minimum wage

**TexasHusker** · 05-24-2021, 02:47 PM

The arguments for and against minimum wage are as old as the advent of minimum wage, itself. Advocates for a minimum wage - any minimum wage regardless of the amount - believe that a minimum wage protects workers, and provides the promise of a "living wage." That is a wonderful ideal. But one huge obstacle is trying to get everyone on the same page as to "what" a living wage is.

Right now, conventional wisdom seems to says it's $15 per hour. On a 35 hour work week, that $525, or $27,300 per year. Of course, very few in the U.S. are actually being paid minimum wage. 1.6 percent of all hourly workers in the U.S. are currently paid minimum wage. In 1980, when minimum wage was $3.10 per hour, 13 percent of all workers received minimum wage.

What happened? Well, the free market economy demanded that workers be paid more, not some federal law. And while Federal law can certainly edict what the "minimum" wage should be, they certainly cannot increase buying power. That's because the "minimum wage" is, and will forever be, the lowest common denominator in labor costs. It could be set for $10, $20, or even $30 per hour, but buying power would not be increased. Therefore, most of the debate about minimum wage is a political one, instead of a practical one.

I shared this story in another thread, but it's a good illustration here. Several years ago, I was vacationing in Dana Point CA, and we stayed at a condominium. I drove to the local grocery store to pick up a few items. I was shocked that everything was around twice or three times as much as back home. Cheerios, Pop Tarts, coffee, apples and bananas, even a gallon of milk and a loaf of bread. I believe the 8 pack of sprinkled strawberry Pop-Tarts was around 6 bucks! Wow!

So when I went to check out, I was commenting to the cashier as to how much the prices were, and she said "Sir, you have to realize, the city of Dana Point has a minimum wage of $13 per hour. Everything is more expensive here." So I asked "How do you afford to live here?" She said "Oh I can't afford to live here because everything is so expensive. I have to drive in." I don't recall the town that she drove in from. But the point is, I am sure Dana Point wanted to provide a "living wage", but by raising the minimum, they just caused the prices of local goods and services to rise commensurately, so they are essentially back to where they began: Local, minimum (or near-minimum) wage workers cannot earn enough to "live" there. The city of Dana Point tried to legislate a "living" wage, but they couldn't legislate "buying power", as that is determined by the free market.

So, allow the ruling political party to do what they want with minimum wage. Within 6 months of any increase whatsoever, the free market will have adjusted accordingly.

**TexasHusker** · 05-24-2021, 03:00 PM

Another item that is important to understand is[I] real wage[/I] versus [I]nominal wage[/I]. Nominal wages is the amount of money I am paid at a certain period of time. If I'm paid $20 an hour, that is my nominal wage. The nominal wage is expressed in the country's currency. If an orange costs $1, then I have the buying power to purchase 20 of them with one hour's worth of work. [B]Real wage is the buying power of my hourly rate,[/B] which can vary greatly by city and state, because the cost of living varies so greatly by city and state.

Let's say I move to San Francisco and apples there are $2 each. So with my $20 an hour, I only have the buying power to buy half as many. So while my [I]nominal wage[/I] is still $20 per hour, my [I]real wage[/I] has been cut to $10 per hour.

Minimum wage can only increase [I]nominal wage[/I]; it has no effect on real wage. Politicians don't want you to understand this, because now they have one less gimmick to endear you with.

**ua_guy** · 05-24-2021, 06:39 PM

[QUOTE=TexasHusker;n723990]Of course, very few in the U.S. are actually being paid minimum wage. 1.6 percent of all hourly workers in the U.S. are currently paid minimum wage.

So, allow the ruling political party to do what they want with minimum wage. Within 6 months of any increase whatsoever, the free market will have adjusted accordingly.
[/QUOTE]

The pass-through pricing effect of raising minimum wage has been measured. Price increases are not commensurate with minimum wage increases. They are fractional, indicating a net benefit to those who receive the increased wages. They have to be, because <2% of american workers actually make minimum wage, in your own claim.

