Okay, so, first I'm going to lay down a few ground rules.
- The minimum wage is phased in over a period of years
- average cost of labor as a percentage of gross is 30%
- There are no indirect benefits counted in the argument
So you want to raise the minimum wage up to $15 an hour, from, let's say, $7.50. This makes the math easier to follow without a calculator. That's an increase in cost of labor by 100%, assuming nothing else changes. That means, if your cost of labor is 30%, I've just increased the cost of doing business by 30%. To break even, relative to the new wages, you'll have to raise your prices by 30% to account for the new wage -- if EVERYONE on payroll makes $7.50/hr, so, you know, it's a worst case scenario dealio.
However, so will your suppliers. And if supplies to produce with are again, 30% of it, you'd have to further raise your prices by about 9%. But wait, THEIR supplier also pays everyone minimum wage and ALSO must suffer the consequences. Fine. So their cost of labor goes up 30%, their prices rise by 30%, so YOUR supplier buys at a 30% markup -- 9% of their gross -- and raises THEIR prices by 39%.
So YOU raise your prices by 42% to account for all of this. Under normal circumstances, the average fast food product has an elasticity of .81 -- that is, when you raise your prices by 100%, you likely lose 81% of your business or thereabouts.
But you didn't raise your prices by 100%, you raised them by 41%. And even then, everyone who was making 7.50 is now making 15 -- 100% increased wages, 41% increased costs, if LITERALLY EVERYONE IN THE CHAIN MADE MINIMUM WAGE.
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But wait! Because everyone has more money, that means housing is going to spike! Well...yes and no. There will likely be some increased cost of housing, but the primary factor in t he price of housing, rents, leases, and purchases all, is
scarcity, not necessarily demand. There will always be more 'soft' demand for houses than there are houses -- mostly because houses tend to be luxury purchases for the purpose of speculation, like stocks. So rents will not increase very highly, as the increased income opens up the market for all prospective renters, outside of some limited circumstances where people say, "But I don't want THOSE KINDS of people to live here," but I self-style myself an economist, not a sociologist.
But what about everyone making MORE than 15/hr?
Well, welcome to the new age, where you have leverage to demand a higher wage. If you're worth it, you'll get a raise. You can threaten to work at McGAF's flipping triangle-burgers(market differentiation) instead of where you do. That's leverage, and that leverage has been sorely missed over the last 30 years.
The people who would be worried about it -- those making $20+/hr, see diminishing returns in these price changes, because they tend to consume goods outside of the minimum wage sphere. Sure, their groceries are going to get more expensive, worst case scenario, but due to economics of scale, the shipping and production of those groceries already drives their prices downward. At $20/hour you end up losing probably about a thousand dollars per year.
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Of course, this is without going into benefit analysis of this. The multiplier effect, increased demand due to normal elasticity effects from an increased MPC, fewer taxes needed after a certain point for welfare or food stamp participants -- of which the majority work, and a majority of those work full time.
But that brings us to something that doesn't quite gel. That is, California might have a minimum wage of 12, but Kentucky is using the federal minimum wage. Would Kentucky not be adversely affected by a semi-pricefloor when compared with California?
Well, yes. However, those increased costs can lead to increased demand in other areas, as well, which EVENTUALLY tends to pan out.
The immediate effect would be that some jobs WILL be lost. It's not arguable. People will lose their jobs. But the other side of that coin -- also not arguable -- is that those jobs will come back with MORE jobs because of increased MPC(more demand for products!), multiplier effects(more money being actively used!), and people moving to your area now that it pays well and makes enough to LOOK well, too.
"But Abstrusity," you ask, nibbling on a pinecone because the only grocery store in the county can't sell fruits of vegetables because they're too expensive to ship in, "what about my town of ManintheMountain(situated in the Appalachians), where there are no jobs?"
Well, keeping wages low isn't going to create jobs, and neither is lowering taxes. In fact, your town died long ago. You should probably rejoin society. You are one step away from being a dust bowl and the only reason you aren't is because when the ice caps melt it washes away all the dust.
I have zero patience for the attribution of economic failure to the minimum wage, the lazy, the indolent, the foreign, or what-have-you. They don't cause economic failure -- not in a capitalist society. Rather, what causes economic failure is a repeated failure to invest, a failure of business sense, an open decision to sacrifice long-term sustainability for short-term profit.
I am telling you, for those that decided this took too long to read(or can't because they attended a defunded public school so the governor's son could go to a private one funded by our tax dollars), that wages increasing is not just good in the long run, but the only shot we've got if we want to do more than limp ahead of recession, in danger of falling in once again if anything -- and I mean anything -- crumbles.
