If everybody raises wages, and consequently prices (that is assumed since that's the only way you could have lost competitive edge after raising wages) - then what's the point of it? Of course, employees would be paid more numerically, but they could not buy more with this. Unless, of course, some production would be moved overseas, where prices are not affected by wage raise. So in essence, these people are betting on more goods manufactured out of the country - no doubt decrying "job loss to foreign countries" at the same time.
People who make minimum wage aren't the only ones who buy stuff. When prices go up to cover the wage increase the cost will be spread out over all consumers, not just minimum wage earners.
You can argue that those at the very top spend far, far less of a percent of their income on consumer goods and services provided by minimum wage earners and that's totally fair. But it's not credible to claim that a minimum wage increase will do nothing at all for people after a price increase.
Keep in mind that a wage increase affects not only one business's profit margins and pricing, but also the prices of all of their goods from suppliers too. Consider that fast food needs to pay 30% to labor, mostly at minimum wage. Another 30% or so usually goes to food costs. Those food supplies are the product of farm labor and food processing plant labor, both of which pay close to minimum wage as well. If minimum wage doubles, that means the fast food business now has a labor cost of 60% of his original pricing, plus the increases in food costs he is going to see as well. Those food cost increases could be 30-40%, meaning he will likely need to raise prices significantly to keep the lights on. For a company like McDonald's, who do you think is their target market when they try to keep prices as low as possible? The rich? They're trying to make food affordable for everyone, including minimum wage earners. When McDonald's costs nearly double, what do you think is going to happen to their prices?
If you're curious to see what American McDonalds' would look like where workers have higher spending power and McDonalds has higher costs, take a look at an Australian McDonalds where they already reacted to exactly that.
This is pretty much what the future of fast food restaurants is like when you raise the minimum wage:
McDonalds is usually able to adapt better to changing market conditions than other restaurants.
Many restaurants do go out of business when their prices rise, which is why they hate the idea of raising the minimum wage so much. However, those restaurants are quickly replaced by other restaurants, which is why employment is never affected.
Right, so you can now buy a burger off of the dollar menu, which costs approximately 1/7.25 hrs of your labor. When you earn $15/hr, you now have to work 19.5/15 hrs to earn a burger. Yes, it's a higher quality burger, but you can get a higher quality burger for the same amount of labor at minimum wage in the US, and still have the $1 option for those who want it.
You are essentially arguing that there should be no cheap burgers, since there are much, much better expensive burgers. What you seem to be forgetting is that some people won't be able (or not want) to afford much, much better burgers and that's the reason cheap burgers exist.
I think that's a bit of a moot point. The exchange rate is about $0.75:$1, but what really matters is relative purchasing power in the worker's own country. The OP was pointing out that for McDonald's to survive in Australia, they had to start offering expensive, gourmet burgers. Australia's minimum wage is roughly $17.25/hr in Australian dollars, so the math works out to be roughly the same.
People at minimum wage probably buy the least amount of stuff. This is probably the largest potential audience, by increasing their wages the market should directly expand.
The people who still have jobs will benefit, sure. We're making some poor people (including teenagers living at home) a little better off at the expense of a smaller number of poor people who be much worse off for not having a job.
If everybody raises wages, and consequently prices (that is assumed since that's the only way you could have lost competitive edge after raising wages) - then what's the point of it?
For one thing, labor costs are only one part of the larger economic picture. For another, labor costs at the bottom end of the pay scale are only a portion of overall labor costs. So if you raise the minimum wage by ten percent for five percent of the workforce, you have not raised it by ten percent for everyone. Even if you do raise it by ten percent for the whole workforce, you have not raised business expenditures by ten percent because there are other costs as well.
Unless of course all large companies are already sitting on large profit margins (they are, either explicit or just structurally sitting on them with bloated management structures), in which case the increased pay will simply help alleviate a demand starved economy, which will increase flow of money / rate of transactions and, guess what, everyone makes more money.
> If everybody raises wages, and consequently prices (that is assumed since that's the only way you could have lost competitive edge after raising wages) - then what's the point of it?
Why would prices increase by the same amount as minimum wage was increased by?
Pay the attendant 5% more and the total cost of obtaining, refining and delivering gas doesn't increase by 5%.
Refining and delivering gas requires labor too. While many in that industry may earn more, I'm sure there are minimum wage workers employed by that industry that will affect their costs. It doesn't help right now that oil and gas are at rock bottom prices either.
Oil rig workers do not make the minimum wage, at all. Neither do most refinery workers. I say this as someone who knows several people who work on oil rigs off the Louisiana coast, and have worked with (but not at) several petrochemical companies.
One thing to consider is percentage of gross revenues spent on payroll varies by type of industry but is somewhere between 10 and 30%. 10% would manufacturing. 30% would be a restaurant. Most everything else would be around 15%. Likely the businesses that would see the largest increases are those that can't be outsourced easily. The ones that are already paying well above minimum wage.
