In 2017, the top 1% of Americans earned a record amount of money. That year, the average income of someone in the 99th percentile was a whopping $492,311. As a result, income inequality has come into the fray as a major point of discussion in recent years. Specifically, Bernie Sanders has focused on it heavily, arguing that the divide is too great. Many others disagree. One fact, however, complicates the income inequality debate: as the rich are getting richer, so are the poor.
By Othman Mekhloufi | United States
Left-wing and Keynesian economics have overwhelmingly called for an artificial raising of the minimum wage. This has been due to the belief that all workers must be paid a living wage regardless of their line of work or skill set. Essentially, this is a belief that it is unfair to not compensate workers with a living wage. However, to require employers to compensate their workers with higher wages will only play to the disadvantage of said workers through the inflation of prices, unemployment, as well as the cutting of work hours. Hence, resulting in a worse off economy for all individuals, and simply an unpragmatic economic policy.
The minimum wage is the legislated minimum amount of money an employee may be legally paid for their work. This minimum wage, whatever it may be, is not necessarily a living wage, but rather a wage paid for jobs which require a minimum amount of skills. For instance, if a worker were to create more than twenty dollars an hour for their employer, they would be compensated for twenty dollars an hour, or less. In essence, workers are paid according to how much they produce, and how much is possible to pay them. Such a method of compensation allows businesses to remain financially afloat by being able to make money at all, and, in turn, pay off expenses.
As a general rule, it is positive for all individuals for a business of any size to remain afloat. When businesses are present in the economy, it allows for a product and/or service to be provided to the consumer end of the market. In addition to this, jobs are created with the existence of the business, as well as its future expansion.
However, when the minimum wage is artificially raised by the government, employers will be legally required to compensate some of their employees for possibly more than they initially produce.
Considering small businesses, this will result in one of two major negative economic repercussions. The first of which is work hours getting cut and employees getting laid off, resulting in the business most likely ceasing operations. The second impact is inflated prices, resulting in individuals, as well as the economy, being harmed.
When small businesses must compensate their employees for more than they initially produce, compensation is rendered financially impossible. As a result, small businesses will be effectively forced to lay off employees, causing unemployment.
Having to lay off many employees, small businesses will be unable to continue their production, resulting in businesses being forced to cease operations. Considering the fact that small businesses are not as large-scaled as others such as McDonald’s, automation to replace workers would not be a viable option as it would be unaffordable.
Through causing small businesses across the board to cease operations, unemployment is bound to be brought upon the economy. In addition, the product and/or service that the business initially provided to the consumers would be brought off the market causing additional burden to customers who relied on said product and/or service.
For example, if a small business has workers that produce thirteen dollars for each hour of work, but compensates said employees seven dollars and twenty-five cents an hour, it would allow for the small business to rake in five dollars and seventy-five cents per work hour after paying employees. These five dollars and seventy-five cents would be used to pay other expenses, make a profit, as well as generally stay financially afloat. However, when the government is to raise the minimum wage to fifteen dollars an hour, the small business would be forced to pay employees two dollars more than they initially produce. In turn, the business would begin to lose two dollars for every work hour, as well as experience a total absence of income. In light of having no income, and losing two dollars an hour to compensate said employees, and to remain financially afloat would be impossible. Such would result in the small business having to lay off said workers.
In this case, automation would not be a viable option for said small business as it would be unaffordable. In the case where it would be affordable, said business would not be small, but rather one of larger scale.
Due to being unable to automate, and having a lack of labor, the small business would be unable to produce the product, and/or service which was initially produced. In result of such, the said small business would be forced to cease operations.
To avoid laying workers off and, in turn, ceasing operations, small businesses have the option to raise prices to remain financially afloat. However, this option is in itself still a negative economic repercussion for both the consumer, and the business. If businesses are to raise prices, many customers would be driven to competitors who offer a cheaper price, or would simply cease purchasing said product and/or service as a whole. In turn of such, businesses would begin to lose out on income, and the customers who remain would be financially burdened with higher prices.
Such economic repercussions are not limited to small businesses as the same has occurred with Starbucks in 2018. Starbucks had announced that it would be closing roughly three times as many stores in 2019 than it usually would in a year. The closures of these Starbucks locations will be focused in densely populated and urban areas on the west coast, as well as in the northeast where the minimum wage is particularly high. Starbucks CEO, Kevin Johnson, had stated that the affected stores are “in major metro areas where increases in wage and occupancy, and other requirements are things that were making those stores unprofitable.”
