The Worst Thing to do Right Now!

The American GDP (Gross Domestic Product) which is the sum of all products produced and sold in a given year is large. Only 10% of this GDP is kept as profits by companies. That is of all the trillions of dollars spent on goods (11-12 trillion) only 1 dollar for every 10 spent is kept as profit. I believe this is Gross Profit (profits before paying wages and variable costs such as electric bills) but it might very will be Net Profits which is the profit after those payment. Either way while we hear about the millions and billions of profits companies make in reality their profit margin is quite small. When costs go up they have one of three options. They can reduce dividend pay outs to stock holders which hurts their future investments, they can cut technology investment (this makes production more productive, efficient, and thus cheaper for the future by using machines, or finally they can cut workers or as we hear it - lay workers off.

Now, over 60 percent of costs and in fact for most companies well over 70% of costs to companies are paid in wages to workers. This is the largest cost to a employer. Thus when the economy slows guess what is the most efficient cut to make? If you said worker cuts then you can head to the front of the class as Professor Walter Williams use to say to his students when sitting in the front of the class was in fact a privilege to students. Well guess what happens on July 24 while businesses are struggling (meaning mostly having trouble paying wages and already laying workers off)? If you said oh wait that is the date set for Minimum wage to rise to $7.25 then once again move to the front of the class. Now for you usual blog readers of mine who should be amateur economist by now... what do you think that means for the future? I hope you said more layoffs of workers. Yes even if jobs are eventually created as the economy revives, fewer jobs will be created due to this major hike in minimum wage. I predict more jobs continue to be loss and unemployment could rise to as high as 11% or more.

For you minimum wage workers, good luck on keeping your job