If we paid all of the folks in grocery stores double, food prices would spike in a correlated fashion. In short, raising the minimum wage isn't going to suddenly reduce the government's costs in food-stamps and whatnot. In fact, one could argue that the costs would rise. Furthermore, you could make the argument that you're just passing those costs onto businesses and further damaging the economy. Not that I'm at all making that argument -- just that I don't think your argument is very well thought out.
Your argument is not very well thought out at all. There is zero empirical evidence of your assumptions. Retail, I know for a fact, often averages upwards of 70% COGS (cost of goods sold) as a percentage of sales. Overhead as a percentage (depending of course on what you classify as COGS and not---assuming staff costs are not calculated in COGS, as it typically isn't) is a very small portion of that in comparison. In fact, one could suggest that scant regulation on long-only food speculation causes more food price rises than anything else--- and this has evidence to back it--- http://science.time.com/2012/12/17/...al-speculation-to-blame-for-high-food-prices/ So minimum wage would be a minimal factor in this consideration, and if one were truly concerned about rising food prices, combating rampant speculation or at least reining it in through proper regulation and enforcement of commodities rules, and the creation of new regulations, is really the key. Minimum wage is a sideshow for that discussion, at best.
Paul Krugman is an economist, not a politician: Food prices will rise because people can afford food, is that what you are saying?
You couldn't pay for tuition, but you could afford your housing and food. You'd be poor, so you'd get the pell grant, which would cover the cost of tuition at lower level public universities.
There is no reason to jack up gas prices (the biggest reason costs go up) if minimum wage rises, but you know these greedy ass oil companies would do just that.
I'll always remember watching "WalMart: The high cost of a low price" and there was this guy who worked as a mechanic at Walmart working on starting a union at Walmart, and he enjoyed working at Walmart in HS and decided not to go to college.
That and your study hours are too low; unless you're taking an easy major, which will completely backfire in your post grad job search.
That misses the entire point. It isn't your car or your neighbor's car that makes fuel prices inflationary. It is the 18wheelers, etc that get the goods to market. When fuel prices go up, especially diesel, it costs more to transport goods. The price of the goods go up to recoup the increased transportation cost.
Is it? I thought at most you dedicate two hours of studying to one credit hour. During college the norm was 1 to 1.
At the very least indexing for inflation would dampen the cost-push inflation that could result via a sudden increase of the minimum wage. Its not a question of whether or not retailers can afford to absorb the costs, they can if they wanted to its just about maintaining their profit margin. Regardless. Inflation coupled with a static minimum wage is BAD. These people are completely losing their purchasing power. That's why these people are cyclically losing their jobs and motivation. What's the point of working minimum wage if it cannot sustain you? Might as well just not work at all and collect welfare that is actually indexed to inflation and cost of living. Its a matter of semantics and perspective. People aren't drawn to social programs because they are so appealing, its because minimum wage jobs are less and less appealing than before. On top of that, I disagree with having a set national minimum wage. It really should be determined by the cost of living within each region.
I'm not an economist so I'll just share my thoughts from what I know. I have a small business where I pay entry level workers minimum wage. If the minimum goes up I'll need to increase the price of my product (ice cream). I'm assuming everyone else in my sector will have to increase their prices as well. I currently spend about 26% in labor and 27% in COGS. I can only control labor and COGS and I know I'm about as efficient as can be in COGS. So unless the price for goods goes down, the only way to stay in business is to increase my prices. I'd imagine all my competitors will have to as well since they're running roughly the same numbers. I'm all for keeping the minimum wage up to date with inflation as long as the prices consumers pay increases accordingly (from a small business perspective).
This is sort of simplistic. Your potential customer base now has more money thanks to higher wages, so you might be able to sell more product or increase spend per customer. Or if your competitors raise their prices, you could choose to accept lower margins and steal away their customers and make more money through higher volume. There are more options than the simple higher cost = higher prices.
Jobs that usually pay min. wage are already sacrificing margins for higher volume. Unfortunately, its not sustainable. A few years ago the .99 menu was the rage at fast food. Have you seen what the .99 menu's look like now? The only way they can keep the same prices after wage increases is to offer lower quality product.
Fast food, coffee, ice cream, etc all have high profit margins. A $2 cup of coffee has about $0.60-$0.70 in costs of goods sold. As the other poster noted, his ice cream COGS is 27% - that means on a $1 sale, $0.73 is gross profit. This is exactly the type of cost structure where increasing volume is a great alternative to higher prices. Where you want higher prices are where the margins are very small (gasoline, for example, where a gas station makes a few pennies per gallon sold).
