Why the 1% should love a higher minimum wage?
Follow the money. If the minimum wage is raised, what will the lucky few do with their windfall? Stuff it in their mattresses? Hoard it for their off springs? Run off to Bermuda and put it in an off shore bank account. Buy a yacht and park it next to a 1% owner? NO!
No, most working on a minimum wage live from paycheck to paycheck and may just be able to order fries with their next hamburger or eat two meals a day instead of one or catch up on that payment they fell behind on. Their extra income will probably be spent the week after they get the paycheck. And who will gain from that extra spending? Retailers, fast food joints and other local businesses, those cater to people making minimum wage. Many of these businesses also employ people who make minimum wage. Henry Ford I understood this relationship between employees and customers when 100 years ago he doubled the wages of Ford workers so they could afford to buy his cars.
Why is it so hard for the 1% today to understand that they will gain not loose from a higher minimum wage?
The classic counter argument made against a higher minimum wage is that it will raise costs of businesses and then they will either suffer a drop in profits or have to raise prices, which will depress demand and their profits. This is a flawed analysis on two levels. First it does not take into account the increased demand described above that would result from more disposable income in the hands of the working poor. Second excluding businesses that just rent out workers, in most businesses the cost of their direct labor as a percent of sales ranges from 10-20%.
If the federal minimum wage is raised by 70% from $7.45/hr to $12.50/hr it would raise costs 7-14%. $12.50/hr is the level at which a workers income would equal the federal poverty level (FPL). Workers making more than FPL will also make fewer demands on income sustaining programs like food stamps and Medicaid, so there would be reduced government spending. Whether based on equity, or morality or ethics, it would seem that an individual working 40 hours/week should have enough income to lift the person to at least the poverty level.
Clearly some businesses will have to increase prices to offset the costs, but at a macro level the increased disposable income is likely to offset any negative affect on demand as a result of higher prices. Not sure how many fewer hamburgers will be sold if the price goes from $3 to $3.21-3.42, but those with extra money will sure buy a few more.
Another argument against a higher minimum wage is that a higher floor could drive wage escalation up the income scale. There is some merit to this argument, as over time jobs currently paying above minimum wage may have to pay more to retain their workers. This escalation is likely to be limited and truncated to the working poor. For example Surgeons are not going to make more because of a higher minimum wage but hospital orderlies who currently make more than hospital cleaners might. Over time this will work towards reducing the income inequality which in itself is an argument for raising the minimum wage.
If there is an argument against raising the minimum wage it maybe that some businesses to reduce costs could look to automate and make redundant current minimum wage jobs. Overtime this could reduce the pool of available low wage jobs. Globally higher wage countries have more automation and fewer low skill jobs, while low wage countries have less automation and more low skill, low wage jobs. But over time this will create more jobs for people with automation skills software, maintenance etc.
So the current political debate is upside down. The 1% should be lobbying for the minimum wage increase so their profits go up while those who worry about the unemployed should be concerned about maintaining the pool of available jobs at minimum wage. However in the long term a higher minimum wage will foster growth in the economy, reduce wage inequality and create more higher paying jobs.
Higher minimum wage is a transaction that will improve the standard of living for working poor and create wealth for the rich. Why can’t we all get behind that?
