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Right, and I don't think anyone that advocates raising minimum wage is under the impression it will cost nothing. What you've put here is a fair scenario that most employers will face more or less.
The question is, what is the benefit to larger society? Will that 50% stimulus to the lowest end workers have a favorable macro-economic effect offsetting the 15% increase in prices? I've seen enough studies that lead me to believe the macroeconomic effect is positive - that even with increased prices, most businesses enjoy greater demand for their product because there's simply more money in circulation.
There will be winners and losers in the scenario regardless, but I'd argue more winners than losers. In a perfect world, we wouldn't need minimum wage, but we don't live in a perfect world.
It's an interesting debate as to how a rise in minimum wage will effect the economy. Here in the Pacific NW, it will hurt. Seattle raised the minimum wage and immediately landlords across the board drove up rent as a direct result. And for those who were making already $15-18/hr it hurt them deeply. At Pike market in Seattle several small businesses eliminated employees (I have spoken with 3 that laid off all workers). Here in Portland rents will drive up and the few small business people I have spoken to will be selling, closing or letting most employees go. As an example, there is a group of local Baskin & Robbins owners. Nearly 100% are now trying to sell their shops. The lady I know who owns 3 will be closing 2 outright (letting 9 employees go) and will be an owner/operator of the other with 2 employees only.
I also wonder as brick & mortar stores raise prices to cover the raise in minimum wage how they will be able to compete with the Amazons of the world.
What they should have done when they started the minimum wage was to attach a 2% yearly increase so we don't have to take these giant steps every 20 years or so.
It's an interesting debate as to how a rise in minimum wage will effect the economy. Here in the Pacific NW, it will hurt. Seattle raised the minimum wage and immediately landlords across the board drove up rent as a direct result. And for those who were making already $15-18/hr it hurt them deeply. At Pike market in Seattle several small businesses eliminated employees (I have spoken with 3 that laid off all workers). Here in Portland rents will drive up and the few small business people I have spoken to will be selling, closing or letting most employees go. As an example, there is a group of local Baskin & Robbins owners. Nearly 100% are now trying to sell their shops. The lady I know who owns 3 will be closing 2 outright (letting 9 employees go) and will be an owner/operator of the other with 2 employees only.
I also wonder as brick & mortar stores raise prices to cover the raise in minimum wage how they will be able to compete with the Amazons of the world.
What they should have done when they started the minimum wage was to attach a 2% yearly increase so we don't have to take these giant steps every 20 years or so.
Actually it is still $11-13, so the people who earn $13 got hurt too.
But increasing it by a 2% yearly increase is also a bad idea, because sometimes a leader will come in and raise it. Then you might get a recession, but minimum wage keeps increasing by 2%. The result of this is unemployment.
The real solution is to make the minimum wage a fraction of median wage of each state. The federal government decide a minimum fraction of maybe 50%, but each state can increase the fraction. This will allow the MW to be flexible to economic pressures, and the focus is on which fraction is sustainable and not how nice it would be to earn 15 dollars.
Right, and I don't think anyone that advocates raising minimum wage is under the impression it will cost nothing. What you've put here is a fair scenario that most employers will face more or less.
The question is, what is the benefit to larger society? Will that 50% stimulus to the lowest end workers have a favorable macro-economic effect offsetting the 15% increase in prices? I've seen enough studies that lead me to believe the macroeconomic effect is positive - that even with increased prices, most businesses enjoy greater demand for their product because there's simply more money in circulation.
There will be winners and losers in the scenario regardless, but I'd argue more winners than losers. In a perfect world, we wouldn't need minimum wage, but we don't live in a perfect world.
It's not the purpose of a business to benefit society. It is a bi-product, but NOT the purpose.
It's also not the purpose of government to decide winners and losers.
Where do you get the idea that there is more money in circulation? I have an income from social security and investments. Only so much comes in the door. If some goods and services cost me more, then I have to buy less of other things. When I earned a salary, it was the same. I don't see that my situation is unique.
SS benefits are supposed to be inflation adjusted, at least in theory. What happens is this, when the minimum wage goes up there is a lag as the higher prices work there way through the economy, more bottom end consumption as this happens, then raise it again and the same thing happens. Bottom end wages get spent, top end wages get invested, spending money gets it to move faster than investing does.
Velocity is equal to gdp / money supply. Printing money lowers the velocity, it doesn't increase it.
