I don’t really want to talk about whether there should be a minimum wage, or how high it should be, but just some reasoning I often see when discussing it.
I often hear people saying that increasing the minimum wage will just increase prices and then those earning minimum wage shop at the same places and end up not being any better off at all.
I just cannot understand how anyone can think like this. It would require all the businesses to only be ran by minimum wage workers, and only minimum wage workers would be they customers. Not to talk about other expenses the business has.
Also, and implication of this is that it doesn’t really matter what you do. There is a law of nature that says some people have to make $8 and there is no way to change that. The US economy, which has one of the highest GDP per capita, requires people working for $8 to function, or bad things will happen.
What do you think about this kind of reasoning? Do you think it has some truth to it? Is it more prevalent in the US than other places?
That part isn’t quite right. If minimum wage is $8.00 and it’s raised to $12.00, you’re not just giving the people making $8 a four dollar raise, you also have to increase the pay for all the people making 9 or 10 or 11 dollars an hour. Then, on top of that, your employees that already make $12/hr are going to expect a raise as well.
Said another way, you have to give a raise to all your employees that are making less than the new minimum wage (not just the ones making the current minimum wage) and to keep things fair, you’ll also likely have to give some, if not all, of your other employees a raise as well.
I’ve worked my entire life in retail and food service and I can assure you this does not happen - everyone below the new minimum gets topped off to that amount and that’s it.
I’m totally in favor of a hefty raise to minimum wage. And I don’t think it will boost prices significantly since the cost of cutting CEO pay by $5 million a year could easily - in theory - enable dozens of fast food workers at the same company to each get an extra $5/hour.
That being said, as JoeyP pointed out, if you have a manager who was making $12/hour, while his subordinates were making $7.25 an hour, the manager isn’t going to be happy about everyone now being paid $12/hour, if that’s the new minimum wage. He’s going to expect a salary raise in order to maintain proper hierarchy and distance above those subordinates.
Finally, even though the minimum wage may not increase labor costs a lot, many businesses will use it as a fake excuse to raise prices.
Well, yes, I agree that you would expect the wages of people just above minimum wage to also rise. But that sounds like it would be a limited effect (and maybe even also desirable), and not the same as having every US worker increase their wage by a set percentage.
I can assure you that just because your employer does that, not all of them do. Regardless, my point still stands. It’s not just a raise for everyone currently making minimum wage, but for everyone currently making less than the new minimum wage.
And if you worked for a place for a few years and earned a few raises, how long would you stick around if you could get a new job, literally anywhere, and get paid the same as you are now?
Employers may not have a history of being fair, but they also don’t want to train new employees either.
I should probably point out that my POV is that of a small business. How everything works, especially with this kind of stuff is almost fundamentally different than for a large employer. How people are paid at Amazon or Target or Walmart can’t really be compared to how things happen when you have 10 or 15 employees at any given time.
So?
By that logic, prices should never go up. The cost of goods sold isn’t the entirety of the cost either. Should businesses not raise their prices when they’re paying more to buy the goods?
What about the constantly increasing cost to process credit cards or licenses that increase in cost each year or business/health insurance (we pay 100% of our employee’s heath insurance) which goes up year after year and so on. Hell, what we pay for our accounting software’s annual subscription just (off the top of my head) tripled in price. None of these things are the whole cost of whatever’s being sold. But they all increase and that money has to come from somewhere.
At some point prices have to go up. We do what we can, but eating all these increases isn’t sustainable.
I think part of the issue is that minimum wage hikes and employer’s/employee’s/consumer’s reaction to it, tends to be in the public eye since it’s in the news and you’re going to hear talk of price increases. When credit card processing fees or insurance premiums or electricity prices go up, it happens behind the scenes. People are very surprised when they find out our little store pays about 50k/yr in credit card processing fees or about 25k/yr for electricity.
And, to be clear, I’m not pushing back against minimum wage increases, just saying that they, at least for small businesses, along with everything else, will absolutely drive prices up.
It’s also worth noting, that (at least for us) these increases aren’t huge. My back of the envelope math tells me that giving all my part time employees a $4/hr raise would require an extra 40 cents (net, not gross) per customer. So it’s not that we’d have to raise everything by some huge amount, but more along the lines of selling oranges for 60¢/ea instead of 2/$1 or raising the price of potato salad by 50¢/lb.
I always feel like I have an odd perspective on these types of things. I’ve grown up in a small family business. I see the same things everyone else does when it comes to big businesses with C-suite officers making 10s or 100s of millions of dollars a year while teaching their employees how to file for welfare and I agree, those multimillionaires should (or at least can afford to) pay their employees more without raising prices. But I also know, first hand, that a small business like mine, where the owner is taking home 100-150k per year, it’s not really possible for them to do the same thing.
