Income inequality is a huge problem and will even derail the “one per cent” over the long haul. Our economy is based upon mass consumption and if there are not enough consumers, then those at the top will tumble from lack of demand.

I believe the solution is simple, though the resistance to it will be over whelming. Simply, pass the Fair Minimum Wage Act of 2013. Stuck at $7.25 per hour, the minimum wage has not even come close to keeping up with inflation over the past several decades. The 1968 minimum wage ($1.60 per hour), adjusted for inflation would be over $10.50 per hour.  A few states have minimums of just at or over $8.00 per hour. In Canada where the minimum is set by each province, the minimums are well over nine dollars per hour. They are higher than the US in many European countries. In Australia, the minimum wage is over $15 per hour.

Before some of you predict the end of the world as we know it if we raise minimums, let’s look at some facts.  Australia has an unemployment rate of 5.5%, lower than ours by a good margin.  When the minimum wage was at its all-time high in the U.S. in 1968, unemployment actually fell to 3.5%.  There are a bevy of studies which show there is no discernible effect on unemployment when you raise minimum wages.

There is a good case to make in the other direction. Venture capitalist Nick Hanauer recently wrote in Bloomberg that he favored a $15 per hour minimum wage. He believes it would actually stimulate the economy by putting money into the hands of consumers and would reduce the need for government assistance for many workers at the bottom of the wage scale. He points out that many service sector workers need federal assistance and therefore, we are essentially subsidizing their employers through our taxes.

According to a recent study compiled by the AFL-CIO, CEO pay at 327 of the nation’s largest companies averages $12.3 million when you include salaries, bonuses, perks, stock awards, stock options and other incentives. That comes to $7,000 per hour!  Do you think these job creators can give up a few dollars to help their workers? There was a time when these CEO’s would have been a bit embarrassed and wanted their workers to do better. Now, we must demand it for everyone’s benefit (including theirs!!).

By Ted  Schwartz, CFP©