Tag Archives: minimum wage

Bits and Pieces – 20170301, Wednesday

The Deep State: The effort to connect Trump with the evil Russians may have problems: Intel Committee Head: No Evidence Of Contact Between Trump Campaign, Russia.

Cycles: Here is some commentary on the debt super-cycle: The 100 Year Debt-Supercycle Is Coming To An End: “Facing Greatest Crisis In Human History”. It sounds apocalyptic. It will be.

Bits and Pieces: This is not good news for Canada in in the short to medium term: Have The Majors Given Up On Canada’s Oil Sands?

Iceland was the first and only country to jail bankers after the 2007-8 financial crisis. Now, Spain has followed suit: Former IMF Chief Sent To Jail As Spain Prosecutes 65 Elite Bankers in Enormous Corruption Scandal.

A couple of articles on the RAAI theme. Here is a robot with amazing agility: Meet Handle: The “Nightmare-Inducing” Robot From Boston Dynamics. I would suggest your best escape is through a rabbit hole or possibly up a long flight of stairs. Also consider: Minimum Wage Massacre: Wendy’s Unleashes 1,000 Robots To Counter Higher Labor Costs.

Martin Armstrong provides commentary on two issues that will emerge to prominence in 2017. The first is that of private pension plans that are essentially broke: Teamsters Local 707 Goes Bankrupt. The second is the US debt and deficit crisis: The Obama-Boehner Debt Crisis.

The Fallacy of the Value of a Low Loonie

 

Conventional wisdom has it that a low dollar is a competitive advantage for Canadian manufacturers. It is easy to show that this is not the case. It does provide an advantage for natural resource industries whose primary resource values are not directly related to currency values, but that is a sector largely eschewed by our government.

To understand why there is no currency advantage to manufacturers, consider the case of Acme Widget Company. Acme Widget makes widgets in Ontario and Michigan. It wants to double its production capacity at one of its plants and has to decide which one.

A widget has three components, one made in Canada, one made in the US and one made in Indonesia. Let’s assume the Canadian dollar (CDN) is trading at 0.75 to the US dollar (USD). The Michigan plant pays $1.00 USD for the part from Indonesia. The part costs the Ontario plant $1.33 CDN because the trade is in USD. The Michigan plant buys the US part for $1.00 USD while the Canadian plant has to pay $1.33 CDN. The Ontario plant pays $1.00 CDN for the part made in Canada but the Michigan plant only pays $0.75 USD.

The total cost for materials for the US plant is $2.75 USD and for the Canadian plant, $3.67 CDN which is $2.75 in USD. In other words, the relative value of the two currencies offers no competitive advantage to either plant on a materials basis.

But there are other costs associated with production. Suppose the employees are paid the minimum wage. In Michigan, that is $8.50 / hour USD while in Ontario it is $11.40 / hour CDN or $8.55 USD. On wages alone, it is a toss-up. However, one must also include the cost of statutory benefits such as health insurance, EI, and pension plan premiums which in Ontario, are all costs to the employer.

Further, electricity costs are important. Time of day use, purchase contracts, and unbundled charges for distribution and other services are complex and require a case by case analysis based on projected usage characteristics. One might need to consider other utilities such as water and sewer rates also.

Finally, there are municipal, state or provincial, and federal taxes to consider. The regulatory framework may be important in terms of adding additional operating costs. With NAFTA coming under review, tariffs and border taxes may be a consideration.

In conclusion, the relative value of the Loonie has no impact in the long run, on the material cost of manufacturing. The costs that will affect a decision to build a new plant or extend an existing one are all soft costs associated with the local jurisdiction being considered, and what incentives might be negotiated with governments.

Socialism: Living and Minimum Wages

We have touched on the minimum wage issue in several posts and have stuck links in various essays without any organized approach. The topic has become prominent enough both in contemporary legislation and socialist agendas that it warrants its own index article.

We will not consolidate links embedded in past essays but list the essays at the end. We will start collect references in the chronology below, beginning with the article that shows how the Walmart wage hike has impacted its entire supply chain at the cost of jobs throughout.

Canada: I heard the sound of a thunder, it roared out a warnin’ …

The OECD, in its current General assessment of the macroeconomic situation of the global economy, gives 2 Tables, A1a and A1b, titled Indicators of potential financial vulnerabilities. These tables list 12 categories of macroeconomic activity that could warn of financial vulnerability. They are:

  • Potential GDP growth rate – actual GDP growth rate differential, 2012
  • Actual unemployment rate – NAIRU differential, 2013 Q2
  • Current account deficit , 2012 [1]
  • Relative unit labour cost, 2000Q1-13Q2 [2]
  • Household gross debt, 2012 [1]
  • Non-financial corporation gross debt, 2012 [1]
  • Real house prices, 2000Q1-13Q2 [2]
  • Core Tier-1 capital required to reach 5% of assets in selected banks [1]
  • Nonperforming loans to total loans, latest
  • Financial corporation gross debt, 2012
  • Headline government budget deficit, 2012
  • Gross government debt, 2012
  • Real 10-year sovereign bond yield-potential GDP growth rate differential, 2013Q3

Socialism: The Wage Ghetto Created By Obamacare

We have already written about how social programs trap people in employment ghettos (Socialism: Wage Ghettos Created By Marginal Tax Rates, Socialism: More on Education and Wage Ghettos, Socialism: “When Work Is Punished: The Tragedy Of America’s Welfare State”). We now describe how Obamacare, or more formally, the Affordable Care Act (ACA), is turning out to be extremely destructive to low-income employment.

Socialism: More on Education and Wage Ghettos

In Socialism: “When Work Is Punished: The Tragedy Of America’s Welfare State” we studied how in the case of a single mother with two children living in Pennsylvania, the optimal income from employment was $29,000. Taking into account social benefits, this was the income that gave her the highest gross income for any earned income amount up to $69,000 per year. We had argued that this person was in an employment ghetto – that the rational decision was not to advance beyond $29,000 due to the penalty of decreasing gross income. We will now argue that this person is in an education ghetto also. Afterwards, we present a video of Milton Friedman and follow with a discussion on minimum wage ghettos.

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