By Dan Ritter
Wall St. Cheat Sheet, Feb 4, 2014
America may have one of the strongest economies in the world, but it is still highly dysfunctional. Those who participate in it know that it is easy to become trapped by debt, that it is easy to become stuck in a low-paying job with stagnant wages, and that it is easy to become a pessimist about personal financial situations and the economic outlook at large. ...
How to address this problem has been the subject of an enormous amount of debate.... Because of the stagnant or worsening wage environment for low-wage workers, millions of Americans have found it impossible to raise themselves out of poverty — or worse, have found themselves slipping further into an economic pit. …
One of the cornerstones of Obama’s strategy to combat the the economic problems facing America is the minimum wage. In his 2013 address, the president argued that “in the wealthiest nation on Earth, no one who works full-time should have to live in poverty,” and in 2014, he punctuated his argument with a call to action. Obama argued, “Profitable corporations like Costco see higher wages as the smart way to boost productivity and reduce turnover.”
Costco (NASDAQ:COST), a big-box retailer blessed with a strong business model, market leadership, and competent executives, pays a starting wage of $11.50 per hour. President and CEO Craig Jelinek has publicly endorsed raising the minimum wage, arguing: “An important reason for the success of Costco’s business model is the attraction and retention of great employees. Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty.”
The president is clearly on board with this idea, which is broadly representative of the pro-raise argument. Purchasing power is all important, particularly at the lower end of the wage spectrum, where non-discretionary expenses (life necessities, the cost of living) consume a high share of income. If lower-income workers make more money, they will spend more money, and spending is the steam that turns the pistons of the economic machine. ...
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