When people claim raising minimum wage will help everyone, they’re not blind, although perhaps they’re simply unaware or misinformed of the economics behind minimum wage. Sharing a vivid graphic from an obviously biased source is not being objective. Both individuals and business have been reacting to changes in the business/employment economic environment in predictable ways for nearly a century of well-recorded history.
Typical small business owners, who employ roughly half the workers in the United States. The theory that ” increasing the minimum wage leads to strengthening the economy as people have more money to spend” isn’t science. It’s pro-min wage increase propaganda.
The federal minimum wage for covered nonexempt employees is $7.25 per hour effective July 24, 2009. The reality is that a 20% increase in minimum wage to $8.70 per hour causes the small business owner, whose profit margins (net after taxes) are often less than 5% to raise prices. If he or she doesn’t, he can’t pay the rent on the business, his home, buy groceries. So, prices go up.
The question is, by how much?
First, the typical employer’s HR budget is 50% of expenses. Thus, a 20% hike in min wage results in a 10% hike in expenses. So, they raise prices by 10%. But wait… So do all his competitors, as well as his suppliers. The latter drives up costs, which force him to raise prices even further.
Ultimately, these and myriads of related economic issues result in prices across all economic sectors increasing by, you guessed it: 20%.
Thus, the 20% min wage increase winds up being completely swallowed up by the responding economy.
Put simply: It doesn’t work.
Here’s what DOES work: Lowering taxes. That leaves money in the hands of the entrepreneurs who use it to better their businesses. Better businesses grow the economy. More jobs, higher wages, NATURALLY, and more money in everyone’s pockets, which they spend, which increases the money supply, which results in increased innovation and economic growth, and so on, and so on.
These basic economic principles aren’t theory. They’re fact, and they’ve been well-proven over hundreds of years. Econ 101.
The idea that raising minimum wage makes everyone richer is a pipe dream. It violates TANSTAAFL (there ain’t no such thing as a free lunch). It violates the known and measured economic principles observed over more than a century. It not only serves no useful long-term purpose, but it actually causes an upset in market equilibriums. As a result, only the fastest and most savvy businesses can surf this wave. Few win. Most people lose. Sad, but true.