Difference between a business owner and an economics professor is the later writes equations down to describe how he thinks thinks business should work. And then blathers about hedonistic adjustments. A business owner stares at his books every week and thinks 'my problem is my customers have no money' Really easy for a business owner or accountant to get that customers with more to spend outweighs small increase in payroll expenses.
Business people I deal with are highly aware Macro issues. If you ask them what they think of things like minimum wages or other regulatory costs their usual concern is that their' particular entity doesn't suffer an unfair burden.
Academic Economists know pretty much nothing of Macro.
I believe the theory is that the price of goods/services created by high-wage workers would not substantially increase, and thus the minimum-wage workers would be able to achieve a higher quality of life at the cost of slightly degrading that of the high-wage workers (since the price of some of the goods those high-wage workers buy has increased).
Minimum wage can be an attempt to fight income inequality. Not that it's necessarily the best approach for that though (as mentioned elsewhere in these comments).
>> I believe the theory is that the price of goods/services created by high-wage workers would not substantially increase
That is a pretty big assumption. If you are a high wage worker and your favorite supermarkets, restaurants and resorts all raised their prices, wouldn't you feel you are less high-wage than before? Wouldn't you demand to restore the buying power of your wages - or, alternatively, wouldn't you switch to a company that offers you such restored power? High wages are not something valued for the numbers, it's valued for what you can afford. And a lot of places that you want to afford are in service industry - which is highly dependent on labor costs, and even if they did not pay minimum wage, once minimum wage raises they'd have to raise pay too - because otherwise they would be now paying minimum wage or very near to it, and the workers would not tolerate being paid minimum wage now while only year ago they were paid 150% of it.
>> at the cost of slightly degrading that of the high-wage workers
How do you know it would be slight? And how do you know high-wage workers - which are high-wage for a reason, they probably command some economic power, otherwise they wouldn't be able to demand high wages and would agree to work for minimum wage - would tolerate it and would not attempt to restore their buying power? For example, some union contracts have CPI/cost of living increases baked in. Would you expect them to give up those for the sake of their lower paid brethren?
>> Minimum wage can be an attempt to fight income inequality.
Quite a bad one. If you are secure in belief of it affecting only minimum wage workers, you at best can influence 5% of the workers (that's how many get minimum wage), and even if you assume all of them get the pay raise and not the pink slip the effect still will be rather small. If you however (correctly) believe the effect would be much bigger, then pay differentials would be preserved, because they are reflection of many structural and market conditions, none of which would be improved by it.
Yes, it is - I am not at all confident in my understanding of the subject (so thanks for sharing your views with me).
>> at the cost of slightly degrading that of the high-wage workers
> How do you know it would be slight?
"Slight" was a bit of a red herring. Whether the impact on high-wage workers is slight of not, so long as it's negative, it is causing incomes to be more equal.
> If you however (correctly) believe the effect would be much bigger, then pay differentials would be preserved, because they are reflection of many structural and market conditions, none of which would be improved by it.
If these assumptions hold, does that mean that pretty much any attempt at leveling the wage distribution within a capitalist system is destined to failure? i.e. negative income tax, basic income, etc. would also do nothing, as the wage distribution would adjust itself to revert the effects? The only workaround (in which workers are compensated only in cash) is to outright fix wages across the board? (Not that I am suggesting this). Or am I misinterpreting this?
Why causing incomes to be equal is a good thing? Equal incomes for unequal work is a recipe for disaster, as those who do more valuable work would be discouraged from doing quality work if they can get the same for easier and less diligent one.
> If these assumptions hold, does that mean that pretty much any attempt at leveling the wage distribution within a capitalist system is destined to failure?
Yes. As much as one relies on voluntarist decrees to override the economic laws, it is destined to fail. Of course, the decrees would affect the wage distribution, at least for a time, and they may temporary improve income for some specific people, but ultimately since the labor price differentials are not product of absence of a decree banning them but of myriad of market conditions, these conditions would cause the prices to readjust or, if proper pricing is prohibited, to go to the gray or black market or be replaced. I.e. cheap fast food places may automate ordering and get rid of those minimal wage cashiers. Or hire just one instead of two and make them work more. Etc.
> i.e. negative income tax, basic income, etc. would also do nothing
Oh, those would definitely do something. Just maybe not the thing you expect them to do. If you institute basic income equal, say, to the salary of a teacher - which is not an easy job - then many people now employed as a teachers may choose to get the same money but instead pursue their leisure or some other less stressful activities. If you still need teachers, you'd have to offer them more to compensate them for giving up their leisure and endure the stress of the job.
Now, these extra money have to come from somewhere - so something has to be made more expensive. People that consume this something would try to keep their consumption level - if successful, they'd get raises too, if failing - they'd consume less, thus influencing those who produced that something and requiring them to be either compensated or find another employment. And so on, and so forth - the ripples are numerous.
