On Wages, Inflation and Value

 

 On Wages, Inflation and Value

Monetary value is all relative, and it is based on the value of labor and it productivity, and the perceived value of agreed-upon exchange for goods. If we raise the Minimum wage, we devalue the value of the wage. Within the short term, prices adjust, but the value of investments and savings has shrunk by virtue of the now lower evaluation of currency.

The result is that people are hurt by raising wages by fiat. Inflation, which corrects for the artificial increase in wages, these zeroing out, and often leaves people worse off than they where before the attempted mitigations.

In the time of readjustment in Value, the very bottom of the earning may feel they are benefiting, but as both low-paying jobs get eliminated and as inflation comes in to re-adjust the values, they often end up not as well off as they were before the increase in Minimum wage. Worse is the long term effect on people just above Minimum wage, as they often do not see a proportional increase in wages, but get hit by all of the increasing cost of Living created by it. The result is,working class people and retirees get hurt by Minimum Wage increases.
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What we should be doing instead is working on how to get the valuation of labor to be worth more, or the buying power (the medium of exchange) to have greater value.

Let me explain:, If a person to day, making $10 per hour, goes to the Store and buys with one hours wages 1 quart of Milk, 1 Dozen Eggs, and a Loaf of bread (about $7.58 if one a good shopper) and in 6 months, the person Making $15 per hour, buys that same 1 qt. Milk, 1 Dozen Eggs and a Loaf of bread (but cost now $11.37) And every thing else has raised in cost the same, so that the net increase is neutral, but any Savings or Investments have now decreased in relative power.(this is what is called Inflation, ones dollar buys less, which is but another TAX, one which no benefit is reaped, but like a leach, sucks the life, the value away, to be seen no more)

Now lets take that same person, today making $10.00 per hour, if in 6 months they, with their one hour wages, buy the same, but it only costs them $6.89, they are now ahead.

In the Same way, if we can reduce the amount of Tax's on that person, so that there NET income where to grow compared to gross, I.E. that $7.58 per hour take home off of $10.00 per hour pay where to be instead, $8.00 per hour net. That is, it the buying power of the currency we should be concerned with, not the numerical assignment of imbursement (Minimum wage)

What is a Wage? It is an amount of compensation which is accepted in an agreement between the Employee and Employer in Exchange for Labor, Work, that is, I agree to do “X”, in exchange for “Y” compensation.(X =work or Labor, and Y = imbursement, compensation, recompense)

What is a Minimum Wage? It is a baseline evaluation, where the Government, be it City, County, State or Federal, has decided that No agreement can be negotiated below.

(There is an exception to this, where a person can not, by law enter in to an agreement below the Minimum wage, a third party, the Unions, can negotiate and enter in to an agreement that is legally biding on the workers and protected by Law, for less than the Minimum wage. This is not as un common as it might seam, (In fact it rather common) and is currently taking place in Los Angeles, where the Hotel Works Union, not having much success in organizing the Hotel workers, has hatch and is now implementing a plan, where by they've lobby the City of Los Angeles to raise the Minimum Wage of Hotel Workers to $15.00 per hour, but the same union pushing this is going to the Hotel opperators and offering them a deal, that if they will sign a Project Labor Agreement with the Union, thus requiring ALL of there employees to join the Union in order to continue to work there, the Union will sign a 2 year contract for $13.00 per hour +the holding of the Union dues.)

Minimum Wage is always an idea, popular with the populace, but a Devils Bargain.
By having a baseline, baseline jobs often migrate to that amount, thus people on the lower ends of earnings may actually be settling for less than they would otherwise. Also, for each step, a Minimum Wage is set above a portion of the working class is deemed to not be worth the new higher cost, that is there value added to the company is judged to no longer be a positive, and as such, these people are then turned out, expanding the roll of the unemployed.

What is Money? Many people have not put much thought in to this, but it is simply a mutually agreed upon unit of representational value for the purposes of exchange.
Atone time, we had Gold or Silver in the coin itself, we then moved to paper currency, where the precious mettles which backed up it value were stored somewhere. Then we went to a currency totally dependent on the people's trust in it continuing worth.

But why Money at all?, Well, it so much more convenient than carrying around Cows, Pigs, Sheep, Goats, Geese, Ducks, Chickens, Rabbits, eggs, and fish in our pockets.
Imagine you in the store, you want to buy a bed, you ask the merchant how much, he tells you, “Oh, 2 cows, 3 sheep, and a Rabbit”, You answer back, well, I only have one Cow, 10 sheep, 5 goats, no rabbits and 20 Chickens in my pocket. 1st.Question: How many Goats equal a sheep? How many sheep equal a cow,2nd, how do you fit all that in your pocket?

A Better way to understand Money to day is to look at it as a representation of a Unit of Labor. Thus,If I go into a restaurant, I look at the menu and then decide if the offerings I find appealing are worth me giving up (exchanging with) a fraction of or number of units of Labor. I might decide that a hamburger is worth 1/3 Unit of Labor, so I make the deal, but the so called Value Deal, which would set me back ¾ of a Unit of Labor, is not worth it to me, so I chose to pass on it.

One person, because they are doing a job of low value, may earn 1Unit of Labor per hour, another, because of their great skill, either by means of education, or years of honing some art or craft of value, may earn 1 unit every quarter hour ( thus accumulating 4 per hour)

Now this brings us full circle
It really does not matter that a Unit of Labor receives $1 Dollar, $4Dollar, or $10 Dollars, in the marketplace; over time, that Unit value remains constant as far as exchange.

Conclusion is, the government can not raise the buying power of people by FIAT action of increasing the minimum wage, it in aggregate self-adjusts back to it equilibrium balance.

To raise the standards of Living, the Government needs to instead look at how the value to units of Labor can be increased. Either by lowering taxes that drain from the Value of Labor, or /and working to create a more competitive, innovative marketplace.
It is by these that the ability of people to be more productive, to bring better products at lower cost, and production innovations, which allow each person to be more productive, and thus making each unit of labor worth more.

Some would say that does not work, but look through history, it is what has

always worked.
In 1870, approximately between 70% and 80%of the United States population was engaged in agriculture. Today, To day

using 2008-2010 data, it is less than 2% of the country's population is directly engaged in Agriculture.

As each farmer has become more productive, the price of food has come down, and labor and energy has been released to be employed in other ventures.

As man first came out of the trees, then developed Farming, then Irrigation to water those farms, the plow, the domestication of the Ox to pull the plow, then the Horse, which could plow more acres ina day, then the more efficient Mobar Plow. Man has become more efficient, going from a subsistence living to being able to feed others.
This

has happened in every Industry, with two results: the cost of the product getting less expensive, and the value of the Labor worth more.


Curtis Neil. Copyright 2015
October 25th and 26th. 2014