Increased minimum wages won't affect my business. My typical customer is in the 40-75k annual salary. If I keep my prices the same while my competitors increase prices I won't steal business away for very long as I'll be out of business soon. Unless I'm a large corp like Walmart I can't sustain as a loss leader for long. Sorry man but if you own/run a small business you'd know this is just erroneous. My margin is about 10-15% in this economy (.10-.15 for every $1 sale) and I'm in the top 10% of performing stores in my franchise. You didn't consider rent, utilities, city/state fees, admin, royalties, etc. Small business which usually pays for the minimum wage labor just doesn't have the kind of margin you think it does. If it did, no small business would really fail. An increase of labor wage by 5% would be enough to shut down my business if I couldn't make it up somewhere else.
I run a coffee shop - I've dealt with increases in minimum wages before, and will do again if they go up (though it's not going to happen regardless). You net margin is 10-15%, but that's not really relevant to this discussion. You gross margin is 73%. That's the key to any volume increase - every additional dollar of sales is $0.73 in gross profit to pay for any increased costs. When you have a business with high gross margins, a slight increase in volume dramatically improves profitability. If your gross margins were low, you'd be right - higher volume is no solution. But for your business, it's a great alternative. I'm not saying raising prices is not another alternative - you can certainly do that too. But to act like price hikes are the only solution is not true. You said labor is 26% of your cost. A 5% increase there is a 1.3% increase in overall costs. So if you have net 10-15% margins, you'll still be in comfortably in business. Second, at a 73% gross profit margin, a 1.8% increase in sales would cover all your new costs. So the question to ask yourself is, if you didn't raise prices while your competitors did, could you increase your sales by 1.8%? If so, then it's an opportunity to earn market share while maintaining your profits. If not, then your customers are price inelastic anyway, so you can raise your prices without a problem.
Yeah I'm not saying an increase will put me out of business. I'm just saying an increase that goes way above the adjusted for inflation rate would force me to look at raising prices beyond the inflation rate as well. I've gone through wage increases and it usually coincides with a price increase for my product as well. The 73% you're using isn't quite accurate. (Labor (26%), COGS (27%), Royalties (7%), Marketing (5%), and a portion of rent that increases with sales volume (5%)) = 70% is all variable cost. I have about 15-20% that is fixed so an increase in sales volume doesn't affect those costs. So for every $1 in extra sale I make, I'm still paying the same percentages across the board to all the other variable costs netting me $.30 to pay for my fixed cost and the remainder is my profit. I used 5% as an arbitrary number but lets assume a $1.25 increase in the minimum wage to $8.50 (or a 17.25% increase). Lets for arguments sake say my labor costs for the year are $100,000. That means for the same sales volume I'd be paying an extra $17,250 in labor. All things remaining same in volume, that's an extra 4.5% in overall cost. Again if my profit margin is 10-15% then I would then be making 5-10% on my business and then why not just sell my business and invest in real estate or wall street? I could try to recoup my 4.5% by increasing prices accordingly (assuming I've worked out every other efficiency possibly with COGS...my only other controllable variable), assuming the market will tolerate an increase in prices. Most likely, if the minimum wage does increase to that degree and I do raise prices, I think everything will be fine and the market will adjust. If the minimum wage were to increase to $9 that might be too much change to quick. Conversely, if I were to keep my prices the same as you suggest to increase volume and velocity of certain products I'd have to wait maybe 2 to 4 quarters before the market recognizes the pricing difference between me and my competitors (assuming they raise prices) and I actually begin to see a new found market share that generates volume. So if I can sustain my business for that 6-12 months than yes I might get a larger market share. However, with larger volume I'm still paying 70% of every extra dollar to some other cost. Larger volume means more inventory to buy, more labor to take the extra traffic, more royalties, more rent, and as well more work for me to manage the larger volume as the owner. All that to just make it back to what I was profiting before. These are all hypotheticals. The minimum wage should increase to adjust for inflation. As should the prices consumers pay. The market ought to be able to adjust if the rate of inflation is consistent across the board. What would be problematic for me as a small business if the increase goes beyond the adjusted rate of inflation since my corresponding increase in prices might not be taken well by customers and as a result could be enough reason to close my business. That is a reality.....I've known 8 other small businesses not backed by a large company like starbucks close down in the past 2 years due to lack of profitability. That's a few hundred thousand dollars lost for the owner/investor and about 100 employees let go. Just the reality of the economy we live in right now. Hopefully it'll get better soon.
Here's why unemployment sucks for many Americans during the past few years. Wherever you go from a fast food joint, rental car place, grocery store, or tire shop you have one person doing three peoples jobs. Many places I go to I see one or two people running everything. The only places I see fast service are Apple and McDonald's. I don't care for fast food, but 90% of the people who go through the drive through would not go to McDonald's if the line is too long. Apple has more money than they know what to do with. I have a feeling that now that Jobs is out of the picture they will be firing a lot of employees. They've already betrayed their consumers by releasing the iPad 4 months earlier than expected
The argument against raising the minimum wage is quite simple: Pros: a few million people are better able to spend and save money Cons: the entire U.S. is faced with higher prices for goods and services Why? Wages are the highest input cost of a business. If they are paying wages, they are spending less on the production of their good/service. Therefore, the businesses will raise prices to compensate for the price of labor.
