The debate over minimum wage and its effects on the economy as a whole has always been a bit of a difficult one, especially amongst the throngs of elected officials who are sorting through this very issue. As with so many other important things they are responsible for, one has to wonder how much they actually know about the economics behind it. That, to me, is extra scary. The titan of arguments against the raising of the minimum wage is that with a forced increase in pay for an employer to fork out, the input costs rise, and therefore work against the employer’s ability to turn a profit. But we all know the boss isn’t going to take a pay cut, so they will most likely pass most of that increased cost on to their customers. So that’s the other downside-an increase in prices, and therefore a contribution to inflation rates that are already killing the average American’s pocketbook. But what if this weren’t the case? Let’s explore another scenario.
The most common rebuttal to not raising the minimum wage is that while prices steadily have increased, wages have mostly been stagnant across the board, from the college educated cubicle jockey, right down to the fast food lettuce washer. It’s a bleeding heart argument for sure, rife with compassion for the average working citizen and their growing difficulties to make ends meet. And it’s valid. But it only goes so far. Only those with a heart can be affected, and for the rest, it might not make business sense. Or does it? A recent Bloomberg study found that raising the minimum wage may not have the negative impact on business that some suggest. The example was Walmart. If Walmart suddenly had to pay their employees $10.10 an hour, this would cost the company another $200 million in labor every year. And while that seems huge, it’s a drop in the bucket when compared to the billions in profit they post each year. The study concluded that even if every bit of the extra input cost were passed on directly to the consumer, it would literally raise the price of their DVDs by a penny. Sure, it’s easy to disburse extra cost over their whole stock in thousands of stores and absorb the shock, right? But for small businesses? Well think about it. It’s all proportional. Walmart has countless thousands of employees and millions of products in thousands of stores to spread the increase across. A small business may only have to raise the wages of ten or twenty employees, and by less than three dollars an hour. Passing the extra cost of wages on to customers will still likely only add a matter of cents onto the retail prices of their goods and services. The reality is that raising wages in general-and not just for minimum wage workers-is good business sense.
For too long, businesses of all types and all sizes have sought to reduce their immediate, short run costs by laying off workers, freezing wages, and slashing benefits. But if you think about it, increasing pay, benefits, etc., really works out better for all businesses in the long run. You see, demand goes way beyond the simple want of a product. You can want something all day, but unless you have ability to buy (i.e. money), demand does not exist. So what do you think happens when people suddenly find themselves with a bit more money in their pockets that they don’t usually have? You guessed it. They spend. With that extra demand, companies make more sales and revenue, and therefore actually need to hire more help. This lowers the unemployment rate, creates more demand through more active buyers, and also broadens the tax base, which benefits our ailing government and its deficit problem. So in the end, raising wages actually benefits these businesses a lot more down the road.
Businesses, particularly large corporations, and their wealthy executives frequently send their lobbyists to Capitol Hill to convince lawmakers to pass and keep legislation that will allow them to keep more of their profits through tax breaks, subsidies, and keeping the minimum wage where it is. This mentality is dangerous. It treats the ultimately limited supply of currency in our system as if it is something that can be owned. It’s squirreled away and hidden in various ways from the public, which further makes money scarce for the consumer class. When wealthy executives make their millions, and even billions, they spend that money on a giant mansion, a luxury yacht, a Bentley, luxury clothing, and rare art. All of these things go on to make the providers of these things wealthy as well. And the cycle just repeats. This large portion of American currency continues to circulate only among the wealthy in kind of a separate economy away from the one that you and I participate in. The rest is tied up in real estate, stocks, and just plain hidden somewhere overseas. All said, the point is that the money spent and circulated through the economy of the 1% stays there, and never really makes its way back down to the common American. Money is something that should flow up, down, and all through the economy. It should not benefit just a few. It should be rented by every person at some point, and circulated where everyone can benefit, rather than have it seen as something one owns, and owns forever. This is not redistribution. This isn’t socialism. It’s sensible. Money is still earned and spent. When employers begin raising wages and allowing the workers and consumers to enjoy greater buying power in the market, everyone will win on the bottom and on the top.