Another Obama “Smoke and Mirrors”

In yet another cynical over- reach of authority President Obama just raised the minimum wage for workers on Government contracts.

This is cynical because most employees on Government contracts are already paid more than the “new minimum wage.” Many Government contractors are already mandated to pay the “local prevailing wage” if it exceeds the minimum wage.

This is yet another case of symbolism over substance. It will change almost nothing. It will do almost nothing. It will benefit almost nobody. BUT it sounds good and has positive political benefits.

Minimum wage is an interesting concept. It decrees that everyone is worth at least that amount. It assumes that everyone has the same minimum value in the workplace.

In reality it is the consumer who has the authority to approve any wage. No governmental dictate can change that.

Business expenses are broken down into categories. There are wages, buildings and equipment, raw materials and delivery and governmental licenses taxes and fees. If these combined expenses exceed the wholesale value of the items produced, the business will fail.

I often hear “unions destroyed manufacturing in America.” This is not true. When unions were started there was a labor surplus. Workers were considered expendable. Employees could be replaced easily.

Unions gave the workers a voice and manufacturing became more skilled making workers with skills more valuable and harder to replace. In order to retain skilled workers who were in demand wages rose.

This is not an opinion. The same thing has been happening since the beginning of human history. The best hunter or warrior was more valued than other members of the group and was rewarded by the group.

Prior to the bubonic plague the majority of the population of Europe were serfs. Their position in society was worse than slaves. They were forced to work but the master was not responsible for their food, clothing and housing. They could not relocate or complain. They could be beaten and killed and had no recourse.

Following the plague there was a labor shortage. In order to maintain their estates the landowners were forced to offer wages in an attempt to find a labor force.

Still, the consumer sets the wages. A man told me that wages in the Ford Motor plant were destroying the automobile industry. He had just purchased a new Ford F-150.

He claimed he got a good buy.

That price included building the truck, transporting the truck, selling the truck and warranty work on the truck. Every person involved in the transaction was paid. If he got a good buy on the truck no one could have been overpaid.

Last week I bought a package of 50 clothes pins. The cost was 99 cents. That is less than 2 cents each. Guess what? They were made in China. That 99 cents included manufacturing two pieces of wood, a spring and putting the parts together. Then they had to be packaged, transported to a ship, sailed halfway around the world, transported to a warehouse, delivered to a store and sold to me by a clerk. This is excluding taxes, business licenses and maintenance for the store.

Suppose I could make the same clothes pins in America. At a selling price of 99 cents the wholesale price would be 60 cents per pack. The cost of sales and transportation would be 10 cents. This means I would have to manufacture them for less than a penny each.

If I paid my workers less than minimum wage I would be in legal trouble and no one would work for me. Since I couldn’t compete and pay a fair wage my pins would cost more and you the consumer would probably choose to buy the Chinese pins. My factory would close and my employees would be unemployed.

As I stated earlier, It is the consumer who determines the fair wage for a product.