Wage debate takes new turn

While the debate over raising the minimum wage continues in the United States, after Obama expressed his support for a raise to $10.10 an hour, the idea of a maximum wage has been introduced in Europe.

A referendum put forth in Switzerland in March of this year proposed strict limits on executive pay. This week, they will vote on whether to extend this proposal into wide-reaching, permanent legislation. The proposed legislation would limit CEO or executive pay to no more than twelve times the pay of the lowest-paid employee.

There is no stipulation blocking executive raises, as long as the lowest company wage is raised along with it. Supporters of the proposal claim they do not want to see Switzerland go down the same road as the US in terms of income distribution, income inequality and the creation of an elite group known as the “one per cent.”

Changes to the minimum wage and the mainstream discussion of a maximum wage reflect a desire for a reduction of economic inequality and more sustainable, prosperous societies. How to achieve this is certainly up for debate, but any wage debate, due to its potential impact, is certainly worth having.

The United States is the hub of old school capitalism and defends its income inequality as natural since its irrational fear of income re-distribution from the Cold War is very much alive. I do not think that raising the minimum wage will solve problems related to poverty or prevent economic downturns.

However, given the current state of the system, the US has no choice but to raise the minimum wage. There are compelling arguments that raising the minimum wage is misguided and will have a negative impact economically, but these arguments do not consider current socio-economic realities. When Wal-Mart is hosting a holiday food drive for its own employees, something needs to change.

Raising the minimum wage to keep pace with inflation, or at least narrow the gap, will alleviate economic strain on workers and the cost will be largely absorbed by employers and customers.

According to renowned economist and former Secretary of Labour Robert Reich, raising the minimum wage to a more respectable $9 an hour (Obama supports a raise to $10.10) will mean raise for 15 million workers. An important point he raises is that minimum wage workers are largely in the service industry and employers will pass on wage increases to customers in near-invisible price increases.

Restaurants and hotels are already mindful of budgets and often under-staffed. Nobody is currently holding onto extra staff that they can simply let go once a small minimum wage hike goes into place.  Bringing the minimum wage up to $9 an hour will earn a full time worker $18,720 a year and bring a family of three just above the poverty line.

Fewer people in poverty means the rest of society saves money. The middle and upper classes cover the cost of food stamps, medical services, housing aid and other social services directly related to a growing underclass.

Finally, remind yourself that the Canadian minimum wage varies by province but is regularly increasing and hovers at just over $10 as a national average. In the US, the federal minimum wage is $7.25, although it is slightly higher in some states. Our nation doesn’t collapse every time the minimum wage raised.

It is interesting to contrast the minimum wage debate with the maximum wage debate. As the US argues over whether to modestly improve the lives of the poor, the Swiss are voting on whether to narrow the gap in income inequality.     For the Swiss, it is about ratios. The CEO: average worker ratio in Germany is 12:1, meaning that CEOs on average make 12x the amount of workers. In Canada, the ratio is 20:1. In the United States, 475:1.

No matter your feelings on capitalism, socialism, income distribution, social services or the minimum wage, that is a staggering number. Morality and economics aside, it is doomed to create class wars and resentment from the average worker.

The 475:1 statistic has destabilizing potential which will have more severe consequences than  any minimum wage for the economy and society more generally.

To prevent what I consider an inevitable war on the current political and economic system, start with a meager gift to those under the poverty line in the form of a $9 minimum wage, and then work toward making the 475:1 ratio more comparable to other developed nations.

Even if the Swiss proposal for regulated executive wages does not pass, it represents a shift in Western economic discourse and is an important first step in fighting back against devastating income inequality.