The Economist, based in England, provides a European and British view of economic trends and data. We want to use this article to provide you with a better understanding of two economic concept and their assumptions as they pertain to the current presidential election. You will see many references to this type of analysis in the media when comparing the varying economic policies of the two political parties and their presidential nominees. Read the article and then read our explanation below.
How Clinton and Trump plan to boost wages
There are two primary economic topics in this short article: international trade and wages.
Let's begin with international trade. The Economist is assuming that, if employee productivity increases significantly then it will eventually lead to higher wages. The author is also assuming that freer trade will eventually lead to better prices for consumers. The free trade argument is based on "comparative advantage." This concept is a primary pillar of modern economic thought and philosophy. If a developed nation moves its lower skilled products and services to less economically developed nations, then it allows the developed nation to produce higher valued goods and services. For example, if the U.S. moves the production of pencils to Mexico then the U.S. can sell more information technology to Mexico. The cost of pencils in the U.S. will decline while the wages of U.S. workers will increase so they can buy more pencils. In other words, it's not a zero sum game where wage and economic gains by one country are equally offset by losses of the other country. It's assumed that both countries will gain. Mexico will employ more lowered wages/skilled workers and the U.S. will train and hire higher paid employees in technology. This concept requires both countries to continually educate and train its workforce(s) which will lead each country to higher standards of living.
Wages are a little simpler. Both candidates propose increasing the minimum wage (many Republicans would argue that any minimum wage is economically unhealthy); they only differ in how much to raise it. Clinton proposes a $12/hr rate and Trump (as of last month) supports $10/hr. The current national minimum wage is $7.25 but some states like Washington, California and Oregon have already significantly raised the state's minimum. Companies that use minimum wage workers contend that they'll simply raise the cost of good and services to account for their higher employee costs. Both presidential nominees contend that a wider base of higher compensated employees will result in the employees having more disposable income and they will then buy more goods and services. Henry Ford, the founder of the Ford Motor Company set wages for his employees high enough that they could buy the products they built. While this concept may be simple, determining the optimal level for the minimum wage is often disputed.
Donald Trump named his economic team today which should provide more examples of the varying programs and proposals from each candidate.
Occasionally we like to post articles that give you some insight into how we form our opinions or stay informed.