In the case of larger scaled businesses and corporations who would not go out of business due to an increase in the legislated minimum wage, negative economic repercussions would continue to take place.
When the minimum wage is artificially increased by the government, businesses that are able to stay financially afloat while paying their workers more will experience income loss nonetheless. Businesses, in all cases, will want to mediate income loss to the greatest possible extent for furthermore profit. To deter such income loss through spending less money, said businesses will cut work hours, lay workers off, as well as raise the prices for their services, and/or products.
Inflation of prices would drive customers to competitors, as well as cause the business to lose out on income as a whole. Because of this, price inflation is an unlikely method to combat a loss of income for larger scaled businesses as they can afford other means to do so. Most prominent of these other mechanisms to cut income loss is to cut work hours, as well as lay off employees.
This was seen in an estimation made by the Bank of Canada stating that over sixty-thousand jobs will be lost by the year 2019 due to minimum wage hikes; along with a study conducted by the University of Washington which had observed that after Seattle’s minimum wage hike from $9.47 to $11.50 an hour, there had been only a one percent decrease in low wages.
When workers are laid off to mediate income loss, they must yet again be replaced by an entity to continue doing the necessary work the business requires. In response to such, automation of labor comes into play. We witness this in today’s world as McDonald’s has announced that they will be replacing cashiers with automated kiosks in all 14,000 of its U.S. locations as of 2020. In addition, McDonald’s had announced that it was prioritizing such automation in locations with prominently high minimum wages such as Seattle, and New York City.
After nineteen of the American states had announced a minimum wage increase to ten dollars an hour in January of 2017, a month later in February, the CEO of Wendy’s had announced financial shifts within the company. Wendy’s CEO had announced a four percent rise in wages, along with an eight percent loss in margin. In turn of this, although not confirmed, but evidently understood with the previously explained economic theory, Wendy’s had announced a plan to install automated kiosks sixteen percent of its locations; a cheaper alternative to conforming to the minimum wage hikes and paying workers more.
With all economic theory, and evidentiary claims considered, it can be understood that artificial hikes of the minimum wage will indeed result in unemployment, cutting of work hours, shutting down of small businesses, as well as the inflation of prices; all resulting in a furthermore disadvantaged financial situation for workers, the individual, as well as the entirety of the economy itself. Therefore, inherently proving that a hike in the minimum wage would be detrimental, and counterproductive to the goal of left-wing, and Keynesian economics.
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othman Mekhloufi | United States
The Amusement Tax
The City of Chicago is now levying taxes on amusement, entertainment, or anything remotely fun-oriented.
The City of Chicago’s Department of Finance, rather than the City Council, issued a new tax ruling called an “amusement tax”. This tax would subjugate any residence within the official city limits of Chicago to pay a 9% tax, in addition to sales tax, on anything which is remotely related to amusement; whether it be streaming movies on Netflix, playing video games, or going to a football game, such a tax would apply.
Here is the following list of all the assortments to be taxed according to the ruling itself.
“Any exhibition, performance, presentation or show for entertainment purposes, including, but not limited to, theatrical, dramatic, musical or spectacular performance, promotional show, motion picture show, flower, poultry or animal show, animal act, circus, rodeo, athletic contest, sport, game or similar exhibition such as boxing, wrestling, skating, dancing, swimming, racing, or riding on animals or vehicles, baseball, basketball, softball, football, tennis, golf, hockey, track and field games, bowling or billiard or pool games; any entertainment or recreational activity offered for public participation are on a membership or other basis including, but not limited to, carnivals, amusement park rides and games, bowling, billiards and pool games, dancing, tennis, racquetball, swimming, weightlifting, bodybuilding or similar activities; or (3) any paid television programming, whether transmitted by wire, cable, fiber optics, laser, microwave, radio, satellite or similar means.”
With this ruling, there are also some exceptions. All venues held in auditoriums or theaters with a maximum capacity of not more than 1500 people are exempt from the 9% amusement tax. However, these venues must be in person live performances to be exempt from the tax. This exemption does not apply to movies or sporting events.
Currently, Chicago’s sales tax, with all jurisdictions considered, is the highest in the entire nation at 10.25%. With this amusement tax being set at 9%, it is also compiled onto Chicago’s default sales tax of 10.25%; meaning that the population of Chicago is not only stuck paying an astronomically high 10.25% sales tax, but they are also required to pay an additional 9% tax on any assortments in relation to the amusements previously listed.
