As much as I try, some news topics are really hard to avoid. The recent debate over the minimum wage is one of them. Shockingly, I see the same arguments every time the topic has come up since I started working back in the 80s.
I swore off of political discussion but this is a social and economic issue that has been turned political via class warfare politics. So, let’s talk the truth.
The biggest flawed argument is that raising the minimum wage doesn’t cause inflation. You can find all manner of jury-rigged charts and stats to support the lie also.
Reality is that any good or service has two main costs associated with it; parts and labor. If you raise the labor cost of labor one of three things is going to happen:
- The price of the final product has to be increased to cover it’s increased cost of production.
- You cut your labor pool and force more productivity out of each member
- You decrease the quality of the materials used to make the product.
If one or more of those things isn’t done, the company loses money and risks going out of business. Few people anymore seem to understand that a business has expense of it’s own that have to be paid for out of their gross profits.
Let’s use a restaurant for example. WAY WAY WAY back in the day when I worked at Burger King, the manager and I used to talk alot. He explained that the restaurant has to charge 3 times what the food costs the store to cover all their expenses. You MAY have heard Robert Irvine say the same thing on episodes of “Restaurant Impossible” when coaching the people he’s helping that episode.
What expenses you ask?
- Payroll to employees (Labor)
- Local State and Federal Payroll Taxes
- Mandatory Employer contribution to employee social security (ie more taxes)
- Unemployment Insurance (yes the money that you collect as unemployment is first paid to the government by your former employer)
- Employee Health Insurance (in some cases)
- Business License Fees
- Franchise Licensing Fees if part of a chain
- Property Taxes
- Mortgage on the building
- Upkeep on the Building
- Utilities (Electricity, Gas, Water and Sewer, Business Phone, Internet)
- The actual ingredients to make the food
- The utensils and cookware tom make the food
- Dishes, boxes, wrappers; however the food is served
- Cleaning supplies
- Employee uniforms
And doubtless some other things that I didn’t remember. All of that is why a hamburger that costs $1 in food costs has to be sold for $3. That amount allows the restaurant to cover expenses and make a modest amount of money. Remember the owner needs to pay himself also so he can pay his personal bills also.
The proof of inflation can actually be tracked via the that same hamburger restaurant idea. When I was first hired by right out of high school, the minimum wage was bumped from $2.85 an hour to $3.30 an hour.
What happened right after that? The price of a Burger King “Whopper” sandwich combo meal jumped slightly to $3.35. I cashiered, so the price stuck in my head, LOL.
The price of a combo meal at almost any fast food restaurant has stayed almost the exact same amount as the minimum wage also. The Federal minimum wage is currently $7.25 an hour. What does anything actually worth eating in terms of a combo meal cost? About $7.
Yes, you can get cheaper stuff, like the $5 specials that the low quality fast food places (McDonalds, Burger King, Taco Bell) run, but are any of those items worth eating? Typically, the ingredients are cheapened down to the point the food is barely edible. I joke about the typical fast food chicken nugget being made from ground up beaks and claws for example, LOL. Then they drown the junk in some cheap vinegary sauce and hope you don’t notice.
Reality is most fast food and quick serve places have cheapened all their menu item ingredients because they can’t get anyone to work for under $9 an hour but still have to keep prices down. So to balance profits they’re selling $5 meals for $7 and paying the employee $9 to make it.
It’s not just restaurants though. Everybody’s wages go up, so prices go up across the board. Net result, we have inflation and the little guy has no more buying or saving power despite the increase in income.
You can’t squeeze much more productivity out of the average worker either, so cutting labor and demanding more from those who remain isn’t a viable answer.
“Real” minimum wage in the above chart I’m assuming means the legal minimum wage adjusted for inflation / actual buying power as compared to the past. Note that it’s stayed moderately consistent while productivity has soared.
Some of that productivity is automation assisting jobs (which typically means fewer hands needed to do the same amount of work), and the rest is just employers demanding more from employees. Anybody recall being expected to fill multiple roles after the housing bubble burst, if you were lucky enough to keep a job?
The irony about all of this is that even Investopedia is full of double speak here and it’s typically a decent source of info for basic economic concepts:
“With regard to inflation, so-called wage push inflation is the result from a general rise in wages. According to this hypothesis, in order to maintain corporate profits after an increase in wages, employers must increase the prices they charge for the goods and services they provide. The overall increased cost of goods and services has a circular effect on the wage increase; eventually, as goods and services in the market overall increase, higher wages will be needed to compensate for the increased prices of consumer goods.“
So that’s what Ive been saying. But the next paragraph down in the article, they argue against that idea and that the only alternatives are cutting workers of quality of goods, BY SAYING THAT’S THE ONLY ALTERNATIVE!!!
“According to economic analyst Ed Rensi, formerly an executive at McDonald’s, a higher minimum wage would not only kill existing jobs but also result in closing a substantial number of small businesses, from 15% to 20%. In theory, raising the minimum wage forces business owners to raise the prices of their goods or services, thereby spurring inflation. In actual practice, however, it is not so simple since wages are only one part of the cost of a product or service paid for by consumers. A higher minimum wage can be offset (ie inflation avoided) by heightened productivity by workers or trimming down a company’s manpower.“
Are you getting the message yet, folks? You’re being scammed in an effort to buy votes when NOTHING will truly change.
Is There a Real Answer?
This one is harder to answer than it should be. The standard conservative answer is education. However, “everybody deserves a college degree” worked out as well as “everybody deserves a house”. There was so much graft, misrepresentation and sometimes lazy students, that we’re sitting on another economic time bomb with student debt. In an ideal world, education would be the answer. The more you know, the more you make. Flipping hamburgers could be left to kids in school or robots and everybody would go on to make a living wage at a “real job” as my mother used to call them.
Aside from the problem with needing to clean up the system, things are evolving so fast that training and education are often obsolete in 5 to 10 years, even some hard science advanced degrees. How does the average person keep up with that??
Then there’s the whole issue of jobs becoming increasingly replaced by automation as well. New York City has some fast food restaurants that are completely automated now (in response to their $15 per hour minimum wage no less). There’s even efforts to replace lawyers with robots. Good riddance there, LOL
People are becoming obsolete in general. The ultimate answer may be some form of universal income. That’s scary in how much power it gives the government over the lives of it’s citizens. I’m not even sure how it works as the idea goes completely against basic economics. Government doesn’t produce anything to create the wealth it wants to distribute in a universal income situation.
No, you can’t just infinitely print money either. It destroys the value of it. Think of it this way; If everybody had FIVE, (yes five) classic Mustangs like mine:
How much would ANYBODY be able to sell one for? ZERO. Even money itself operates under the law of supply and demand. The more there is of anything, the less it’s worth.
Answers? Wish I had some good ones. Right now, all I know is the dog and pony show in Washington is nothing but smoke and mirrors intended to buy votes. It’ll sadly work too.