Outsourcing and Minimum Wage Issues

Outsourcing and Minimum Wage Issues

From the American Enterprise Institute, a conservative thinktank.

Look at the big picture here folks. As American companies become more profitable and competitive, they are able to hire more people at higher wages.

As a quick aside, a note on Kerry's "raise the minimum wage" bit. You do realize, don't you, that every time you raise the miniumum wage there is a concurrent rise in the price of goods and services?

Let's suppose that I own a burger joint. Let's look at a table of my costs, prices, and profits.

	Min. Wage	Burger Price	Profit
Current	$5.15	$3.00	$1.00
Kerry 1	$6.00	$3.00	$0.15
Kerry 2	$6.00	$3.85	$1.00

Which scenario do you think is more likely to come about?

Yep. You got it. You're burger now costs $0.85 more. Now expand that to cover almost everything you buy.

Alternately, I could simply let one of my 5 burger flippers go and leave the price at $3.00 and require each of my remaining flippers to work harder.

Not to mention that I have to let one of my supervisors/shift managers go since they all want higher wages as well.

As another alternative, I could simply cut back on everyone's hours and use fewer employees per shift. Of course, this could lead to lower customer satisfaction since I don't have enough people to cover all the jobs and that would mean lower overall profits which would mean less money to pay my employees who cost more now which leads to layoffs again . . . . . . . . .

Plus you can be darn sure that I won't be expanding and hiring more people like I was planning to do. Maybe I could get an automated burger flipping machine . . . hmmmm . . . . . .

Best case scenario: they earn more per hour but work fewer hours so as to keep my costs, your costs, and their earnings stable.

And do you really want to bring up the increased difficulty faced by young, inexperienced workers trying to get that first job? Now that employers would be forced to pay even more for entirely unskilled, untrained, untested workers?

Which do you prefer? Higher prices, fewer hours per employee, or fewer jobs?

Eventually, those jobs would come back . . . as the economy makes its inexorable moves upward and outward. But, if those in favor of the minimum wage point to this as a saving grace, why won't they allow that, eventually, outsourcing also brings back more and higher paying jobs?

The Real Benedict Arnolds

Sen. John Kerry is fond of calling CEOs who employ foreigners ?Benedict Arnolds,? after the despicable Revolutionary War turncoat.

But look at H.J. Heinz & Co., the family business of Kerry and his wife, Teresa. Of the 79 factories that the food-processor owns, 57 (a felicitous number!) are overseas. According to its website, Heinz is making ketchup, pizza crust, baby cereal and other edibles in such countries as Poland, Venezuela, Bostswana, China, Thailand and India. . . .

The real Benedict Arnolds are Kerry and his colleagues in Congress, like Sens. Hillary Clinton (D-NY) and Jon Corzine (D-NJ), who understand enough economics to know that outsourcing is trade and that trade--as David Ricardo figured out 200 years ago and as Hillary?s husband articulated in the 1990s--benefits both parties.

Imagine if U.S.computer companies were forced to make all their components at home. The cost of computers would be higher, so U.S. business could not enhance productivity, grow and hire workers. Plus, U.S.computer makers would be priced out of the market and forced to fire workers.

So far, legislation backed by Clinton, Corzine and the rest has been fairly benign. But they have fanned the flames of protectionist anger, and the fire is raging out of control. One result could be a reversal of the global movement toward open trade, which has been a boon to America.

This is a good time to remember the 1930 Smoot-Hawley Act, which touched off a tariff war that cut global trade by more than two-thirds in five years. Smoot-Hawley, in the view of many economists, intensified and prolonged--and perhaps even caused--the Great Depression.

But there?s more immediate way that the outsourcing hysteria hurts American interests: It is antagonizing India, one of our most important allies.

Indians are angry and bewildered by what?s happening here. India had been the world?s most prominent example of autarky, a backward policy of protectionism. Partly because of pressure from the United States--and partly from observing the economic success of smaller countries like Singapore and South Korea--India has eased that policy in recent years.

Imports and exports have soared, and India?s growth rate has doubled to 8 percent. The world?s largest democracy, with a population of one billion, is getting more prosperous, creating what could ultimately become the best market in the world for American goods and services.

Meanwhile, India has been critical to American foreign policy. The war against terror forced us to lavish aid on India?s arch-rival, Pakistan, and a nuclear war between the two countries over disputed Kashmir seemed possible. But peace is now closer, and despite provocations, India has proven a steadfast ally.

Now, many Indians feel they are the scapegoats for America?s cyclical economic downturn in what they see as a racist campaign. Isn?t this the way trade works? "On the one hand you talk about opening up our markets. On the other, you want to ban . . . outsourcing,? said India?s deputy prime minister.