Should the Minimum Wage Be Raised?

For Jack Ablin, Chief Investment Officer at BMO Private Bank, the minimum wage should be raised, and here are his reasons why.

TERRY:  I'm Terry Savage from MoneyShow.com.  We're talking with Jack Ablin, chief investment officer of BMO, that's Bank of Montreal private bank, 60-plus billion dollars in assets.  We were talking off camera about raising the minimum wage.  The president said that will happen for federal works, he can do that.  There's a lot of move afoot to raise the minimum wage.  Good idea or bad? 

JACK:  I think it's a good idea.  I would call it a fix, not a solution, but one that I think could actually start our economy moving higher.  Consider that for example the biggest beneficiaries of the minimum wage aren't necessarily minimum wage workers, it's the companies that they work for, so you take for example a large company that pays minimum wage.  They work full time, they don't earn a living wage, and so now we as tax payers have to subsidize their income to bring them up to a living wage standard.  What I would rather see is have the companies pay the minimum wage and let the market decide whether we want to do business, whether we want to subsidize those companies or not. 

TERRY:  Well, let me ask you about the argument that if you raise the minimum wage, you've got a lot of young people who are workers who will never get jobs because it becomes too expensive for a small business to add that next person at the minimum wage. 

JACK:  I've heard that argument and it may very well be true.  I will say the studies that I've done, take for example McDonald's.  Now, McDonald's has stores in every state.  There are 10 states that have minimum wages that are higher than the national average, and if you look at McDonald's stores per capita in those 10 states they are no higher or lower than the median number of stores per capita of the states that have the minimum wage at the federal level. 

TERRY:  The question is, do they have the same number of employees?  In other words, if you, first of all if you rage minimum wages, do you launch some kind of a wage push inflation that we remember from back in the 1970s, working demanding more and then prices of things that they make going up.  Is that a fear? 

JACK:  That is a fear but that's also part of the plan.  The fact is that we do want to see inflation expectations rise.  We do want to have growth, even if it's inflation related growth, could finally move beyond this debt overhang that we have and allow us to pay back our debts with cheaper dollars.  Like I, it's a fix, it's not a solution, one that I believe will jump start our economy by just taking a dollar out of say corporate coffers that are sitting in cash right now, handing it to a household that will spend it, will get our economy moving in the short term, but you're absolutely right.  Look, if minimum wage is $8 an hour and a loaf the bread is $2, eventual if you make minimum wage $10, the loaf of bread is going to cost $2.50.  If it takes 15 minutes of work to buy a loaf of bread, it will eventually take 15 minutes of work to buy a loaf of bread.  You just can't create something from nothing. 

TERRY:  So a big discussion going on in the economy now, raise the minimum wage, does it trigger inflation.  Jack Ablin, you're saying maybe a little bit of inflation would be good for the economy. 

JACK:  Yeah, that's my take. 

TERRY:  You and the Japanese government.  All right, we are talking with Jack Ablin, chief investment officer of BMO Private Bank.  I'm Terry Savage for MoneyShow.com.