$0.36 per every 10% wage increase according to this well-known study. Not a hypothesis, but looking at and measuring actual data. It's not 1:1 as you are suggesting.

[URL]https://research.upjohn.org/up_workingpapers/260/[/URL]

Prices are higher in high COL areas because people who live in those areas have more tolerance for higher prices. Real estate is more expensive. As is labor - because of the fewer number of people who earn minimum wage in those areas - as you mentioned - the grocery clerk who commutes for her checker job. Wages have to be high enough to entice those workers to suck up a commute and additional expense because 99.9% of the minimum wage employees in a place like Dana Point don't walk over to work their shift at McD's from their $2 Million beach house. Supply chain costs can also be higher. (Edit: Apparently it's not 2005 anymore and it looks more like $6-$7 Million buys a house on the beach).

[URL="https://thetakeout.com/why-big-macs-cost-more-in-high-minimum-wage-areas-1846527427"]https://thetakeout.com/why-big-macs-...eas-1846527427[/URL]

But here's a good point about what would happen if the minimum wage was increased to $15/hour. How much would that Big Mac cost? Well, on average, about $0.17/ea more, or 4.3%. If the minimum wage was raised to $22/hr, the burger would see about $1 price increase. Real world experience, as well as research done on the subject, would indicate that while prices do rise with wage increases, it isn't 1:1 and not the doomsday scenario that fiscally conservative people hallucinate about. In fact, it would suggest that not only is nominal wage increased, real wage increases too.

Here's findings on that, too:
[URL]https://www.cbo.gov/publication/55681[/URL]

But I get easily distracted with facts, sometimes...

The question being asked is why hasn't minimum wage kept up with inflation. It did, until a point. It also followed productivity gains, but it no longer does that, either. There are strong arguments that large employers choose to distribute more profit to shareholders (concentrating wealth) rather than investing in employees. A well-known fear is "sticky wages" - once you raise a wage, it's much, much harder to retract it. But that hasn't changed the fact that a company will pay generously for top talent. Another issue is that labor has been disempowered in this country. A huge part of the US economy used to be manufacturing, which historically paid well. Until companies discovered is way more profitable when done overseas by people who can be paid comparably nothing. With it went the clout of many labor unions. The last one would be unemployment. Even if we're running 5% unemployment in this country, that sucks the life out of bottom wage tiers because theoretically there are people sitting around who will jump in at a lower wage to be competitive.

**TexasHusker** · 05-25-2021, 05:03 AM

[QUOTE=ua_guy;n723997]

The pass-through pricing effect of raising minimum wage has been measured. Price increases are not commensurate with minimum wage increases. They are fractional, indicating a net benefit to those who receive the increased wages. They have to be, because <2% of american workers actually make minimum wage, in your own claim.

$0.36 per every 10% wage increase according to this well-known study. Not a hypothesis, but looking at and measuring actual data. It's not 1:1 as you are suggesting.

[URL]https://research.upjohn.org/up_workingpapers/260/[/URL]

Prices are higher in high COL areas because people who live in those areas have more tolerance for higher prices. Real estate is more expensive. As is labor - because of the fewer number of people who earn minimum wage in those areas - as you mentioned - the grocery clerk who commutes for her checker job. Wages have to be high enough to entice those workers to suck up a commute and additional expense because 99.9% of the minimum wage employees in a place like Dana Point don't walk over to work their shift at McD's from their $2 Million beach house. Supply chain costs can also be higher. (Edit: Apparently it's not 2005 anymore and it looks more like $6-$7 Million buys a house on the beach).

[URL="https://thetakeout.com/why-big-macs-cost-more-in-high-minimum-wage-areas-1846527427"]https://thetakeout.com/why-big-macs-...eas-1846527427[/URL]

But here's a good point about what would happen if the minimum wage was increased to $15/hour. How much would that Big Mac cost? Well, on average, about $0.17/ea more, or 4.3%. If the minimum wage was raised to $22/hr, the burger would see about $1 price increase. Real world experience, as well as research done on the subject, would indicate that while prices do rise with wage increases, it isn't 1:1 and not the doomsday scenario that fiscally conservative people hallucinate about. In fact, it would suggest that not only is nominal wage increased, real wage increases too.

