Sometimes, I think it would have been fun to be an economist. Then I blink my eyes, shake my head a bit, and the feeling passes.
But my interest in the mathematics behind sustainable incomes and considering the big picture economy doesn’t fade.
So, there have been two articles in the past few weeks that caught my eye. One on IKEA’s U.S. plant woes, and the other on a “realistic wage“, i.e. the minimum salary to live in a sustainable way and be able to plan for retirement, etc.
IKEA’s $8/hour starting wage would be sufficient for a part time job for the second earner in a two income household with no kids and renting (31.5 hours a week, 50 weeks a year). To sustain a single person on their own, the worker would need to work 75 hours a week, 50 weeks a year (less if they get higher pay for the overtime). In Sweden, the minimum wage is $19/hour, with 5 weeks paid vacation.
Essentially, anyone making less than $15/hour1 is going to be dependent on someone else in order to make a sustainable living, get healthcare, plan for retirement. Add a kid into the mix, and the number goes up to $23/hour.
These numbers are based on the New York Times table, developed from the report by the Wider Opportunities for Women and Department of Health and Human Services.
So what happens in America if we take these numbers as real, and seek to improve the minimum wage? As labor costs go up, so do the cost of goods and services. As the cost of goods and services rise, the “reality wage” goes up. If the minimum wage is increased to counter that… is there a unstable feedback loop happening, or does the system stabilize?
If we purchase fewer goods and services to counter the rise in costs, does the economy take a nose dive? Or is the cost of goods and services kept in check by the lowering of the “wages” of the upper classes, thereby closing the income gap that has reportedly been growing over the last twenty years? (Is there enough money being earned at the top such that “re-distributing” some of it could make a meaningful difference at the bottom?)
It is easy to see why one might want to leave it to the Invisible Hand to set minimum wages… messing about with a complex system can have very undesirable results.
On the other hand… $8/hour just ain’t enough. The Invisible Hand is not necessarily wise, or correct.
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1This is using my 50 weeks/40 hours, no paid vacation model.