Originally Posted by
God Emperor Trump
Copied from a previous post I made a while back:
Increasing wages increases costs for everyone and everywhere because most businesses have employee’s. It is universal.
First of all: Not all industries are created equal. Any business with higher labor costs will suffer far more than a business that doesn't staff as many employees. Don't forget about the complete business cycle! Most of the pro min wage hike folks forget about the big picture.
Manufacturer -> Distributor -> Retailer -> Consumer
Let’s say a state has an instant 25 cent increase to min wage state wide. All business is conducted within the state. It starts at the Farm Owner, who has only Rent, farmers, seeds and hoes as his expenses. Not those kind of hoes, but the tools!
If I need to pay farmer Sam 25 cents more per hour, then the farm will have to sell those carrots for more $$$ in order to make the rent, maintain equipment and have some left over for a rainy day. Will that carrot costs 25 cents more each? No, but that 1 bundle/hour will cost 25 cents more. Think I am done? Nope! That same farmer's suppliers also have increase labor costs. For now, he doesn't need any new Seeds/hoes but eventually he will have to prepare to spend more. This can get convoluted very easily so I will keep it simple. The farm figures out that it must sell that bundle at 1.25 instead of 1.00 in order to maintain a healthy profit margin. The farmer could sell for only 1.20 but let’s say he either can't or is unwilling to do so. He has the future too think about. Not everyone will approach overhead increases the same way.
Now the food company "Acme" buys the bundles at 1.25. There are other suppliers out there, but most of them have the same increases. Since they are paying more per bundle that means they must resell them for more to grocery store. Since they use to sell it for 3 dollars, do they decide to sell it for 3.25 now? That answer is No, because their own labor costs have also increased. And their other suppliers have also raised prices. Acme's warehousemen get paid more (as well as every employee on the payroll). In fact, if the truck driver is making over min wage, then he should get a pay raise as well. In the end, with the extra costs from their suppliers, they figure that they must now sell that same bundle of carrots for 3.50 to the grocery store.
The Grocery store buys the carrots! They use to be bought for 3.00 and sold for 4.00, but now they must buy for 3.50. They planned on selling it for 4.50 but they also have that increased overhead as everyone else and in order to maintain healthy profits, they sell that same bundle 4.75. That is a 75-cent increase for a 25-cent increase for the farmer. This number is not a real-world scenario but just an example of how a price increase will “Pyramid” their way through the business cycle. That price went up 3 times and as you can see just gets passed onto the consumer.
The consumer now has more money to spend. Does he feel as though the value of carrots is worth the extra 75-cents? I guess it depends on the person. But in the end, his pay raise inflated the costs of carrots (and everything else) and weakened his savings account. Everything he buys will eventually cost more.
So, I guess the question is; where do you find the right balance? What kind of min wage increase makes the consumer better off than before? I guess the answer is partly based on where the consumer lives, and the rate of inflation. The consumers buying power should stay relative to the cost of living. I guess it depends on where we set our measuring stick. Should a min wage person make enough for rent or a mortgage? Should that life be comfortable or should there be a reason to better one’s self and be hard? Should they get government subsidies to go along with it?
Once we figure out our measuring stick, then we have to figure out a way of implementing it into the economy and this is where you get a lot of disagreements. A instant increase of 5 dollars per hour would literally cause business to belly up overnight. Small increases each year may take years to reach the desired level of buying power. Somewhere in the middle will see major inflation and a weakened dollar.