Suppose a baker makes $5.00 an hour and the bread he makes cost a dollar a loaf. Now, if his wage is increased to $10.00 an hour, doesn’t it follow that the price of the bread he makes will double more or less? Yes, the baker makes more money and more money flows in to the economy when he buys bread but his purchasing power is relatively the same. Many of the articles I have read on this topic deal with the increase in the baker’s pay and all the good the extra money does flowing into the economy from everyone who just had their wages increased but nothing is said about the rise in prices of all the items that are produced by all the people who just had their wages doubled. What am I missing?
The cost of a loaf of bread is not 100% the cost of the labor. Let’s say that $5 per hour baker bakes 50 loafs an hour. At, as you say, $1.00 per loaf in total cost. So, you’ve got $45 in flour, eggs, rent, and electricity, and $5 in labor cost. Changing the hour wage to $10 only increases the cost 10%.
To be perfectly fair, an increase in the minimum wage will probably also increase the price of flour, eggs, rent, and electricity, too. But it won’t increase them by the same proportion, since the prices of those things are at least in part due to labor costs of people who aren’t making minimum wage. Ultimately, what minimum wage laws are seeking to do is to decrease income disparity.
Also, raising the minimum wage will reduce the number of entry level jobs to those who need them the most.
Sorry but this is ridiculous. As a small business owner i can promise you that the one and only reason i hire minimum wage workers is because i need them, if I could just fire them because the minimum wage went up a few dollars they wouldn’t have a job in the first place. And there is no business that will hire a worker to turn a couple bucks profit an hour, the rate would have to be magnitudes higher to have any effect.
Repeat after me:
Not all costs are wage costs. Not all wage costs are affected by minimum wage hikes.
What you’re missing is that Obama proposed to raise the cost of minimum wage. He didn’t propose to raise every single cost in the economy: imported oil, rents, CEO salaries, etc.
Repeat after me:
Expert opinions differ on the demand for minimum wage workers. Some think it is inelastic; some think instead it is very inelastic. No one thinks its elasticity exceeds 0.4.
These have been asked and answered in other threads. Methinks the Board motto about Fighting Ignorance should be revised to emphasise how pernicious Wilfull ignorance is.
I got my first “real” job at the age of 16, in 1978: part-time worker at Burger King. My pay was the minimum wage at the time, 2.65 per hour, later raised to 3.35 per hour. (I’m in California, and I don’t know if those minimums were different from the federal minimums back then - I know they are today.)
According to the first inflation calculator I found on Google, 2.65 in 1978 is equivalent to 9.33 today. So a proposal to raise the federal minimum wage to $9.00 per hour does not seem that unreasonable to me.
A business hires someone because without the person in question, the business loses money on opportunity.
Give you an example. About two years ago my store did about half the sales it does today and we had less staff every shift.
We continued to grow in sales even through the economic slump. We were all busting our asses just to serve all our customers, and there weren’t enough of us.
Eventually there are customers who do not get the phone answered in a timely fashion, don’t get their order sent out in a timely fashion, or simply cannot be served at all.
That costs the business hundreds of dollars PER DAY. In some cases, more than a thousand dollars PER DAY is lost because our staff cannot handle the overload.
We hire someone and pay them 40 dollars, all of a sudden, we can afford to do an additional 400 dollars worth of business that day without upsetting customers.
The formula works out to a per-hour cost/benefit analysis of each worker.
For every 8 dollars per hour we pay our employees, our business earns 32 dollars, per employee.
That means the employee’s cost is more than covered and benefits the business. This number is called “yield”.
If you raise the wage of every worker by a dollar, then instead of 32 dollars per worker at a cost of 8 dollars per worker, it is 32 dollars per worker at a cost of 9 dollars per worker.
SOMEHOW THE ECONOMY WILL SURVIVE. I guarantee it.
Also if a person isn’t earning their keep and doing a good job at it, we reduce their hours.
At no point does the business ever lose money on these employees. We send them home when it’s not profitable to have them here.
Any business that cannot handle the dollar price increase is run by stupid effing morons. It’s called labor control, which is basic arithmetic.
About 10 years ago I ran a small start up business. We decided as a matter of policy that if we couldn’t pay our lowest paid workers at least $10 per hour, there was something fundamentally wrong with our business plan. In my current business, no one starts below $10, even the high school kid helping out moving boxes.
There’s been an active thread in GD for days now on this subject.
I direct your attention to Obama plans to raise the min. wage to $9 an hour.
I am closing this thread.