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

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  • Profile photo of BennyBenny
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    @benny
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    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

    Profile photo of alexusblackalexusblack
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    @alexusblack
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    For me it sounds like you look at numbers not at values :-). Current inflation and change of price of consumers basket is around 5%. That means that value of money decreased by 5%, decreasing everyones salaries, rental income and so on. This is already a fact that happened due to amount of cash printed during pandemics by AU, US and others to stimulate economy.

    To increase minimum wage is to simply bring people who get it back to the income level where they were earlier, not to give them more money.

    Yes, this can possibly add little bit more inflation, but I would argue that it is already there but in hidden form. This hidden inflation is presented as imbalance of system between wages and costs. We simply have a choice to restore that balance at cost of extra 1-2% of inflation (total of 7%) or just let people get poorer and create new shittier balance for people of the country. And usually this would have highest negative impact on those with lowest wages as this would be higher % of their income.

    But that is just my opinion of course.

    • This reply was modified 4 months, 3 weeks ago by Profile photo of alexusblack alexusblack.
    • This reply was modified 4 months, 3 weeks ago by Profile photo of alexusblack alexusblack.
    Profile photo of BennyBenny
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    @benny
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    Hey Alexus,

    Thanks for your thoughts.  I agree with a lot of what you wrote, and no, I wouldn’t want those on lower wages particularly to be even worse off.  But then, what do you think of that “straight dollar uplift” I mentioned, rather than a %age uplift?   That would certainly help those on a lower wage, while those living comfortably would be hardly affected (and would still get those same extra dollars though not the same percentage uplift).   For those at lower levels, it may well allow them to keep eating, while for those on 6 figure incomes, a few extra dollars (or not) may make little difference.

    But yes, you are right – I do look at the numbers principally and they can tell an interesting story.  But I don’t think I do so to the total exclusion of values.  I just like to garner opposing thoughts to see if there can’t be “a better way to do things”.   Like, instead of a wage increase, wouldn’t a wage cut work?  So, everyone could cut their prices, their charges, and their payroll bills and we would likely ALL be better off, or is that just too naive?   No, not a trick question – just another opposing thought out of left field.

    Benny

    Profile photo of alexusblackalexusblack
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    I think that strait dollar or % are just different numerical representations of value change :-). We can issue it even in cans of tuna to make life harder for people, but this would still add value into economy. Both monetary bonuses and % min. wage increase are tools to increase volume of exchange medium in hands of people to compensate for increased worth of goods and services.

    Do you mean minimum wage cut? This probably cause more people to switch to social benefits instead of working, causing gov. to issue more $ and cause more inflation. To cut high earners salary is not in gov. power unless caps are introduces, but that would just make Australia less competitive in western world. Why would I earn less here if I can move to CA/US/NZ and earn more there?

    Profile photo of BennyBenny
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    @benny
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    Hi Alexus,

    From your answer, I think I haven’t explained things well – there is quite a huge difference between a dollar increase and a percentage increase.

    An example.   Let’s say the Govt orders a 5 percent lift in wages across the board.   Then to the person on $100 a day, he gets now $105.  To someone on $1000 a day, he gets $1050.    One receives a $5 boost, the other a $50 boost.    Quite a difference there.

    Taking the other line, a flat $5 increase per day gives the person on $100 a 5% increase, while the person on $1000 only gets a 0.5% increase.  So a flat $ increase can assist people on lower wages far more than those on a higher wage from a percent uplift perspective.

    As I said earlier on, a percentage increase just helps to widen the gap between rich and poor.   Whereas the flat dollar increase allows BOTH parties to afford an extra cup of coffee per day (i.e. it is equal for all, though the percentages look quite different).

    Benny

    Profile photo of alexusblackalexusblack
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    When you say lift 5% across the board do you mean minimum wage increase for all occupations by 5%? I don’t think government can directly increase wages in other way.

    It sounds to me that end goal of the flat increase you suggesting is to help people with lowest income without giving much to people with higher income. Would that be correct?

    Wouldn’t same be result be achieved if we increase national minimum wage only (and affected occupations), without adjusting ALL occupations? If I understand it right, that would help only people who are paid next to the national minimum wage but won’t affect higher income earners much. I dollar value that would be very similar to what you are describing. Or am I missing something?

     

    Profile photo of BennyBenny
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    @benny
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    Hi Alexus,

    Yes, I think you are missing something.  This part says it well I think:-

    the flat dollar increase allows BOTH parties to afford an extra cup of coffee per day (i.e. it is equal for all, though the percentages look quite different).

    To me, this seems to be the fairest way of all as all parties receive that same “extra cup of coffee”.  The other two options are unfair:-

    1.  A percentage lift for all unfairly penalises those on a lower wage (see the $5 vs $50 increase mentioned earlier), and

    2.  A minimum wage lift helps ONLY those on the lowest wage – those not on minimum wage get nothing (until they strike…)

    So, you see, that flat rate really does make sense.   And don’t worry about the wage cut – that was merely a thought (if prices go up when we all get a wage rise, perhaps a wage cut would drop prices more, making us all better off – but it was simply another “out of the square” idea).

    Anyway, thanks Alexus for your interest in this.  Me, I am a little surprised that others haven’t chimed in with a response as I find this a conversation with some value.

    Regards,

    Benny

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