The Costs of too Low a Minimum Wage III

Another good article in Bloomberg View by Barry Ritholtz making the argument for a rise in the minimum wage.  This time he takes on Walmart.

Some excerpts:

 McDonald's recently found itself in the spotlight courtesy of its “McResource” line -- the company help line that helps its poverty-level, full time employees enroll in various welfare programs. A recording of that McResource line sparked outrage, driving this issue into public view.

More recently, Wal-Mart’s holiday public-relations headache began when a Canton, Ohio, store decided to hold a food drive for needy local families for the holidays. What made this a PR nightmare was that the needy families were full time Wal-Mart employees who were working in the store holding a food drive.

 And more to the point:

Why, I keep asking myself, do we effectively want to subsidize a private company’s employees? Wouldn’t it make much more sense to raise the minimum wage to a level that a full-time worker could support the average American family of four? Just $11.33 puts a 40-hour employee over the poverty line. The costs of this increase would be borne by the company and its consumers -- not the taxpayer.

The Costs of Too Low a Minimum Wage II

Another article I found on TBP related to the subsidies large corporations receive when keeping their wages way too low.

The target of this paper is Walmart.

Walmart

The Costs of Too Low a Minimum Wage

Interesting piece in Bloomberg View today by Barry Ritzholtz on how the US taxpayer subsidizes large and very profitable corporations due to the very low minimum wage.

Here are some excerpts:

Here’s where things get interesting: A full-time worker (40 hours per week) in the U.S. making minimum wage earns only $15,080 per year. For some context, median individual earnings are $40,404 per year (BLS), while the US poverty level is $23,550 (HHS). Full-time minimum wage earners make 62.7 percent less than median income and are 36.0 percent below the poverty level. (The number you probably hear quoted most often is median household income at $51,017, according to Census. The minimum is 70.4 percent below that).

 If the minimum wage had merely kept up with price inflation since 1968, than it would currently be at $10.77. That is $22,401.60 per year, bringing wages closer to the poverty line. Beyond inflation, if it kept pace with productivity increases, it would be closer to $20 per hour; annual salary would be $41,600, higher than the U.S. median. And just for laughs, if the minimum wage kept up with the earnings of the top 1 percent, it would be higher than $22, or about $45,760.

He closes by saying:

 As someone who does not especially care for fast food -- I worked in a McDonald's in high school, and lasted less than a weekend -- I do not support my tax dollars subsidizing large and profitable companies. Raising the minimum wage to $11.33, the poverty level, effectively shifts the cost of eating greasy French fries and over-cooked burgers from tax-payers to fast food consumers -- where they belong.

 Interesting stuff.

Is the US Economy Turning Around?

With all of the talk about the Fed tapering, you would think that all is doom and gloom in the US economy but is this really the case?

A strong argument can be made that the consumer seems to have made significant progress in de-leveraging after the housing and debt crisis.



The chart above shows the net worth of households and non profit organizations.  Rising net worth is a strong positive for the economy as the more secure one feels financially the more likely he will spend.  The problem with the above chart lies in the fact that net worth may not be an accurate picture of what is happening in the middle class.  Afterall, the big gains in net worth have occurred to shareholders who have taken a nice ride on the Fed liquidity train over the last few years. 

With this in mind, one has to look at Household Income.  This is a better indicator of whether the lower and middle classes are going to have the means necessary to contribute to the economy.  The picture seems a bit more bleak when looking at the chart below.



As you can see, the labor market has not been too kind to workers for quite some time now.  David Rosenberg, who is an excellent economist for Gluskin Sheff, seems to think that we are about to turn the corner and enter a period of rising wages.  As he says in the Financial Post in his latest piece:

Since the pool of available labour is already shrinking to five-year lows and every measure of labour demand on the rise, one can reasonably expect wages to rise discernibly in coming years, unless, that is, you believe the laws of supply and demand apply to every market save for the labour market.

 Let’s get real: By hook or by crook, wages are going up next year (minimum wages for sure and this trend is going global).

 With this in mind, the most fascinating statistic this past week was not ISM or nonfarm payrolls, but the number of times the Beige Book commented on wage pressures: 26. That’s not insignificant. Again, when I talked about this at the Thursday night dinner, eyeballs rolled.

In addition to the promising signs for the consumer.  As shown in the 5 year chart below, it also seems like state governments have put their books in order and are beginning to spend again on things like infrastructure.



One of the most important events that will help the economy is the bipartisan budget agreement which, if passed, will keep the federal government open for the next two years and allow many business owners the opportunity to focus on increasing sales as opposed to the scoundrels in Washington.

In addition to this the federal government has also done a great job reducing it's deficit as shown below:



So the economy seems to be turning around and getting it's act together.  This is why the Fed seems prepared to start it's tapering measures and one would think that it would help the market continue it's torrid pace up.  This may not be the case however, as the market may not have the strength to continue it's rise.  Again according to David Rosenberg:

In a nutshell, I feel like 2014 is going to feel a lot like 2004 and 1994 when the economy surprised to the high side after a prolonged period of unsatisfactory post-recession growth. Reparation of highly leveraged balance sheets delayed, but, in the end, did not derail a vigorous expansion.

 That by no means guarantees a stellar year for the markets, because, as we saw in 2013 with a softer year for the economy, multiple expansion premised on Fed-induced liquidity can act as a very powerful antidote. Plus, a rising bond-yield environment will at some point provide some competition for the yield delivered by the stock market.

 While 1994 and 2004 were hardly disasters, the market generated returns both years that were 10 percentage points lower than they were the prior year even with a more solid footing to the economy — what we gained in terms of growth, we gave up in terms of a less supportive liquidity/monetary policy backdrop.

The bottom line is that nobody knows what the market will do but things do seem to be pointing up for the economy in 2014.