Minimum wage increases cost on unit prices.

It is real simple algebra.

If you have a burger flipper making $10 an hour flipping 100 burgers an hour, his cost per unit is 10c. If you increase his wage to $20 an hour it increases to 20c a burger.

This example is obviously remedial and basic but there are also real life examples from restaurant owners who had run the number as well:

"One year, in 2006, we looked at Arizona state minimum wage proposal, which was a 30 percent increase in the state minimum wage. At the time, it was $5.15, and it was being proposed to be raised to $6.75. [...] And what we did is we went and we looked to see how much would this cost businesses. We looked at what are the wages of workers at the time, how many hours did they work. We added that all up. We looked at payroll taxes and how much that would go up for employers. [...]

What we found is, for the average business in Arizona, that the cost increase would be less than 0.1 percent. And so if you want to think about it in real concrete terms, businesses, by raising their prices by less than 0.1 percent, would be able to cover all the costs of a minimum-wage increase of a size of 30 percent."

Daily Kos: This week in the War on Workers: Raising the minimum wage would increase prices by how much?

That makes the assumption that only those making the current minimum wage would see any change. Raising the minimum wage by 30% would surely have an effect on those now making up to 30% over the minumum wage, and likely effect the wages of those making at least 50% more that that current minimum wage.

That probably only applies to large businesses who are doing well. Smaller businesses who are struggling and have tight margins most certainly would see far, far larger increases than .1%. If anything, it should be progressive. Some businesses can barely keep the lights on in this economy, much less hand out raises.

But the burger flipper will work more diligently, and thus make a better burger.

shlunka said:

But the burger flipper will work more diligently, and thus make a better burger.

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Not if the cost of living goes up ... they are still going to spit in our food

ttwtt78640 said:

That makes the assumption that only those making the current minimum wage would see any change. Raising the minimum wage by 30% would surely have an effect on those now making up to 30% over the minumum wage, and likely effect the wages of those making at least 50% more that that current minimum wage.

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That is why I included the link to real life examples. a 30% wage increase only resulted in an increase in costs of .1%.

RabidAlpaca said:

That probably only applies to large businesses who are doing well. Smaller businesses who are struggling and have tight margins most certainly would see far, far larger increases than .1%. If anything, it should be progressive. Some businesses can barely keep the lights on in this economy, much less hand out raises.

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85% of small businesses would approve of a min wage increase:

"Small business owners support raising the federal minimum wage because they believe it will help the economy and, in turn, enable small companies to hire more workers.

That's the finding of a survey released Wednesday by the Small Business Majority, a group that advocates on behalf of small businesses. Two-thirds of the 500 owners in the survey supported an increase from the current minimum hourly wage of $7.25, coupled with an annual adjustment for inflation. Eighty-five percent said they pay their employees more than the minimum. "

Survey: Small businesses back minimum wage rise

When you dig into minimum wage it becomes apparent that poverty and minimum wage are not synonomous.

Characteristics of Minimum Wage Workers: 2012

"Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the Federal minimum wage or less. Among employed teenagers paid by the hour, about 21 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over."

Most people employed for minimum wage are not the sole bread winner and are overwhelmingly still in school.

"The proportion of hourly paid workers earning the prevailing federal minimum wage or less declined from 5.2 percent in 2011 to 4.7 percent in 2012. This remains well below the figure of 13.4 percent in 1979, when data were first collected on a regular basis."

Seems like the problem is solving itself as the minimum wage gets inflated out of relevance wages in general are rising. If government isn't causing this general rise in wages then what is? I suspect it is the cost of good labor that makes companies pay more than they are mandated to pay.

Who Earns the Minimum Wage? Suburban Teenagers, Not Single Parents

I realize this is the heritage foundation but they get their numbers from the BLS.

"Data from the Bureau of Labor Statistics and the Census Bureau show that most minimum-wage earners are young, part-time workers and that relatively few of them live below the poverty line. Their average family income is over $53,000 a year. A hike in the minimum wage primarily raises pay for suburban teenagers, not the working poor."

I think we all intuitively understand this. We picture the single mother of 5 trying to raise a family on minimum wage (and no doubt they exist) but a federal policy on this doesn't really target single moms of 5. It overwhelmingly targets middle class teenagers. A federal minimum wage is another example of a one size fits all policy that sounds good but doesn't deliver the results we envision. A country as big as the US varies from city to city and state to state the cost of living. This should not be one size fits all.

I never claimed to tackle poverty or to help single moms. just dispelling the myth that raising minimum wages would be harmful to per unit costs.

Plus saying that half of min wage earners are kids leaves out the fact that 50% are not kids. It is also a huge aggregate demand issue. If highschool kids could earn that much imagine the reduction on student loans? So you bring a good reason to raise minimum wages!

