All Topics / Opinionated! / What is wrong with a 5% wage increase?

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  • Benny
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    @benny
    Join Date: 2002
    Post Count: 1,416

    To me, the thing that is wrong with an across-the-board wage increase is that EVERYTHING then goes up by that amount (or more).  This is how I think of it:-

    1.  A Govt awards a 5% increase to the minimum wage – this is then followed by other awards also seeking a similar lift.

    2.  Businesses then need to pay their workers 5% more, so they need to lift their prices to keep their business afloat.

    3.  Other businesses are involved in your business – think transport, manufacturing, utilities, etc.  With each of these lifting by 5%, some of them become additive.  i.e.  Your business may have middlemen who also lift their rates, so your costs don’t just go up 5%, but 10%, or 15%.   ba-boom !!!

    4.  The whole economy has an inflation lift of MORE than 5%.

    5.  RBA steps in and lifts (no, not 5% – that would be dire !!!) cash rates by 0.5%.  Depending on where it lifted from that will multiply that 0.5% lift.  e.g. If your mortgage was at 3% and it goes up 0.5%, that is a 16% lift for each IO loan (probably about half of that for a P&I).

    At times, I wonder if we’d all be better off with a wage cut !!!

    Thinking on this took me back to the early 80’s in New Zealand when the Prime Minister at the time (Robert Muldoon) went about things in a different way – he gave all wage earners an $8 a week increase.  This gave MOST benefit to those on minimum wage (about $100 a week back then).  They got an 8% increase.  Those on higher wages still got $8 a week, but their % benefit was less (those on $200 a week got a 4% increase).   Muldoon said at the time “the cost to the economy overall was just 2.9%”

    Not a bad way to go, eh?  Shouldn’t ALL wage increases be dollar amounts, rather than continuing to increase the wealth gap with each pay increase?

    What do YOU think?

    Benny

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