Originally posted by jordanriver
View Post
And that is not taking into account the fact that, as I explain below to Cow Poke, the employers end up seeing a much higher income anyway, so they do not end up funding anything close to 100% of the increase.
Originally posted by Cow Poke
View Post
However, any businesses that were already paying above the minimum wage, and hence did not have to raise the wages of their employees, will also get a percentage of that extra money in the form of income from increased business. They may then hire more staff to service the extra business, or pay their existing staff more as a result of their higher income, or the owners may spend the additional money themselves. Their staff or them spending a percentage of that money at any local business in turn results in increased income for whatever local business they spend it on, and the cycle of growth continues. Empirically speaking, that $1 raise that the original proprietor pulled out of his pocket, on average ends up being spent by 4 different people in sequence (well, more people than that, at a diminishing percentage, but we can think of it as 4 individuals spending the entire dollar each), resulting in $4 worth of increased business within the local economy.
So if businesses paying the minimum wage constitute one quarter of the local businesses, then that original employer will get his $1 back in additional income and he is no worse off at all financially: His income and expenditure have both gone up by $1. (Okay, he may have a cost in raw materials for his products in addition to wage costs if he is selling a product and not a service - Jordan's data suggests 31% of income goes into paying for food at restaurants. But if the business is a service, eg hair-cutting, selling insurance etc, then there are negligible additional raw materials costs due to extra business) The net outcome would be that nobody at all is substantially worse off financially, but that lots of businesses in the area are now doing much better and many may need to employ more staff to service the higher demand.
If the fraction of businesses paying minimum wage is higher than that, the original proprietor will make a profit on his $1 additional wages, receiving more than $1 in additional income as a result. If it's lower than that, then he'll make a slightly loss as some fraction of that $1 doesn't come back to him in terms of additional business. In this case, yes, the proprietor would be significantly funding the minimum wage increases, but he'd be only paying a small percentage of the increase not the whole increase.
A lot of business owners make the mistake of assuming in advance of any minimum wage increases that they are likely to end up funding the entire increase, which is absolutely not the case. One reason Walmart has recently had a change of heart about it's initial opposition to minimum wage increases was that it realized that a lot of its minimum wage employees spend most of their money at Walmart. Business owners of minimum-wage businesses are consistently surprised after-the-fact about how little they are affected by minimum wage increases, because they go into it expecting to have to fund 100% of the wage increases and so they worry about how on earth they will get all that the extra money, but they don't realize that their income will proportionately increase and that they hence don't have to find a novel way to pay all that extra money at all, and that the pay rise actually largely pays for itself in terms of increased business.
Comment