There is another factor here that I think takes the issues of minimum wages to a deeper level of cause-and-effect.
The fact is that when employers can lower employee compensation (be it in wages or benefits), the benefits of the lower cost are obvious and immediate. Cut salaries by 10% and a business brings that 10% straight to the profit line. However, now, overall, workers in the bottom of the economy, as a group, make less. This means this group has less money to spend. The extra money earned by medium to large businesses tends to fall into the pockets of fewer people with more money. This group spends less on consumption and directs more of the money into non-productive investments like speculation and other money-chasing-money schemes that do little to employ people.
So, cutting wages and benefits:
1) Causes an
immediate increase in profits for companies
2) As salaries and benefits decline a
long-term decrease in consumption ensues
3) Potential savings decreases, debt increases.
Now consider the opposite.
If wages or benefits increase, employers see an immediate increase in costs but increases in consumption are delayed as the money earned takes time to flow through the economy and back to employers. The amount of time depends on how new wages are spent. If new wages are used to repay credit cards or bank loans, the money does not stimulate the economy at all (with the exception of bank interest). If the money is saved, again this does little to stimulate the economy, though savings usually helps soften the next economic recession).
So adding to wages or benefits,
1) Results in
imeadeate increase in costs to employers that they must pay without the immediate benefit of increased sales. The time it takes for increase salaries or the results of benefits to flow through the economy can vary greatly.
2) Long term, as people at the bottom become more capable to afford necessities, they can spend more on discretionary consumption.
3) Potential savings increases debt decreases.
The idea of higher wages resulting in higher prices is rooted in what has become a dogmatic position that shows shifting from one axis relative to another. It's an oversimplified model that's taught without an understanding of economic flows.
This model is the beginning of understanding, not the end. If you think that this model is adequate to describe wages as it relates to unemployment, you stopped learning economics too soon.