JP Hochbaum said:

Daily Kos: This week in the War on Workers: Raising the minimum wage would increase prices by how much?

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I read the link and have a couple of observations. Senator Warren claims,

"During my Senate campaign, I ate a number 11 at McDonald's many, many times a week, and I know the price on that one, $7.19. According to the data on the analysis of what would happen if we raised the minimum wage to $10.10 over three years, the price increase on that item would be about $0.04. So instead of being $7.19, it would be $7.23. Are you telling me that's unsustainable?"

I recommend that Senator Warren get out of politics and open a Franchise McDonald's and pay her workers the 30% increase that she wants to force businesses owners to pay. She can then raise the cost of her burgers by the 4 cents she claims is necessary and have happier workers then the McDonald's across the street. I suspect there is more to this story than a civil servant with no private sector experience might lead us to believe. Other posters have identified other issues like the trickle up effect of minimum wage hikes on other salaries. Labor is an input cost to production. Labor costs have to be calculated throughout the production process. It is not just the burger flipper that receives the increase. The delivery guy, burger bun factory, meat factory, inspectors, and everyone else in the supply chain will also see increased costs. If her study accounted for this total cost then you might have a point. She took the simple approach of only adding increases to the burger flipper and presented it as the only additional cost to the burger. I expect more from our public officials. Senator Warren is either deliberately misleading or an idiot.

JP Hochbaum said:

I never claimed to tackle poverty or to help single moms. just dispelling the myth that raising minimum wages would be harmful to per unit costs.

Plus saying that half of min wage earners are kids leaves out the fact that 50% are not kids. It is also a huge aggregate demand issue. If highschool kids could earn that much imagine the reduction on student loans? So you bring a good reason to raise minimum wages!

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JP, I think you are seeing a benefit where no benefit actually exists. In the example you provide the McDonald's worker gets a 30% wage increase and the cost of the burger only goes up .1%. This seems win win on the surface. The McDonald's worker can now afford about 27% more burgers on their income then before. The problem is that they don't spend all their income on burgers. They also have to pay the increase in toothpaste, all other foods, soap, hammers, paper, pencils, gas, clothes, tires, books, and everything else in our economy. The increased wages will all be captured by increased costs throughout the economy as the input cost of labor is passed on to consumers. This may not happen over night but to argue an increase in net aggregate demand is suspect. You are not on solid ground in your assertion above.

JWhite said:

I read the link and have a couple of observations. Senator Warren claims,

"During my Senate campaign, I ate a number 11 at McDonald's many, many times a week, and I know the price on that one, $7.19. According to the data on the analysis of what would happen if we raised the minimum wage to $10.10 over three years, the price increase on that item would be about $0.04. So instead of being $7.19, it would be $7.23. Are you telling me that's unsustainable?"

I recommend that Senator Warren get out of politics and open a Franchise McDonald's and pay her workers the 30% increase that she wants to force businesses owners to pay. She can then raise the cost of her burgers by the 4 cents she claims is necessary and have happier workers then the McDonald's across the street. I suspect there is more to this story than a civil servant with no private sector experience might lead us to believe. Other posters have identified other issues like the trickle up effect of minimum wage hikes on other salaries. Labor is an input cost to production. Labor costs have to be calculated throughout the production process. It is not just the burger flipper that receives the increase. The delivery guy, burger bun factory, meat factory, inspectors, and everyone else in the supply chain will also see increased costs. If her study accounted for this total cost then you might have a point. She took the simple approach of only adding increases to the burger flipper and presented it as the only additional cost to the burger. I expect more from our public officials. Senator Warren is either deliberately misleading or an idiot.

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There have been more exhaustive studies that highlight exactly what you say. And it was still less than a 1% increase in prices:

http://www.ers.usda.gov/media/306735/aib74703_1_.pdf

JWhite said:

JP, I think you are seeing a benefit where no benefit actually exists. In the example you provide the McDonald's worker gets a 30% wage increase and the cost of the burger only goes up .1%. This seems win win on the surface. The McDonald's worker can now afford about 27% more burgers on their income then before. The problem is that they don't spend all their income on burgers. They also have to pay the increase in toothpaste, all other foods, soap, hammers, paper, pencils, gas, clothes, tires, books, and everything else in our economy. The increased wages will all be captured by increased costs throughout the economy as the input cost of labor is passed on to consumers. This may not happen over night but to argue an increase in net aggregate demand is suspect. You are not on solid ground in your assertion above.

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A 30% wage increase accompanied with .1% core inflation. Anyone who could do basic math would consider that a win.

So, by what force do you propose to keep business owners from increasing the cost of their products beyond that needed to keep from "losing" money upon increases to wages?

