On the Subject of Minimum Wage

Minimum wage increases over the last 50 years have, except in two cases, resulted in decreasing unemployment within 18 months.

Here's why:
Joe Blow makes, say, 5 dollars an hour. All of a sudden he makes six dollars an hour.

That means he earns an extra 160-200 dollars a month.

Joe, because he is poor, is more likely to spend this new money than someone who is not - because Joe has needs or basic capitalist desires that might not already be taken care of (such as buying a microwave, which he regards as a need, instead of buying a replacement microwave, which is generally regarded as a want). So Joe spends his money on manufactured home goods.

There is an small (traditionally, according to BLS figures, it's about .2 percent in the first three months) increase in unemployment at the low-wage end of things at this point, because some minimum-wage places will cut staff to avoid raising prices.

At any rate, Joe Blow and people like him will buy more stuff. This creates an increased demand for manufactured goods. At first, there is no corollary increase in manufacturing jobs, because companies tend not to hire at a surge in demand - they hire when there's a long-term demand increase. After several months, manufacturing companies will get a clue and hire more people. These new hires are all of a sudden earning decent wages, well above minimum - and other employees are working more hours. In both cases, there is another increase in money into the economy from corporations, via increased/new wages and salaries.

Again, according to the BLS, manufacturing-sector employment numbers traditionally jump about six-nine months after a minimum wage increase. So do wages for manufacturing jobs, as companies compete for workers.

These people will spend more time eating out at restaurants, which are the major purveyors of minimum-wage jobs. These restaurants, because of increased demand, will hire minimum-wage staff again, cutting the unemployment rate.

The manufacturing employees and the minimum-wage employees will continue to spend money on durable goods, automobiles, et cetera. Those sectors will grow.

People in all sectors will spend more money on entertainment, travel, and vacations. THESE sectors will grow.

The usual drop in unemployment within 18 months of a minimum-wage increase is around 1 percent (that's 1 percent of total wage-earners or job-seekers, not one percent relative to unemployed folks only).

Now, eventually, inflation will counteract this increase in the minimum wage. Prices for durable or home goods, travel, and entertainment will again increase out of the range of low-wage earners, the manufacturing sector will suffer, and we'll return to about where we are today. Then the minimum wage will be increased again, and the cycle starts anew.

It's true that prices on goods will increase, but think about this: The average wal-mart has about 200 hourly employees. Let's pretend, for a moment, that every hourly employee makes minimum wage (not true - almost all already make more than 6 bucks an hour). The average wal-mart sells $44,000,000 in goods annually (source:BizStats.com). The average wal-mart gross profit margin is 21%, or $9.24 million.

So here's some math: assuming every wal-mart employee works forty hours a week, that comes to $2,142,400 in salaries, plus another 10 percent, give or take, in payroll taxes accrued by wal-mart (total: $2,356,640). Let's increase minimum wage to 7.25 an hour, which gives us (including payroll taxes) $3,317,600. Without raising prices one cent, wal-mart will continue to make $8.28 million in profits per store every year. If wal-mart wants to continue making the same amount of profits, they would have to increase prices, across the board, by 960 thousand dollars, which compared to current prices is an increase of two cents on the dollar.

If you saw an increase of two cents on the dollar, when you buy a flat-screen TV for $1000 at wal-mart, you're paying a grand total of another 20 bucks. Pardon me while I don't cry for you.

Most prices will probably increase, over the course of a year, by a total of five cents on the dollar.

To reiterate:
-Minimum wage increases DO cause unemployment increases in low-wage sectors. However, this is temporary, and eventually employment in this sector returns to pre-increase levels, and sometimes above.
-Minimum wage increases DO cause hiring binges, although with a lag time, in durable goods and manufacturing sectors, and with a longer lag time, in entertainment and vacation businesses.
-Minimum wage increases cause increases in taxes received by the government, allowing us to a) cut taxes, or b) balance the budget, or c) both, while maintaining the current level of services provided.
-Minimum wage increases DO cause price increases, but these price increases are, indeed, worth sneezing at.

And, by the way, if you are complaining that your current job does not allow you to afford new goods, GET A NEW ONE. That is, after all, what people always say to those who work for the minimum and complain about their wages, right? If the poor can work two jobs to make ends meet, then so can the rest of us.