Democrats appeal to the lower income class of Americans by promising them higher minimum wages. The promise of making more money is always enticing and has been a come on for con artists for centuries. Who wouldn’t want to make more money? That’s what makes things like the Powerball Lottery so hugely successful – the lure of sudden wealth.
Conservatives on the other hand have argued that raising the minimum wage is not the solution but will only add to the problem. They often argue that raising minimum wage leads to higher prices for everything, making the cost of living increase resulting in people spending less.
If liberals got their way and increased minimum wage from $7.25 an hour to $15 an hour, what do you think that’s going to do to the price of a hamburger, French fries and soft drink at your local fast food restaurant? What do you think it will do the overall price of groceries that grace your dinner table every day? What do you think will happen when you have to buy clothes for you or your kids?
Many businesses operate on a very tight or small profit margin of several percentage points. In many cases, the greatest expense is payroll. So, what happens if they are forced to double their payroll?
Businesses have to make up the difference somewhere and there’s only three real ways they can do that.
1) Reduce whatever benefits they provide to their employees. However, under Obamacare, employers of 50 or more people are required to provide healthcare benefits to all employees working full time (30 or more hours a week) or face a fine. Since many healthcare plans can cost employers between $3,000 to $8,000 a year per employee, some opt to pay the $2,000 fine per employee. If they have just 50 employees, that’s a minimum increase in expenses of $100,000 a year.
This leaves employers with 2 choices – increase their prices all most or all merchandise and products or cut all full-time employees to part time, working less than 30 hours a week. A full-time employee working 40 hours a week making minimum wage earns $290 a week. An employee working only 29 hours a week making the higher minimum wage would earn $435 a week. While that’s an increase for the employee, it won’t offset the increase in prices at the cash register when they buy groceries and food at the higher prices.
2) Raise the prices on everything they produce or sell or services provided. If you pay $3.99 for a Big Mac now, are you willing to pay $7-$8 for the same Big Mac? If they sell an average of 1000 Big Macs a week now, they won’t gain anything when sales drop to only 500 a week. That’s what will happen if liberals get their way and increase the minimum wage to $15 an hour.
3) Reduce the number of employees. If an employer operates on a 2%-8% profit margin and are forced to double their payroll for many employees, there goes that small profit margin. That’s why raising minimum wage will result in some people losing their jobs which means they go from making $290 a week to making $0 a week. That’s not progress.
Liberals argue that these things won’t happen, but they are naïve and/or ignorant of business economics.
Then add the normal cost of living, also known as inflation, and that makes the situation harder on employers to stay in business. Employers are forced to look for ways to reduce one of the few expenses they can control and that’s payroll.
According to a recent report from Forbes:
Wendy’s Chief Operating Officer, Bob Wright, stated the company experienced a five percent wage inflation and they expect wages to rise at least four percent in 2017. He addressed possible options to accommodate the rising costs of business and inflation, and the unfortunate answer was to eliminate 31 hours of labor each week.
Wages, the price of an hour of labour, go up, the number of hours of labour purchased goes down. That’s just what people do:
Last year, the kiosks were coming. It didn’t take them long to get here.
Wendy’s plans to install self-ordering kiosks in 1,000 of its stores — about 16 percent of its locations — by the end of the year…”
“Who could have seen that coming? As we noted previously, minimum wage laws – while advertised under the banner of social justice – do not live up to the claims made by those who tout them. They do not lift low wage earners to a so-called ‘social minimum’. Indeed, minimum wage laws — imposed at the levels employed in Europe — push a considerable number of people into unemployment.”
Raising minimum wages is not the solution that liberals portray. A better way to help everyone is to create more jobs in many sectors which is what President Trump is trying to do. For example, spending $1 trillion on repairing or replacing America’s highways and bridges will create thousands of jobs which will result in more people paying taxes and spending money which in turn works through the system which will affect the housing market which also is a key industry in the nation’s economy. It’s a win-win-win situation.