is a legislated mandate to maintain your purchasing power. That is a violation of essential free market principles, but it gains a lot of political traction for pandering politicians who are giving people something for apparently nothing. An underlying assumption is that if COL has risen then receivables for the typical business have risen in response to the price increases so it really isn't even a tax on the business owner. That may or many not be true depending upon complex interactions such as cost of raw materials for the business, transportation of products, maintenance/acquisition of production materials and inevitably the market's response in terms of demand for the product of the company.

But this past year the COL has dropped. In some areas the cost decrease has been dramatic. That means a rational COLA would be a reduction in wages to maintain equivalent purchasing power. But, in a populist, panderer driven system that can't be allowed, so many COLA laws only allow increases not decreases. Colorado, however, seems to have overlooked that possibility.

No Cut Cuts to Minimum Wage

When is a cut not a cut? Why that happens when your cut authorized by state law will then be lowering below federal law. A good capitalist at that point would be asking why either the state legislature or the US Congress is intervening between a buyer and seller of labor in a free market. But that no longer happens in America.

I've got no dog in this hunt. I've never worked for minimum wage in my life. But, maybe that is because I've worked hard at what I've chosen to do and I've prepared myself to compete for jobs that pay well above minimum. That always seemed like a no-brainer in this land of opportunity.

"It is hard to make it, hard to get by," said John Mullen, 50, an out-of-work construction worker waiting for a bus on a bitterly cold New Year's Eve in Denver. Mullen said he remembers making minimum wage at a factory and having enough for small comforts.

"You'd get paid every Friday, have enough money to go catch a poker game or take your girl out to a dinner," Mullen said. "But the law is the law. What can you do?"

I can't get sympathetic for John. By the time you are 50 years old you should be able to get a job for more than minimum wage. You should have saved some as well so that if your work is seasonal, as is construction, then you can get buy during lulls. And, when you find yourself working for minimum wage, you might want to forego the poker game and plan some home cooking. Sorry. I don't even want to ask what the temperature in Denver at the bus stop has to do with the minimum wage story.

"Yeah, it's 3 cents an hour. But that 3 cents an hour adds up at the end of 12 months," said 59-year-old Gary Foeller of Denver, a house painter who hasn't worked in weeks but usually earns more than the minimum wage when he has a job.

Maybe my math is a bit rusty, but a 40 hour week at 3 cents an hour less means you're $1.20 short. Is that an impact that can be felt? And, if you haven't worked in weeks and didn't work for minimum wage when you did have a job, why are you effected at all?

At a Dairy Queen restaurant in suburban Centennial, owner Mike Trinh pays his six year-round employees and eight summer workers $8 an hour. Anything less, and the workers don't stay, he said.

"You have to be competitive if you want them to stay on and do a good job," Trinh said.

Mr. Trinh is apparently someone who could provide some elementary business training to our state and federal legislatures on how a free market works and how a business thrives. Some union leaders could also sit in on Mr. Trinh's class and consider why that nasty old management bunch would be motivated without government intervention to pay a reasonable and appropriate wage to valued workers.

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