Morici: Are Slow Growing Wages Holding Back an Economic Recovery?

NEW YORK ( TheStreet) -- Over and over we hear that slow growing wages and increasing inequality are holding up the recovery. It's not so simple.

To the untrained ear, these nostrums sound plausible. After all, giving the average American more to spend should boost demand, production and growth.

Progressive politicians and labor leaders use this line to argue that raising the minimum wage would push the economy into high gear. If that were so, then increasing the federal minimum to $10.10 an hour, as President Obama happily campaigns for, wouldn't kill 500,000 jobs, as the nonpartisan Congressional Budget Office predicts.

The president and unions neglect to say that businesses can't print money to cover higher wages. They must charge higher prices, slash profit margins and reduce dividend payments to stockholders. Shareholders are often middle-class workers with individual retirement accounts and the elderly, who will spend just about every dollar they get as they draw down from those nest eggs.

Those folks spend too, and in fact many of them buy more domestic products and fewer imports, because older folks spend more on health care and other services, which are made in America, not China.

Much the same applies to wealthy Americans -- they are more likely to spend their dividends at home.

Giving rise to the myth that higher wages will boost growth is another misperception about demand. Americans really are spending again, but not enough of those dollars stay at home to create jobs.

Thanks to oil imports and the rising tide of Chinese manufacturers -- made artificially cheap by the Middle Kingdom's purposeful undervaluation of the yuan, subsidies and steep barriers to foreign products -- U.S. imports have been rising faster than exports and that is sending a lot of consumer dollars abroad.

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