The Impact on the Wallet
The economic repercussions of such a new tax would be quite negative for the City of Chicago. Said economic repercussions would revolve around the primary negative effect of margin loss. The government is now levying more taxes from the people via two separate sales taxes, one at 10.25%, and one at 9%. Because of this, less money will be the pocket of the populace. When the populace has less money in their pockets, they will have less money to spend. Because the populace will have less money to spend, businesses will lose out on customers, as well as profit. When it occurs that businesses lose out on customers, and income, one primary negative effect on the economy would take place; that being, margin loss.
This margin loss will always have two sets of negative economic sub-repercussions. The first set of sub-repercussions are unemployment, cutting of wages, as well as the cutting of work hours which fits into the internal-labor subsection. The second set of sub-repercussions are and the hiking of prices which fits into the consumer subsection. Meaning, that with such a tax, prices would in fact increase, and jobs, work hours, as well as wages, would all be cut.
The Impact on Employment
Let’s take a look at the first set of sub-repercussions; unemployment, the cutting of wages, and the cutting of work hours. Due to the fact that businesses will be losing margin due to fewer customers, they will always want to mediate that margin loss. To mediate this margin loss, businesses have two choices; either begin to raise their prices, or cut spending somewhere within the company. Usually, when spending is being cut, it is centered around wages and not other essentials of the company. This is due to the fact that if companies were to cut spending for such essentials, the product, and or service being provided would degrade in terms of quality. In turn, this would only result in furthermore margin loss due to the general premise that no consumer populace wants to purchase an inferior product with poor quality.
With this, we can determine that a margin loss, for whatever reason it may be, will indeed result in a spending cut. Said spending cut will be focused on wages. More specifically, when implementing this, hours will be cut, some individuals within the company may be laid off, and many wages will be reduced all to minimize for the loss in margin caused by economic government intervention.
Don’t Forget About Prices
Considering the second set of sub-repercussions, the hiking of prices, this also comes with its own extended economic repercussions. Other than the fact that cheaper goods mean best for everyone on both sides of the transaction, the hiking of prices comes with its own furthermore economic disparities. When prices are hiked to mediate a loss in margin, an even higher amount of margin loss will occur. This is due to the following reasons; when a company raises its prices for whatever reason it may be, and in our case, margin loss, the populace will be less incentivized to purchase said product, and or service.
Because of this, sales will go down even more, and the company suffers even more margin losses. For instance, a 2014 study conducted by YouGov found that nearly 1 in 5 of Netflix subscribers polled would cancel their subscription if the price went up by $1 a month. Nearly half of those polled would cancel their subscription if the price went up by $2 a month. If these increases in subscription prices would happen due to a loss in margin, Netflix would experience even more margin loss as it loses even more customers due to price hikes.
As we can now see that not only do price hikes burden the consumer populace as everyone enjoys cheap goods, but they also cause margin loss in companies which, if it were to be on such a large scale, would cause unemployment, cuts in wages, as well as cuts in work hours as previously explained.
Many may claim that the amusement tax rate may only be 9%, and at such a small rate, it would not cause any actual negative economic repercussions as previously mentioned. However, this amusement tax is estimated to levy $189 million in the year 2018. Not only this, but the amusement tax’s levy margin has been trending upwards since 2017 when it took in a measly $168.7 million compared to the $189 million of 2018. With the amusement tax raking in hundreds of millions of dollars a year, and with it only trending upwards, we can truly determine that such a large amount of money being taken out of the economy will indeed cause the economic hardships previously mentioned.
Although these economic repercussions have not been extremely severe in Chicago due to the fact that the amusement tax is only centered within one jurisdiction; if the western world continues this trend of large government economics, and a similar policy begins to be implemented on the federal level, the economic repercussions previously listed would scale to a very large extent affected millions across the board.
In reality, with such a tax, we would only cause economic hardships; unemployment, cuts in wages and work hours, as well as hikes in prices across the jurisdiction in which it was applied.
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By Craig Axford | United States
The UN’s special rapporteur on poverty, Philip Alston, has just issued a blistering report on poverty in the United States. He’s hardly the first to draw attention to this ongoing crisis. Given the lack of political will to do anything about it, he certainly won’t be the last.