Also velocity is the wrong factor. Japan is a low velocity, low profit and low unemployment country. Trying to increase velocity by increasing real wages seem like a very bad solution. It would result in companies going bankrupt.
Just looking at velocity as an absolute is wrong, delta change and why is what matters. Part of the change is from species dilution, part is from cutting back on the issue of new debt, (low demand for new debt). In the 1070's what was driving inflation was the increase in the velocity of money. We have a macro environment where the velocity of money should be dropping. The effects of QE is to force lending when the demand for it is low. Increasing real wages increases the demand for new debt and gets the money moving again.
Increasing real wages is bad if you have to do it and no one else does, (micro) but if everyone has to do it (macro) everyone is better off. There will be some winners and some losers but on average everyone is better off.
Just looking at velocity as an absolute is wrong, delta change and why is what matters. Part of the change is from species dilution, part is from cutting back on the issue of new debt, (low demand for new debt). In the 1070's what was driving inflation was the increase in the velocity of money. We have a macro environment where the velocity of money should be dropping. The effects of QE is to force lending when the demand for it is low. Increasing real wages increases the demand for new debt and gets the money moving again.
Increasing real wages is bad if you have to do it and no one else does, (micro) but if everyone has to do it (macro) everyone is better off. There will be some winners and some losers but on average everyone is better off.
What about local businesses that are already competing with China,etc? A wage increase will make those businesses less competitive. Think factories,etc.
Despite popular belief we do still have factories in the U.S.A
You also have situations where a city will raise the wage and the bordering cities don't.
The other cities will be at a competitive advantage.
And Yes I think people will drive 5-10 minutes for cheaper prices or if they go to a place that has more staff/better service. People do it to save a small amount on gas all the time.
What about local businesses that are already competing with China,etc? A wage increase will make those businesses less competitive. Think factories,etc.
I want US minimum wage to apply to all workers doing stuff for the US consumer market. No matter where they are located. We can insist that we pay them our wages, that is different than insisting that they pay them higher wages across the board.
Quote:
Originally Posted by jm1982
Despite popular belief we do still have factories in the U.S.A
You also have situations where a city will raise the wage and the bordering cities don't.
The other cities will be at a competitive advantage.
And Yes I think people will drive 5-10 minutes for cheaper prices or if they go to a place that has more staff/better service. People do it to save a small amount on gas all the time.
Some time back there was a push for going back on the gold standard for money. What we have is the de facto labor standard for money. It is set as $7.25 hr of labor in the US. Just make that global.
Raising minimum wage seems to give retailers the opt to increase prices ,increase rentals and begins a cascade of quasi- inflation in general. On the flip side that response often backfires whereby those
increases are not met with purchases perceived that ring profits and the reverse occurres ? In general
unless an about necessity if prices go up we nolonger purchase . I can list dozens of items we refuse
to buy that was a common list of items. Obviously minimum wage increases join up with other minimal
cost of living raises , advancements ,bonuses, commission, negotiated salary, county and Fed increases, market and retirement benifits, disability funds ,military scale increases
Just looking at velocity as an absolute is wrong, delta change and why is what matters. Part of the change is from species dilution, part is from cutting back on the issue of new debt, (low demand for new debt). In the 1070's what was driving inflation was the increase in the velocity of money. We have a macro environment where the velocity of money should be dropping. The effects of QE is to force lending when the demand for it is low. Increasing real wages increases the demand for new debt and gets the money moving again.
Here is the equation for the delta change that you request that I use. M is money supply.
Delta change of velocity = V1 - V0 = GDP1/M1 - GDP0/M0
Lets use 2015 and 2008 figures
17419/12652 - 14447/7480 = -0.55
A negative figure show that velocity has dropped, and it also shows why. Not because of species dilution or issue of new debt, but because money supply has nearly doubled. QE increases money supply, and so does new debt, its a really bad way of increasing the velocity of the economy.
I want US minimum wage to apply to all workers doing stuff for the US consumer market. No matter where they are located. We can insist that we pay them our wages, that is different than insisting that they pay them higher wages across the board.
You also said that businesses who want to export to the US also can't buy goods made by people who earn less than US minimum wage. Hence in a country where the majority earn less than US minimum wage, it becomes an unachievable requirement.
The effect of your proposal is massive collapse in imports, a recession because US consumers has less to spend, and it will eventually lead to a collapse in exports because of retaliation and a very strong dollar.
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