There are two incredibly silly notions that seem to rear their ugly heads every time anyone discusses raising the minimum wage. One is that such an increase will lead to massive job losses, and the other is that the increase in wages will result in massive inflation, as companies raise prices to cover their costs.
Both arguments are ridiculous on their face. The “job loss” argument presumes that the cheapskates who only pay the minimum wage hire many more people than they need. As for higher low-end wages resulting in higher prices, well, that demonstrates a fundamental misunderstanding of how the market sets prices. The relationship between a business’s costs and the prices they can charge is tenuous, at best. If the going rate for a specific brand of widget is $10 in the market, the fact that you can’t get that widget for less than $9 wholesale doesn’t mean you can get away with charging $13. You have three choices; you either settle for only making a dollar on widgets, you can add some value to the widget that makes it worth $13, or you just can choose not to sell widgets.
These two issues have been studied to death, to the point that last year the Center for Economic and Policy Research decided to study the many studies conducted since 2000, and concluded that reasonable increases in the minimum wage tend to have no discernible negative effect on employment or inflation. Yes, if someone was talking about an increase to $25 per hour, there would be a major impact. But an increase to $10.10 per hour should have little to no effect.
This is actually self-evident if you do a little math. Most businesses who pay minimum wage tend to limit the cost of wages to between 10 and 15 percent of revenues. Therefore, if the cost of wages goes up 20 percent, that actually represents 20 percent of 10-15 percent. To break even, they’d have to increase revenues between two and three percent, at most. Of course, since tens of millions of people will be getting a raise, there’s a strong likelihood that said business could see that three percent increase in revenues without raising prices. There are 33 million people in this country who get by on less than $10 per hour. To think that all of them having more money to spend could be a drag on the economy defies logic.
If people would bother to listen, many companies who pay a lot of minimum wage employees are reiterating this. Last week, Jack in the Box held a conference call in which it became the latest in a long line of companies to deny that an increase to $10.10 per hour would have a significant impact on prices.
The conference call was held to discuss the minimum wage increase in California, from the current $8 per hour to $10 per hour, which is happening in one jump. One Jack in the Box executive said, “… in our 2015 numbers, we’ve assumed that we will take some price to offset the California minimum wage, which we estimate to be about 1.4%, this is just for California restaurants, and a little less than 1% if we take it across the entire system.”
Seriously, what’s so hard to take about a 1.4% increase, so that millions of people can have a raise and have an easier time paying their bills? That means raising drink prices a nickel, or maybe giving you three or four fewer fries. A $5.99 Value Meal could rise to $6.09 and more than cover it. The Cheesecake Factory, which has more stores in California than anywhere else, responded to the increase by raising prices 2%, which means a $20 bill is now $20.40. Is that breaking anyone’s bank? They may even roll back those minor price increases, since more people will now be able to eat at the Cheesecake Factory.
It’s this simple, folks. There is no down side to raising the minimum wage. In fact, we can’t afford not to.