Increasing Minimum Wage By 50% Isn't Going To Work23 Aug 2016
On 15th of August (2016), Mr. Arvind Kejriwal proposed to increase the minimum wage for the unskilled workers by 50%. I am curious why not increase by 100%, why not by 200% or for that matter why not by 500% and make everybody rich. There will be no poverty as per the socialist logic.
Some will argue that I am foolish to propose a 500% increment. Yes I am, if I do so and so is Mr. Arvind Kejriwal.
Before I explain further, go and read why AAP trader wing is unhappy with Mr. Arvind Kejriwal’s proposal and has threatened to go on strike — AAP trade wing threatens strike against minimum wage hike. From this article,
The AAP government’s decision to hike minimum wages by 50 per cent has not gone down well with the party’s trade wing which on Wednesday threatened to call a strike claiming the step will lead to lay-offs and affect business.
Terming the decision as “unjustified”, the outfit said it will raise the issue with Lt Governor Najeeb Jung.
Following a meeting with trade associations, Brijesh Goyal, the convenor of the body, said the upward revision in wages will not only lead to “laying off” of workers but also result in complete industrial and trade “shutdown” in the national capital.
The funniest part of Mr. Arvind Kejriwal’s Independence Day speech was that he had also asked PM Narendra Modi to emulate him and increase minimum wage by 50%. Did Mr. Kejriwal give a thought to the concerns of traders? From where this additional money will come? I could think of only four ways in which traders can compensate for this additional load.
- no compensation, just accept the reduced profit (trader unhappy)
- pass on the cost to their customers (inflation, consumer unhappy)
- work more i.e. sell more to have same profit (trader unhappy)
- reduce workers and ask them to work more (unemployment, workers unhappy)
There are three parties — workers, traders (business owners) and consumers. There is no way we can make all the three parties happy. At least I am not aware of such a way in a socialist scheme.
Such rapid changes will hurt economy because if the traders are unhappy, no new investment will come to the state, unemployment will increase and this will also add to the inflation. Everything is connect. But then Mr. Arvind Kejriwal is fond of illogical rapid changes.
There are also many advantages of rapid movement. One is that we get to learn quickly, but only if we want to. I appreciate Arvind Kejriwal’s out of the box decisions, but at the same time it is funny that he never learns. He brought the even-odd formula, he decided on Junta Durbar, he forced Uber Olacabs to comply standard govt tariffs, and now 50% hike in minimum wage.
Odd-Even was a massive gainer for auto rickshaw pullers. The main vote bank of Aam Aadmi Party. It was a huge success from AAP perspective. The then Transport Minister also made money in this. Later he resigned on corruption charges. Although the Delhi govt hasn’t set up any panel for investigation. Facing corruption charges, Delhi Transport Minister Gopal Rai quits citing health reasons. God knows how much he has looted.
Junta Durbar—many other leaders have been successfully doing it—is also a great idea. It is although a different matter that he had to run for life when there was chaos. But again it is a success from AAP perspective. They promised it in manifesto and on papers they did it. Tick that off list.
Forcing Uber Ola to comply standard tariffs is considered great from socialist angle. But it brought criticism from all quarters. Why? People were initially happy but within a day they realised that the number of available cabs have reduced. Resulting into long waiting hours.
This is pure economics. But all of this is good only if we want to learn.