In this article, I will dispel many of the myths regarding government mandated wage hikes.
When minimum wage is raised in a state or country, it does a number of things. The majority of the workers are unaffected because they belong to a Union, have college degrees or practice a profession that allows them to command a higher salary. These are the people that eventually have the cost of minimum wage increases shifted to which I will establish below. These workers are market wage earners. The workers that have a labor rate established by law are the planned wage earners. Because of automation, industry consolidation, technology, anti-union environment, bad trade deals; many of these workers are unable to command higher wages from their employer.
Here is exactly the process that will occur…
A business owner will respond immediately to these higher planned wages that may equally affects his competitor with price increases. The costs of these higher wages are shifted to market workers equalizing living standards.
For example, 1000 workers are at minimum wage and 20,000 are working at labor rates above minimum wage. Once the business owner adjust their prices to regain their profit margin, those 20,000 workers will have a reduction in their net income after expenses. The 1000 workers net income will increase naturally due to higher wages, their share of these higher costs will be minimal.
Fairer Competition between Union and Non-Union
Here is the rub or problem for most businesses. If you are at Wal-mart, a minimum wage increase reduces your price advantage as compared to your Union counterpart. Ever go into a grocery store that has been Unionized by its workers? Notice how much higher the prices? A rotisserie chicken is $7.99 versus $4.99 in Walmart.
Under a high minimum wage, Walmart will be forced to have similar prices, losing their ability to draw massive amounts of customers. A competitor adept at avoiding Unions will fight minimum wage not because of the increased labor costs. They fight minimum wage increases to maintain their labor advantage that they use over their competitor.
A companies ability to prevent Union is no longer a factor in their profitability, they will have to compete on customer service and quality of product, not terrorizing and spying on workers.
An increase of the minimum wage rate actually increases the number of available jobs!
When labor rates are high, many household can revert to a single breadwinner to pay all the bills, while the spouse can stay home with the children. As soon as wages drop, it forces both spouses to work full time jobs or the breadwinner may work two or three jobs to make ends meet. When one job was occupied by a household, it is now two, three, or even four jobs that are now required to make ends meet.
A women died in her car working four jobs from carbon monoxide poisoning! A higher minimum wage would have saved her life.
More money gets put into trust fund helping Social Security stay solvent or pay higher pension benefits for a worker. At least 13.5% of a workers salary is paid into trust by the employer and employee. A higher wage and your retirement will be that much nicer.
Delay or Avoid College.
Many workers can avoid entering into college and assuming massive amount of student loan debts. Parents can retain their retirement savings that they were going to use for their child’s college that now can earn a respectable living. College no longer becomes the only way to gain entry into the middle class.
Market Wage Earners.
An increase in the minimum wage should not increase wages of people that can command a higher wage due to a college degree, skill, or Union membership. Anybody that can make a wage above minimum is still subject to the market supply and demand. Workers that are unable to make a wage above minimum have a planned wage by the government. Higher minimum wage primary effect is to equalize net income among workers.
In the end, business owners can respond with higher prices and pass them onto workers that earn above minimum wage. More jobs are available since a worker or spouse is not required to work four jobs to make ends meet. It makes competition fairer between Union and non-Union companies. It equalizes living standards among all workers whether you are an accountant (market) or fast food worker (planned).
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