KevinKohler said:

So, by what force do you propose to keep business owners from increasing the cost of their products beyond that needed to keep from "losing" money upon increases to wages?

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No force needed. I posted the historical cases of how min wage effects per unit costs. Market forces that already exist is the force.

JP Hochbaum said:

No force needed. I posted the historical cases of how min wage effects per unit costs. Market forces that already exist is the force.

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No it's not. If minimum wage worked, we wouldn't need to keep raising it. AmIRight?

Fact of the matter is, market "forces" are no longer what they once where. The invisible hand, in addition to being "invisible", is also quite blind. One could make the case for being both deaf, and dumb, too. Which would STILL be OK, if the majority of "the market" were made up of many many small businesses. But that's quickly becoming no longer the case. Lot's of reasons, really, but those are not what's up for debate in this thread. What IS relevant, however, is the fact that you have far far fewer companies competing with each other for the pie slices. You can walk into any given grocery store, and at most, find products from about...50 different companies. Hard to tell, of course...because they LOOK like lot's of different brands. But they are all subsidiaries of other, larger brands. They are all playing for the same team. Walk into a mall, and it's the same thing. Hell, even car companies all share parts and pieces across their line. Mitsubishi uses Dodge sourced motors, the same 6 speed in an aston martin can also be found in a few chevys, one ford, and several other noted car brands. The capitalist game we have been playing for the past 200 years is starting to wrap up to a close, and the winners are the only ones left playing. So tell me how "market forces" keep prices down, in say, the bottled water segment of the economy, if most of the bottled water is owned by the Nestle Corporation? They have, what, 3 competitors? Not to mention the other stuff they control, outside of bottled water.

Same with oil. You realize gas prices are a racket, right? I work for BJ's Wholesale, and every morning...EVERY SINGLE MORNING, we send someone out to do a gas survey. Which is, they drive around, look at our competitors, and price the gas 10 cents per gallon below it, with the exception of other wholesale clubs. We try to MATCH their prices. And they do the same thing. In other words, what we charge for gas has NOTHING to do with what we PAY for gas. I would wager, and likely correctly, that the same is true for many many other facets of the market. And if those facets know this, and they do, pricing quickly becomes a racket.


Minimum wage does not work. It does not increase the quality of life of those earning it, in any way. The people that made minimum wage 10 years ago live pretty much the same lifestyle they do now, despite it being drastically higher now than then. You really want to affect the quality of life for the bottom earners, you need to impose a maximum wage.

KevinKohler said:

No it's not. If minimum wage worked, we wouldn't need to keep raising it. AmIRight?

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Actually it is because they work as to why we need to keep raising it. It ought to keep place with productivity gains and it hasn't because of a lack of regulation on wages on the bottom.
With productivity gains we should have a minimum wage near $22 an hour. That is why minimum wage increases seem to have no effect on standard of living, because they are so damn low.

JP Hochbaum said:

A 30% wage increase accompanied with .1% core inflation. Anyone who could do basic math would consider that a win.

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The .1% core inflation was based on Senator Warrens assumption that only the burger flippers were receiving the raise. The entire supply chain increase would increase that core CPI. Secondly, there is no net gain unless you can somehow prove that price increases (core inflation across all sectors) for some reason doesn't keep pace with wage increases. Since wages are an input cost on production there is no evidence that these costs won't be passed on to consumers and the core inflation data supports this. A .1% increase in core inflation (which I think is low balling) still eats up greater than .1% of a persons nominal income as they have to pay these increased costs across all consumer spending. Where is the net gain? It only exists if companies choose to pay more in wages and not charge more for their goods and services. Minimum wage makes no gaurentees that this will be the case.

JP Hochbaum said:

Actually it is because they work as to why we need to keep raising it. It ought to keep place with productivity gains and it hasn't because of a lack of regulation on wages on the bottom.
With productivity gains we should have a minimum wage near $22 an hour. That is why minimum wage increases seem to have no effect on standard of living, because they are so damn low.

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You are conflating the productivity of labor with the actual value of labor to a company. Labor productivity is a measure of output (goods and services) against the amount of labor required for that output. Labor itself is only responsible for a portion of this productivity. If I replace half may work force with robots that don't eat, sleep, take breaks, or retire I will undoubtedly improve the productivity of my remaining labor. Who should benefit from the resulting increase in productivity? Labor didn't invest capital to create or purchase these robots. The productivity increases here are the result of capital investment not increased labor output. If you think that all increases in productivity belong to labor then their would be no incentive to create these productive increases or invest in capital that reduces labor inputs. I don't think that would be the way to handle this.

JWhite said:

The .1% core inflation was based on Senator Warrens assumption that only the burger flippers were receiving the raise.

