Recommended reading: Marc Levinson's "An Extraordinary Time - The End of the Postwar Boom and the Return of the Ordinary Economy" or my title: Why leaders try variations of the same thing and wonder why it fails every time. Link to Barnes and Nobel book store.

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Minimum Wage Economics

Once apon a time there was a low income worker. Actually, low income workers always exist: the issue is being able to survive. Whether the consumption level is supported by direct wages or by subsidies the ability to consume enough to stay alive is always the isue.

The French Revoltion was not about creating a republic, but rather about the lack of food due to the Little Ice Age and the lack of interest of the aristocracy in the consumption level of the serfs. Preventing the repeat of people in the streets means almost 100% of countries to subsidize the low income consumption. Sometimes grain is subsidized, sometimes kerosine, sometimes housing, and so on.

What is the difference in economic flow and consumption levels if minimum wage is increased - and not even to a level that subsidies are not required.

Before we get into the economic flow issues, studies have found to be totally free of subsidies the hourly wage can be over $20/hour.

Can a McDonald's order taker afford to eat at McDonald's? Certainly their eligability for food stamps means their spenable cash can be directed toward McQuaterPounders; Housing subsidies do the same thing. 

The subsidies are, in actuality, wealth transfers from the middle/upper class allowing consumption that will not take place if minimum wages are increased to where the governemnt thinks they no longer have to offer subsidies. In the end, the transfer payments end up in the hands of the wealthy at the expense of the middle class.

Keep in mind the subsidies are a way to be competitive internationally. Check out the subsidies Germany utilizes.

In the U.S. subsidies take the form of food-stamps, rent vouchers, school lunches, emergency rooms at hospitals, and so on. What is the minimum level of living will government tolerate?

If minimum wages are increased and subsidies are curtailed the consumption of the minimum wage earners will be lowered.

Now I'm not saying minimum wages shouldn't be raised as their wages haven't kept pace with inflation, yet without continued subsidies to enable the minimum level of living problems will keep popping up.

Without subsidies the low-wage earner cannot afford the services of someone making the same wages. Wealthy people always make more than the workers for services they use. Not so with people below middle class.

The lack of subsidies if workers make enough for subsidies are vanquished is what scares the McDonald's of the world. In fact, the lower wages of the third world workers making apparel are the reason the low-wage workers are able to cloth themselves.

Before WWII most people who were middle class did not earn so much that the other people in the middle class couldn't aford their services. With the advent of machinery for manufacturing and the rise of the professional (lawyers, teachers, etc.) workers the consumption of our society became more concentrated. A good example how times have changed are decorations on sewing machines: now no one can afford decoration on anything they buy.

So take your choice: subsidize or raise wages to a point where subsidies are not necessary. These decisions must be made at the governemntal level since that's where subsidies originate. Is it necessary for a state to subsidize workers to attract business? Does business take advantage of the competition between states?  Do business subsidies result in a negetive result for the local economy? What if localities who give the subsidies are not in the grographical area gaining wealth but are still responsible for low-income workers?

It certainly seems the politics can be more important than the economics. Rapid change in minimum wages causes disruption of the normal and renormalization may take a long period or never occur. Does it take people in the streets to create a crisis for change?