Central bankers must be circumspect in their public expression, lest they roil the markets, and some take this to the point of being mealy-mouthed.
So Neel Kashkari, president of the Minneapolis Federal Reserve, is seen often a breath of fresh air for his candor — as in a recent speech in Sioux Falls, S.D. In an economy where we hear increasingly frequent references to “labor shortages,” Kashkari puts it bluntly: “If you’re not raising wages, then it just sounds like whining.” Amen Brother!
This strikes at the core of a market economy. If, at some given market price, buyers are not able to buy as much of an item they would like or need, then the price needs to rise. If the item is labor, then the higher “price” is the wage rate. And, if some employers won’t be able to make it financially if they must pay more for labor, that is the market’s way of demonstrating that society does not value the product or service they are offering enough for it to be produced. These are simple realities of how markets allocate resources efficiently.
In the wake of our own district Fed president explaining the obvious, Target’s announcement last week that, starting this month, it is raising its starting wage to $11 an hour is also welcome. Even more welcome is that this is scheduled to rise to $15 by 2020. This shows that managers of at least one large corporation understand market economics.
Moreover, in his announcement of the increase, Target CEO Brian Cornell demonstrated he is as sharp as that legendary U.S. CEO Henry Ford. Cornell stated that one objective of the wage bump is “making sure we are attracting and maintaining great talent.” That mirrors Ford’s 1914 decision to raise his company’s basic wage from $2.34 to $5 per hour while also cutting weekly hours from the 60 then common.
Ford’s own analysts warned him it would “bust the company.” Business pundits echoed them. But Ford owned the company himself and did not have to humor outside…