Friday, November 30, 2012

Great Conservative Article About Raising the Minimum Wage

Here is a great article by conservative writer, Ron Unz, in favor of raising the minimum wage.  It concentrates on why it would be good for the US economy to raise the minimum wage.  Note, Walmart agrees with the writer - they want poor people to be able to afford shopping at Walmart.

I suggest you read the article thoroughly, I'm just summarizing some important points, with some comments.

First note that due to inflation, the effective minimum wage has been dropping pretty consistently since 1967.  In 2011 dollars, the minimum wage in 1967 was above $10.  It broke below $6 under George Bush, but has been pushed back up to a bit over $8 under Obama (see the chart in above article).     So when he wants to push to push the minimum wage to $12, it's not that big a deal.  It's a return to traditional values.

Let's look at winners vs losers.

Well, there are four types of people involved.

  1. Consumers of cheap products.  They will face a small increase in price.  Run Unz estimated we are talking about 3% or so.  Not that much, and not a huge inflation.
  2. Low paid employees.  They will have a significant raise.  They benefit incredibly.  Note this includes both those earning minimum wage AND those in slightly better paid jobs - as to employers will have to give raises to thee minimum+ people to keep them at their jobs.  People won't do the extra/harder work if you don't pay them more than the minimum.
  3. Big businesses paying the minimum wage.  Their profit margins will drop a small percent and/or their prices will go up a small percent.  The owner's profitability will not change significantly - as long as all of their competitors have to do the same.  If people can outsource their work to areas outside the US where there is no minimum wage, well they already will have done that.  Big Business does well.  Frankly, tax changes more than make up for this slight percentage.
  4. Small business of all kinds.  Most of them will do MUCH better with a higher minimum wage. Why?  Because small business has to compete with the big ones and most small businesses can't compete on price.  They have to offer better quality.   Big chains can almost always do it cheaper than you can, because a guy who owns 30 shops can live well off of a small profit per store, while a guy that owns 1 shop would starve without the big profit per store.  If you are a small business paying minimum wage, chances are you are doing something very wrong.   There are a few exceptions.
So let's expand on the exceptional small businesses paying the minimum wage. 

Here are the three examples I could think of:
    • Rare legal business that have large economies of anti-scale.   Something has to prevent a large corporation from taking over, without making it harder to do the work.  The most common situation here is high rent prices.  That's why Manhattan has more small stores and fewer chains - the big chains have trouble finding cheap rents.  But a long term tenant can have a sweetheart deal lease, own the property, or move to a new location. Then there are businesses with almost no fixed costs (maid services for example).  Here the small business benefits as he can raise prices.  If the economies of anti-scale aren't big enough to handle the small 3% price increase, then he doesn't have a real economy of anti-scale.
    • Franchise.  Here the big company gives you many economies of scale, but you get to own your own business, and want to pay your employees as cheaply as possible.  Here it will hurt the small business franchise owner. 
    • Criminal or semi-criminal enterprises.  I am not referring to drug dealers or other people selling illegal services or products.  Instead I am talking about people using illegal methods in their business.   Something along the lines of a small business that illegally dumps stuff in a national park.  They can compete with the big boys on price - because they don't have the same fixed costs to comply with the laws.  It is quite possible for them to employ minimum wage employees.   Here it will hurt the criminal small business. 

    The biggest negative will be slightly higher prices.  But it will help the economy a lot, because low paid people pump their extra profits right back into the economy.  Considering how low inflation is, we can accept a slight rise due to higher prices.   We might lose a few small franchise owners.  I feel bad for them.   We might hurt the semi-criminals -  but I don't feel bad for them..  But in any case the benefits to the entire economy should easily make up for that.

    Yes, their will be some people that get hurt by this rule.  There will be far more that benefit from it.

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