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EDD PAYMENTS CAUSING INFLATION UPDATE MAY 30 2021
EDD PAYMENTS
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Last week I covered how the Employment Development Department (EDD) and their lucrative bonus payments to the unemployed has essentially made the national $15/hr minimum wage debate a moot point. The other contentious debate, called the “Living Wage” debate, will likely now be turned on its head as the higher wages forced up by EDD payment will result in exposing the vicious cycle of wage push inflation.
Not only the minimum wage debate been obsoleted by the EDD payments, those same payments are now causing even faster inflation in the economy than previously witnessed.
We can see this new “wage push” inflation as businesses, in line with my previous articles, are now, in many instances, offering over $15/hr. to entice potential workers to get off the couch and get back to work.
As inflation takes off, I have seen more and more commentary that the $15 rate, which was previously determined by many to approach the so-called and arbitrary “living wage”, is now insufficient as consumer prices skyrocket. To this analyst, it seemed such a short time ago anything under $15 was considered the minimum “living wage”. Now the $15 rate is considered well below the Living Wage and new figures are being tossed about on public platforms.
There is a reason why what once was determined to be at least close to a sufficient living wage is now quickly being labeled as grossly insufficient.
An economic reality is taking hold. Although higher wages are not the sole cause for higher consumer prices, those higher prices, higher wages coupled with soaring commodity prices, are crippling business balance sheets.
In a free market environment, businesses will always pass increased costs onto the consumer through higher prices and that is happening right now.
Inflation is starting to burn hot if you haven’t notice, which I am sure you have, and that searing inflation is showing up in the government statistics. This in itself some consider a miracle, as many analyst claim government inflation figures understate the real inflation rate. Whatever the truth, the latest inflation data out from Uncle Sam is an annual inflation rate of over 4%. According to some, the rate is even higher.
What happens next is why living wage proponents are calling for even higher wage rates as prices rise. They see the $15 rate, do some quick math, and realize $15 will no longer facilitate a living wage, so the calls go out for an even higher wage.
Many against the very concept of a living wage state it is arbitrary and doesn’t take in geographic considerations. An example would be the cost of living in New York compared to Modesto.
But others claim a more sinister thing is at work here. As wages rise, consumer prices follow. Therefore, with each increase in the wage rate, inflation rises even more, negating the higher wage rates.
Because of this, many argue the living wage debate is a nonsensical argument. Wage inflation will always push consumer costs faster and higher than wage rates.
Since it is an accepted fundamental in the study of economics that wages are a lagging indicator to consumer price inflation and also in its occurrence, the argument is put forth that the “sufficient wage” called for by many can never be reached by mandating wages ever higher. In fact, those mandates may be the cause. Inflation will always “outrun” wages and it is why some find themselves calling for an even higher wage.
Opponents to minimum wage mandates, which include opposing the very concept of a “living wage” (which is an arbitrary opinion depending on whose making the argument), point to the fact that an unmolested capitalistic `system` would correct wage/inflation conflicts. The argument is extended to address the current `system` as one that has been highly manipulated away from capitalism and more towards massive intervention which distorts the checks and balances of a capitalistic system.
No matter which side of the argument ones believes, a true solution to a problem solves the problem. Repeated attempts signify failure. The minimum wage has been raised 22 times to combat inflation and the living wage public commentary is seemingly upping its level in response to the recent inflation. This would lean into the argument that perhaps income inequality is at least partially caused by inflation which in turn owes its persistence to the very wage policies that attempt to correct it.
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Opinions expressed here are those of Mr. Cuniberti and may not reflect those of any media outlet. Mr. Cuniberti holds a degree in Economics from SDSU. For a list of the services offered by Mr. Cuniberti, call (530)559-1214. California Insurance License #0L34249. Medicare Agent approved. Email: news@moneymanagementradio.com. Opinions expressed here are those of Mr. Cuniberti and not those of any bank or investment advisory firm. Nothing stated is meant to insure a guarantee, or to be construed as investment advice. Neither Money Management Radio (“Money Matters”) receive, control, access or monitor client funds, accounts, or portfolios. For a list of the services offered by Mr. Cuniberti, call (530)559-1214. California Insurance License #0L34249 and Medicare Agent approved. Insurance services offered independently through Marc Cuniberti and not affiliated with any RIA firm or entity. Email: news@moneymanagementradio.com.
