Risk of Unintended Consequences

At least to economists, the question of whether the minimum wage should be increased — and by a lot, as many on the political left advocate — is tricky.

min wage2In a perfect world, the higher the minimum wage — hell, all wages — the better:  higher pay = more disposable income = better standard of living.

What’s not to like, right?

The catch is, companies must make a profit to stay in business, and labor represents one of the biggest expenses for most firms (still).

When government mandates that companies pay their workers more, Econ #101 says that businesses employ fewer workers.

Which can lead directly to the unintended consequence of a higher minimum wage hurting precisely the group it’s intended to help:  low-skill and entry-level workers.

$10/hour vs. $100,000(!!)

Fortunately, at the other end of the economic spectrum (I won’t say “filthy rich”), no such ambiguity attends the case for setting what I’ll call a “maximum wage,” above which the marginal rate of taxation should be equally lofty.

Personally, I like the idea of setting the “maximum wage” at $100,000 an hour — which comes to a cool $200 million a year.

Precisely who (you ask) makes that kind of money?

According to Forbes, around 1,000 people last year.

Want to cast a bigger net?

Fine, make it $10,000 an hour ($20 million a year) — still a living wage for non-plutocrats.

Political differences aside, surely a majority of us believe that, when you make that kind of dough, a) things have gotten absurd; and b) you’re in a position to help those less fortunate.

Instead, thanks to what’s called the “carried interest” rule, many of the folks in that illustrious group — who, surprise, surprise, work in private equity on and near Wall Street — are taxed at the lower, capital gains rate rather than the higher rate levied on earned (salary) income.

See also, “Drug Dealers vs. Bankers:  ‘Top 10’ Differences”; and “Private Equity ‘Sex, Lies & Videotape’ (Minus the Sex and Videotape), or, “Having Your Cake and Eating it, Too.”

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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