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Low wages drive the economy?

Experts disagree on whether wage disparity prevents inflation and creates greater social inequality.
Experts disagree on whether wage disparity prevents inflation and creates greater social inequality.
By Don Juan Corzo

As the price of gasoline has risen in recent years, so has the cost of other products and services but, unfortunately, for most people, it is not the same with wages.
It seems like a fair deal would be if wages kept rising with the cost of living but they don’t. Things like food, mortgage, school tuition, insurance premiums and other expenses apparently needed in many people’s lives continuously suck the cash out of their wallets, while some experts blame it on the cost of producing energy in our current times.
“There aren’t any laws at a federal or local level that demand that employers give employee raises, and top it off these people’s budgets are increasingly tighter with the inflation,” said Steve Reed, an economist with the Bureau of Labor Statistics.
Reed added that despite the stress on working families and unions’ demands for better pay, it’s a complex issue in the world of finances.
According to University of Houston economics professor Barton Smith, to increase the general population’s wages to meet the demands of the cost of living would have negative consequences for everyone in the long term.
“It seems unfair, but that could make things even more expensive,” Smith said.
The professor explained that business owners face growing expenses in the economy like everyone else and to make them give raises to their workers, they would be forced to also raise prices of products or services offered.
“On the other hand, when employees are forced to spend less due to a tighter budget, it reduces consumption and demand in the market and as a result inflation decreases,” Smith said.

The UH economist even criticized the increase of minimum wage over the federal level in states like Washington and Oregon, a proposal advocated by some religious groups and community organizations.
“Why should an employer be obligated to pay higher wages to someone who might not be motivated to get ahead in education and sometimes doesn’t even finísh high school?” asked Smith.

However, Rice University economist Ken Medlock, a fellow at the Baker Institute, said the federal government should change the way it regulates the market and small and large companies.
“Congress should continue enacting laws to control the exorbitant salaries of CEO’s and presidents, in contrast with the limited wages lower level employees receive in too many companies,” said Medlock.
Smith also recognized the growing divide between a rich minority and a poor majority in recent decades and warned about the need for a solution.

A report by Keystone Research Center in Pennsylvania released in May last year, shows that since the 1940s the income of the wealthy has progressively increased while the working class faces more economic challenges to pay for bare necessities.

  • An earlier version of this story was written in Spanish by the same writer and printed in a local publication.

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