Here's findings on that, too:
[URL]https://www.cbo.gov/publication/55681[/URL]

But I get easily distracted with facts, sometimes...

The question being asked is why hasn't minimum wage kept up with inflation. It did, until a point. It also followed productivity gains, but it no longer does that, either. There are strong arguments that large employers choose to distribute more profit to shareholders (concentrating wealth) rather than investing in employees. A well-known fear is "sticky wages" - once you raise a wage, it's much, much harder to retract it. But that hasn't changed the fact that a company will pay generously for top talent. Another issue is that labor has been disempowered in this country. A huge part of the US economy used to be manufacturing, which historically paid well. Until companies discovered is way more profitable when done overseas by people who can be paid comparably nothing. With it went the clout of many labor unions. The last one would be unemployment. Even if we're running 5% unemployment in this country, that sucks the life out of bottom wage tiers because theoretically there are people sitting around who will jump in at a lower wage to be competitive.

[/QUOTE]

Then let's just go all out and raise it to $22. I'm down for that. Arguments about minimum wage are like "how many angels can dance on the head of a pin". Everyone has an opinion.

But in the end, labor isn't 30-40-50% of cost. It's closer to 100%. Everything is tied to labor. Farming, manufacturing, shipping, fuel production, wholesale, retail. When labor goes up, someone receives, and someone pays. It all balances out in the end.

You can increase wages with the stroke of a pen, but you cannot increase buying power. (unless you implement price controls, which always work well).

**corn18** · 05-25-2021, 05:32 AM

Raising the minimum wage is equivalent to wage inflation. We usually budgeted 3% wage inflation for our 5 year financial forecasts. When it came time for merit raises, we set the target at trailing year inflation. If inflation was 2%, we could take the 1% difference to the bottom line or set the merit pay target @ 3%. That decision was made based on overall company performance. If we were doing well, we went with 3% merit pay increases (this is just the average. some will get more, some less based on individual performance). If we were not doing well, we might pass that 1% on to the shareholders or maybe invest in something for top line growth. The thing to keep in mind is that 1% could be $80M+, so not a trivial amount of money. I think this is how a lot of companies handle wage inflation.

Now what do we do about that higher cost? We pass it on to the customer. All of it. Did it raise the price of all of our products by 3%? No. Our labor content was usually around 50% of cost (cost does not equal price), so the customer might see a 1.5% increase in price. But if our suppliers raised their material prices due to increased labor costs, we would pass that on to the customer. Over time, everything would go up, but not 3%, just the amount needed to cover the increased labor costs. Eventually, the price of everything goes up an amount equal to the increased labor costs. Just a fact of business and economics.

I'll leave the details to the studies cited earlier. I agree that raising the minimum wage to $15 / hr will not increase the price of everything by 100%. But for high labor cost businesses, you can bet your arse they are going to try to reduce labor costs. You'll be seeing a lot less people working inside fast food joints. You'll be giving your order to a robot. That's not necessarily a bad thing, but I will say that young folks need to get their head out of their butts and learn some skills that are needed so they can get higher paying jobs. Two years of community college will get you a $50k / year starting job and there are millions of openings out there right now. Stop whining about making $10 / hour and do something about it.

**TexasHusker** · 05-25-2021, 06:38 AM

[QUOTE=corn18;n724007]
Now what do we do about that higher cost? We pass it on to the customer. All of it. Did it raise the price of all of our products by 3%? No. Our labor content was usually around 50% of cost (cost does not equal price), so the customer might see a 1.5% increase in price. But if our suppliers raised their material prices due to increased labor costs, we would pass that on to the customer. Over time, everything would go up, but not 3%, just the amount needed to cover the increased labor costs. [B]Eventually, the price of everything goes up an amount equal to the increased labor costs. [/B]Just a fact of business and economics.

[/QUOTE]

This.

I don't know why this concept is so difficult for many to understand. EVERYTHING is ultimately tied to labor costs.

