“Every addition to capital gives to labor either additional employment, or additional remuneration.” – John Stuart Mill, Principles of Political Economy, p. 92

According to news accounts from last week, Americans got a 5.2% raise in 2015. Census bureau data revealed a median household income gain of $2,798 to $56,516. The responses from editorialists were fairly predictable.

On the left the earnings increases signaled President Obama’s supposed genius as an economic steward, along with increased labor leverage over management. Such analysis points to people who’ve never run a business. Those who’ve actually met a payroll know very well that it’s extremely expensive to underpay workers simply because high rates of employee turnover greatly decrease business profits and productivity. Henry Ford “overpaid” his workers not thanks to unionization or increased worker leverage, but because annual turnover rates that exceeded 300% were sapping Ford Motor Co. profits.

More modernly, Starbucks offers its baristas health insurance not out of love, but because its stores benefit from experienced baristas. Deloitte offers increasingly generous family leave policies (are you listening Donald Trump?), Netflix unlimited vacation, and Google all manner of on campus services simply because happy and loyal employees are a principle driver of the success of each business. Politicians need to realize that well-run businesses don’t need a law to shower their workers with high pay and benefits. It’s common sense to do so.

read more here: http://www.realclearmarkets.com/articles/2016/09/20/americas_raise_wholly_ignores_the_real_story_of_us_income_102351.html