It’s just a stone cold fact; if a business is so close to the edge that an increase in the minimum wage from $7.25 to $10.10 (especially over 2-3 years) would put them out of business, they were destined for failure anyway. This is not difficult to figure out for anyone who knows anything about business. Or at least basic math.
Yet, over the weekend, I was bombarded by Republican and Libertarian Google Scholars who swore up and down that increasing the minimum wage would spell doom for the economy and cause untold heartache to millions of minimum wage workers, who would suddenly lose their shitty jobs and never be able to find another.
Only someone ignorant of how business actually works could possibly think something so ridiculous. And yet, more often than not, it’s right wingers who claim to know everything there is to know about business who make this mistake. At the same time, they swear we progressives are woefully ignorant, because we’re “socialists,” and because we don’t believe in making rich people richer while the rich make working class and poor folks even poorer.
One of these geniuses actually suggested that a 30% increase in the minimum wage (it’s actually closer to 40%, but why quibble, right?) would require business owners to increase their prices 30% just to break even. Seriously. Because, you know, a business owner’s only expense is the wages paid to employees. In reality, most businesses that pay minimum wage allot about 10-15% of their revenues to wages and benefits, which means a 30% increase in the minimum wage would necessitate an increase of 3-5% of revenues, not 30%. And that’s revenues, not prices.
Also, prices can only rise if the market allows it, a fact that seemed to surprise these Republican/Libertarian naysayers who pretend to be savvy businessmen, well, because they’re Republican. One claimed he ran a restaurant for many years, and yet he seemed to think a restaurant having to pay a higher minimum wage would force a rise in prices that was so steep that people would no longer be able to eat there. Never mind that no previous minimum wage increase has ever done such a thing. California Pizza Kitchen only increased some prices 2% after California raised its minimum wage to $10, and Jack in the Box publicly said it has no plans to increase menu prices at all.
When you own a business, whether it’s small or large, costs have no more than a marginal effect on the prices you can charge. If the going rate for a widget is $10, and a widget costs you $9 to make, you have three choices;
You can settle for a 10% margin, and hope you can sell enough widgets to make it worthwhile;
You can try to add value to your widget somehow, and increase the profit margin. For example, if you’re opening a high-end boutique, and can sell yourself to a higher-end clientele, you can maybe charge a little more, but you’d better be sure your widget is better. You may also be able to bundle the widget with something else that you can sell at a much higher margin. Or;
You can choose not to carry widgets at all.
You know what’s missing in the above selection? Raising prices 30%.
Those who don’t understand this basic reality tend to be Republican or Libertarian for a very simple reason; they’re simple-minded. To these folks, everything has to be simple and easy, and either black or white. If wages go up, prices have to go up; it’s that simple, because they need to be that simple in order to be understood by the simple-minded.
But I want you to notice something. They only make this argument when it comes to discussing wages for working class or poor employees, or if taxes on rich people increase. There’s never any such discussion when company executives give themselves tens of millions of dollars in raises. They don’t talk about it when a company like Walmart gives the Walton family $38 billion at the same time it’s laying off minimum wage workers to cut costs. They never discuss the effect when gas prices top $4 per gallon, and every trucking company in America is adding a surcharge to each delivery. They never talk about increases in electricity prices when a behemoth like Enron is gaming the market. No, the only drain to the economy is when the working poor get a raise, according to the right wing.
And now you know why Republicans run humongous deficits when they’re in charge, and why they can’t seem to help pull us out of our economic doldrums. They know little to nothing about how business, money or math actually work. Combined with their thorough incompetence at running government (which I’ve documented here in great detail) they are absolutely lethal, and should not be allowed around the economy.
Don’t wait until 2016; we can’t afford to keep these people around any longer. In November, we need to replace every one of them.