That’s the biggest point. Most businesses about 25% of their costs are labor. If total labor costs double, not only the minimum wage workers, but everyone, then their total cost of running the business only goes up by 25%. So to maintain the same margins, their prices would need need to rise by 25%. in the face of a doubling , i.e. 100% increase in labor costs across the board.
The arguments the OP presents for debate are, and always have been, carefully designed, easy to (mis)-understand management / RW propaganda.
I didn’t mean that prices should never go up. I meant that they didn’t need to go up in direct correspondence to a minimum wage increase, as a response to that increase. As you just noted in your post.
The minimum wage is a strawman argument. In reality, raising the minimum does not cause higher unemployment or destroy small businesses by increasing their costs. I’m sure you can find individual examples of these results, but America is a very large country. In the larger picture, a higher wage can result in positive changes, like attracting more capable and experienced workers and lowering retraining costs because workers stay in their jobs longer. Those are hard to quantify, though, while increased wages are clearly seen on an expenditure line.
Creating a consistent lower wage would quickly expose firms whose business plans depended on the wage exploitation of their employees. American history is full of business owners arguing that they had a divine right to pay employees whatever loose change could be found in the sofa cushions. That same history also shows that labor history is most quiet when firms raised worker pay to a living wage floor. That maximized the positive aspects of raising pay and minimized the consequences of doing so.
All economic arguments are subject to violent dispute, but only the most ideologically rigid list the negatives and neglect the positives. Unfortunately, the woods are full of ideologically rigid loudmouths. Try to tune them out if you come across them.
I have worked in or consulted for companies employing thousands of low wage workers for decades (supermarkets, drugstores and convenience store chains). Until the last few years, I never heard anyone say that if we increased their wages, the prices of products we sold would go up by so much they would be able to afford less of them.
So if the cashier and stocker went up in hourly wages from $10 to $12 they now believe that the price of the sodas they are stocking or ringing will go up by 30% and they will be worse off.
No one was that bad at math until 2021. Until that time workers thought that higher wages were an unalloyed Good Thing. It’s because drinking the economic Kool Aid is the price of membership in the club where you get to fly your racist, sexist, homophobic and xenophobic flag fly free and proud. Otherwise you might suspect you’re being played for a fool.
Granted I’m just one guy and it’s been a long time since I worked a minimum wage retail job but that’s exactly what happened. Minimum wage went up and was 5¢ under my current wage (after several raises). I told the bosses that I felt like I needed a raise because my years experience and increased responsibilities were only worth 5¢ now and, for that, I could be the new guy at any other retail place. They apparently figured they’d rather have me than a new random worker gave me a raise (something like 4 years worth of basic annual increases) and we were all happy. Well, corporate asked why I got a “large” raise out of synch with my review schedule but they went to bat for me on it and I got my money.
Even so, the OP’s point still applies. If the minimum wage is $8, and you have one employee making $8 and one making $12, and then minimum wage gets doubled to $16, your total labor cost still didn’t double. Your costs did increase, but by a smaller proportion than the minimum wage increased. Even if you respond to the minimum wage increase by giving everyone an $8 raise, that’s still not a doubling of your labor costs. And the effect gets even more pronounced when you have some employees making much more than minimum wage.
Yes, increasing the minimum wage causes inflation. Inflation that applies evenly across the entire economy is, in the big picture, irrelevant. What makes inflation relevant is that it never applies evenly. Some forms of inflation widen the income gap, which is bad. But the inflation from increasing the minimum wage serves to close the income gap, which is good.
I haven’t worked my entire life in retail and food service , but I did spend some of it there and this is what happened - when there were people working at minimum and people working a little over minimum, if everyone just gets raised to the new minimum, people who are currently making more will change jobs. Let’s say that I work at Mc Donald’s and I earn $8.25 /hr, a dollar more than the minimum wage of $7.25/hr. Maybe I get the extra dollar because I’m a supervisor or maybe it’s because I’ve been there a long time - it doesn’t matter. If minimum goes up to $9/hr and I get a raise to $9 hr, I’m going to change jobs. Maybe I go to Target, where for $9 /hr I don’t have to smell like grease. Or maybe I go to Burger King for $9/hr and I’m working as a cahier rather than as a supervisor.
“Salary compression” is a thing and it happens all the way up the pay scale. It doesn’t mean that people with a 6 figure income need to get a raise when minimum goes up couple of dollars - but I worked for a government agency that had a problem filling certain six figure jobs for a couple of years. Union employees got raises in 2008 through 2010 and management didn’t. People wouldn’t take the management jobs because there wasn’t enough of a raise to be worth the additional responsibilities.
Hell of a lot of commission salespeople making way more than minimum wage don’t want to be “promoted” to sales manager because of the loss of income that entails.
There are lots of ways in our economy that underlings make more than bosses. Which drives some perverse incentives, and/or job changes, for both groups.