Philip Alston’s findings follow a visit he made to the US in December of last year to assess what can only be described as a slow-motion social train wreck that threatens America’s long-term political stability. Included among his findings are some staggering statistics. For example, “the share of households that, while having earnings, also receive nutrition assistance rose from 19.6 percent in 1989 to 31.8 percent in 2015.”
The UN report is relatively short but attempts to use its 20 pages to describe some of the people and places behind the statistics it relies upon. Such efforts to humanize the data have become sadly uncommon within government publications in recent decades.
While we hear a lot about multimillion dollar bonuses and what percentage of wealth the top 1% control, personal stories about the poor and images of their unnecessary suffering are rare. Inequality is often substituted for the word poverty these days, with most of the attention drawn to data that shows how much the wealthy have as opposed to how little the poor are forced to make do with. As a result, it often sounds as though envy rather than justice is the motivation behind calls for change.
But extreme inequality is about far more than just you having more than me or vice versa. “If the only advantage of affluence were the ability to buy yachts, sports cars, and fancy vacations,” the Harvard philosopher Michael Sandel writes in the opening pages of What Money Can’t Buy: The Moral Limits of Markets, “inequalities of income and wealth would not matter very much. But,” Sandel continues, “as money comes to buy more and more — political influence, good medical care, a home in a safe neighborhood rather than a crime-ridden one, access to elite schools rather than failing ones — the distribution of income and wealth looms larger and larger.”
While more and more Americans go to work every day and require public help like Medicaid or nutrition assistance, those with the means to provide for themselves now increasing claim taxes are confiscation. The notion that taxes are a species of theft rather than the price to be paid for a politically stable society that fairly distributes opportunity to the greatest extent practicable is now orthodoxy among conservatives.
Progressives have inadvertently lent credence to the confiscatory view of taxation by focusing so much attention on the top 1% and what their tax rate should be, instead of speaking directly about the struggles so many Americans are experiencing. Indeed, US politicians from across the political spectrum speak relatively rarely about poverty directly, a fact which did not go unnoticed in Philip Alston’s UN report. “One politician remarked to the Special Rapporteur [Alston] on how few campaign appearances most politicians bother to make in overwhelmingly poor districts, which reflects the broader absence of party representation for low-income and working-class voters.”
Obviously, there’s going to be a very strong connection between a society’s priorities and its tax code. But by focusing so much on the gap between the rich and the poor and largely ignoring the actual conditions the poor endure, poverty is distorted into an abstraction. It’s almost as though many politicians think families care more about Bill Gates net worth than they do about putting food on the table and being able to go to the doctor without having to think about bankruptcy.
These days Democrats, in particular, tend to talk as though it’s self-evident that income inequality is the source of most of our greatest social ills, and that a simple adjustment to the minimum wage or increase in the Earned Income Tax Credit will do the trick. But it isn’t obvious to those living in gated communities, nor is solving the systemic problems that give rise to poverty that simple.
The wealthy no longer see poverty directly. Indeed, they’ve intentionally shielded themselves from it. When they do read or hear about the poor the message is often delivered through an ideological filter that casts them as lazy, drug-addled, and criminal. Until the elite are again connected to their communities, any steps taken to close the gap between them and the working class will be grudging and temporary.
The anthropologist Jared Diamond has pointed out that one of the most consistent characteristics found within societies that have experienced collapse has been the segregation of the wealthy from the communities that surround them. He laments the fact that history is by all appearances repeating itself. Writing for ABCScience in 2003, Diamond states that “In much of the rest of the world, rich people live in gated communities and drink bottled water. That’s increasingly the case in Los Angeles where I come from.” Diamond concludes that as a result “wealthy people in much of the world are insulated from the consequences of their actions.”
We’re not going to get the rich or the decision-makers over whom they have so much sway to see the light by reminding them endlessly that they make many times more than the poor. They know that already, and from their current perspective, it looks to them as though they’ve earned every penny.
Those with power and means need to be reminded regularly and directly what the day-to-day lives of people living in poverty are like. We must not be shy about asking those sheltered behind gilded gates what choices they would make on a minimum wage budget. We must insist at every opportunity that they put themselves in the shoes of the people they spend a lot of resources hiding from.