Furthermore, labor costs are not a reflection of inflation, but a primary driver of it.

**ua_guy** · 05-25-2021, 06:44 AM

[QUOTE=corn18;n724007]You'll be seeing a lot less people working inside fast food joints. You'll be giving your order to a robot.
[/QUOTE]

Excellent point. Automation, like machines once did, can really increase productivity, and it can put a lot of people out of work. At all income levels.

**ua_guy** · 05-25-2021, 06:52 AM

[QUOTE=TexasHusker;n724011]

This.

I don't know why this concept is so difficult for many to understand. EVERYTHING is ultimately tied to labor costs.

Furthermore, labor costs are not a reflection of inflation, but a primary driver of it.[/QUOTE]

So, really, then, we shouldn't increase labor costs. Not at the bottom wage levels, and not at the upper income. Because we all pay more in the end. Now I totally get it!

**TexasHusker** · 05-25-2021, 08:18 AM

[QUOTE=ua_guy;n724014]

So, really, then, we shouldn't increase labor costs. Not at the bottom wage levels, and not at the upper income. Because we all pay more in the end. Now I totally get it![/QUOTE]

Who is we? So if you were king for a day, what would you set the minimum wage at? And maximum wage?

Can you also outlaw price increases?

Now you’re onto something...

**ua_guy** · 05-25-2021, 08:21 AM

[QUOTE=TexasHusker;n724022]

Who is we? So if you were king for a day, what would you set the minimum wage at? And maximum wage?

Can you also outlaw price increases?

Now you’re onto something...[/QUOTE]

So, you're in favor of the government stepping in to cap prices? Can't charge more than $200k for a home? Cars can't cost more than $35k? A big mac must cost less than $5? Can't charge more than $2 for a gallon of gas....

That's quite the slippery slope indeed...and not the answer

**TexasHusker** · 05-25-2021, 08:25 AM

[QUOTE=ua_guy;n724023]

So, you're in favor of the government stepping in to cap prices? Can't charge more than $200k for a home? Cars can't cost more than $35k? A big mac must cost less than $5? Can't charge more than $2 for a gallon of gas....

That's quite the slippery slope indeed...and not the answer[/QUOTE]

My point is, you might as well, as you aren’t going to increase real wages by raising the minimum. You can’t increase buying power with a pen.

**ua_guy** · 05-25-2021, 08:30 AM

[QUOTE=TexasHusker;n724024]

My point is, you might as well, as you aren’t going to increase real wages by raising the minimum. You can’t increase buying power with a pen.[/QUOTE]

But that point was already proven false above. Raising the minimum wage does increase buying power until inflation and the market eventually rise, and then labor and prices increase again. It's not an argument against increasing minimum wage. Not liking the minimum wage because you have to pay it is a different argument.

**TexasHusker** · 05-25-2021, 08:39 AM

[QUOTE=ua_guy;n724025]

But that point was already proven false above. Raising the minimum wage does increase buying power until inflation and the market eventually rise, and then labor and prices increase again. It's not an argument against increasing minimum wage. Not liking the minimum wage because you have to pay it is a different argument.[/QUOTE]

who doesn’t like paying minimum wage? I’d do it all day long if I could keep my team!

I am all for doing whatever the politicians want to do. It’s not going to change anything in the end, anyway. Make it $100 an hour - all the same.

A raft in the swimming pool is going to float the same in 1 foot of water as 10 feet. If putting more water in the pool makes everyone feel better, do it today.

**ua_guy** · 05-25-2021, 09:09 AM

[QUOTE=TexasHusker;n724026]

who doesn’t like paying minimum wage? I’d do it all day long if I could keep my team!

I am all for doing whatever the politicians want to do. It’s not going to change anything in the end, anyway. Make it $100 an hour - all the same.

A raft in the swimming pool is going to float the same in 1 foot of water as 10 feet. If putting more water in the pool makes everyone feel better, do it today.

[/QUOTE]

Saying the same thing over and over again doesn't mean its correct.

Really, how would you suggest we increase "buying power"??

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