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It wasn't based on that assumption at all. It was a result of minimum wages increases across the board, not just for burger flippers. It was an actual measured result, not an assumption.

JWhite said:

You are conflating the productivity of labor with the actual value of labor to a company. Labor productivity is a measure of output (goods and services) against the amount of labor required for that output. Labor itself is only responsible for a portion of this productivity. If I replace half may work force with robots that don't eat, sleep, take breaks, or retire I will undoubtedly improve the productivity of my remaining labor. Who should benefit from the resulting increase in productivity? Labor didn't invest capital to create or purchase these robots. The productivity increases here are the result of capital investment not increased labor output. If you think that all increases in productivity belong to labor then their would be no incentive to create these productive increases or invest in capital that reduces labor inputs. I don't think that would be the way to handle this.

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Capital can't exist without labor. Land and raw materials are useless without labor altering them or using them. And yes, labor did invest capital, since labor comes first it creates capital.

JP Hochbaum said:

Capital can't exist without labor. Land and raw materials are useless without labor altering them or using them. And yes, labor did invest capital, since labor comes first it creates capital.

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JP, I will concede the .1% CPI number as depicted in the article in that I do not have access to the study, raw data, or anlysis that went into those conclusion. All of these studies are based on assumptions at their core so I take it with a grain of salt. The rest of my point remains the same. The net benefit analysis remains elusive.

Your assertion about capital and labor is interesting. I do not agree. capital can absolutely exist independent of the labor that operates that capital. If a business owner can replace half their workers with robots but then must pay all the additional profits to the remaining workers there would be no incentive to increase productivity. The net gain to the employer would be zero. Generally labor does share in some of this increased productivity as evidenced by the decrease in the workforce that actually earns minimum wage. My earlier post pointed to a decrease from 13% to 4-5% over the last few decades based on BLS numbers.

minimum wage increases always sound good but the results are less than conclusive. I suspect the biggest benefactors are government through a larger tax base and union workers who index wages to the minimum wage. The people we are targeting to help are likely not seeing the results that are professed by Senator Warren.

JWhite said:

JP, I will concede the .1% CPI number as depicted in the article in that I do not have access to the study, raw data, or anlysis that went into those conclusion. All of these studies are based on assumptions at their core so I take it with a grain of salt. The rest of my point remains the same. The net benefit analysis remains elusive.

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How are studies that measure the costs of before and after an assumption? I posted this in the thread as well that shows how per unit costs are effected by wage increases.

http://www.ers.usda.gov/media/306735/aib74703_1_.pdf

Your assertion about capital and labor is interesting. I do not agree. capital can absolutely exist independent of the labor that operates that capital. If a business owner can replace half their workers with robots but then must pay all the additional profits to the remaining workers there would be no incentive to increase productivity.

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Increasing productivity increases market share and profits. To say that there is no incentive is incredibly false.

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JP Hochbaum said:

How are studies that measure the costs of before and after an assumption? I posted this in the thread as well that shows how per unit costs are effected by wage increases.

http://www.ers.usda.gov/media/306735/aib74703_1_.pdf

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Okay...and where is the net benefit? You get an additional .50 cents per hour and everything goes up 1% ish. Does the nominal increase in minimum wage increase the buying power of the earner over the cost increase? I haven't seen the evidence.

Increasing productivity increases market share and profits. To say that there is no incentive is incredibly false.

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Only if those profits are not then eaten up in labor costs. I am not sure where this part of the debate is going. Labor is an input cost to production.

JP Hochbaum said:

It is real simple algebra.

If you have a burger flipper making $10 an hour flipping 100 burgers an hour, his cost per unit is 10c. If you increase his wage to $20 an hour it increases to 20c a burger.

This example is obviously remedial and basic but there are also real life examples from restaurant owners who had run the number as well:

"One year, in 2006, we looked at Arizona state minimum wage proposal, which was a 30 percent increase in the state minimum wage. At the time, it was $5.15, and it was being proposed to be raised to $6.75. [...] And what we did is we went and we looked to see how much would this cost businesses. We looked at what are the wages of workers at the time, how many hours did they work. We added that all up. We looked at payroll taxes and how much that would go up for employers. [...]

What we found is, for the average business in Arizona, that the cost increase would be less than 0.1 percent. And so if you want to think about it in real concrete terms, businesses, by raising their prices by less than 0.1 percent, would be able to cover all the costs of a minimum-wage increase of a size of 30 percent."

Daily Kos: This week in the War on Workers: Raising the minimum wage would increase prices by how much?

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if the cost goes up by .1 percent of $7.19 then the cost would go up by less then a penny, not 4 cents.

don't believe mrs. warren.