It was precisely this kind of invitation that led Senator Robert Kennedy to leave the safe confines of a Senate hearing room for his 1967 poverty tour. According to University of Mississippi journalism professor Ellen Meacham, “Senator Bobby Kennedy was on the Senate Subcommittee on Employment, Labor, and Poverty, tasked with assessing President Johnson’s policies.” During those hearings “Marian Wright, a 27-year old NAACP lawyer and the first African American woman admitted to the Mississippi Bar testified before the committee on behalf of Head Start — a program that had nearly lost its funding. During the hearing, she went off topic and discussed the overwhelming poverty plaguing the South — and invited the senators to it see for themselves.” RFK took her up on that invitation and the rest is history.
We no longer insist our elected officials, let alone the wealthy, visit the homeless to hear their stories. We don’t demand that those charged with making policy visit poor inner city clinics or struggling rural schools. Even philanthropists usually decide where to send their money by reading grant proposals instead of visiting the people their money is supposedly meant to help. We talk like policy wonks and argue as though if only the top 1% took a pay cut poverty would vanish. Most of us may not live in gated communities, but our rhetoric about poverty has become guarded and sterile.
Across both the political and the class divide poverty is now a faceless phenomenon addressed through platitudes, if it is discussed at all. We debate raising the minimum wage to $15 an hour, offering additional tax credits, and perhaps closing a few small loopholes without ever looking anyone in the eyes. We either demonize the wealthy or stereotype the poor because its easier for a culture to cope when responsibility can be shared by villains twirling their mustaches and lazy victims who refuse to get a job.
In any case, both the left and right have assuaged their guilty consciences by turning away. That they’ve turned in different directions is of little moral consequence. No one talks of “compassionate conservatism” anymore. There are no longer any Eleanor Roosevelts or RFKs doing tours of poor communities.
Even good policy decisions won’t endure within a culture that refuses to look poverty in the face. Inequality isn’t an injustice because some have too much. It’s an injustice because so many have too little in a land that has enough for everyone with lots to spare. Those people have names, and they know the elite have forgotten what they are.
Other stories by Craig that you might like:
- Who Are The Undeserving Poor? When I Meet One I’ll Let You Know
- Donald Trump’s Monumental Mistake
- Cambridge Analytica: A Case Study In Behaviorism Run Amok
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By Nick Hamilton | USA
You’ve heard both the left and the right assert their claims. The left claims that we need to raise the minimum wage as high as $15/hour. The extreme economic right claims that we should have zero minimum wage at all, and many people on the right who desire a minimum wage say that our current federal standard is too high and too harsh on businesses. However, the real solution to maintaining a stable economy isn’t raising or lowering the minimum wage; we should instead keep it the same federally, and leave it up to the states.
Here’s why we can’t raise it: inflation. The inflation that raising the minimum wage would cause is unimaginable. First off, struggling business owners would be forced to lay off employees, or if their company needs a lot of employees, they may even go as far as needing to shut down their business entirely, as they’d have not enough employees or money to function. Not only that but to be able to afford to even pay the employees that the business IS able to keep would require businesses to raise the price of their goods or service. This drives customers away, and it gets to the point where there’s an abundance of supply, but not enough demand. However, the business cannot lower prices, because they need every penny of every sale in order to comply with a $15/hour regulation that the government put intact.
Now, let’s go the opposite direction for a second. Lowering it isn’t a good idea either. Imagine yourself working hard in a factory, working 12 hours a day, 7 days a week. Under our current federal minimum wage, the lowest you can make would be around $609 per week with those hours, and with around roughly 10% taken out of that for taxes, you’re looking at around $550/week. You need that $550 in order to try and live your life, and in some cases, even raise children. However, if the US decided to abolish the minimum wage, businesses would be legally obliged to pay $0.00 an hour, or $0.00 a week, therefore making more people apply for welfare, which costs who money? The taxpayers!
Lowering the minimum wage from $7.25 could cause undesirable outcomes. Look at Bangladesh and their beautiful worker’s rights record. People work incredibly long hours for a few bucks in Bangladesh. Also, a lot of people overlook this, but our neighbors down south aren’t exactly dishing out the dough either. Mexico’s minimum wage equals out to around $4.00/hour. We have an immigration problem in this country, and one big reason is that people want to make more money while working the same hours in America! So, do we really want to lower the minimum wage? Do we really want to put OUR citizens in the same financial boat that many Mexicans are in right now?
Therefore, both sides are wrong in this argument. Raising the minimum wage isn’t the answer, and lowering it is just as bad. Therefore, we need to keep the federal minimum wage at $7.25, and if the states decide that they want to cause inflation by raising the minimum wage, that’s their problem, not the US’s problem as a whole.