By Farzad Mesbahi
One of the trends we are starting to see in the United States, especially on the left side of the political spectrum, is the push for a $15/hr federal minimum wage. This means that every full time working person in America will be guaranteed around $30k on a yearly basis regardless of position or line of work.
I'm going to list the fundamental things that I think will be impacted by doing this change:
If I'm a person currently making less than $15 an hour
- I will be making more money, which can vary drastically in the field of work that I do. Retail workers will probably see the biggest jump. More specialized roles, such as warehouse picker and the like, will not see as much of a jump, but it will be a raise nonetheless. The economy, if nothing else changes, will have more dollars available to employees than employers, due to the fact that employers will have to pay people more, thus increasing their costs and lowering their profits.
If I'm a person currently making more than $15 an hour
- I "could" be making the same amount of money, depending on how close I am to the $15 mark. Corporations might see pressure from the work force that will demand a more defined separation between compensation for jobs (i.e. a job that used to be $10 is suddenly $15, but a person making $16 remains at $16 unless the Corporation or employee acts. Should the job at $16 now be at $20?). However, I don't foresee this being an issue the farther away you get from that $15 mark. The jobs that could be impacted include those that are within the $15 to $17 range, which is any job where a person makes between $30k and $34k a year. The economy once again, if nothing else changes, will have more dollars available to employees than employers.
What else is impacted if nothing else changes
- The Government will be making more money, due to the fact that there's going to be a portion of the population that will be earning more, which means there's going to be dollars that didn't previously exist which will be taxed at a different rate (i.e. these dollars use to exist for corporations as profits, maybe even overseas. They are now in the public's pockets.) This impacts both the jobs under the $15 mark, and those that are hovering slightly above it as outlined above.
- The Corporations that have employees earnings less than $15 an hour will see a cost increase, due to the fact that they are forced pay more due to federal mandate. In addition, they may also experience higher cost increases from jobs that hover close to the $15 mark as stated previously.
- The economy will have more dollars available to employees than employers.
The recurring theme from the above seems to be that "the economy will have more dollars available to employees than employers". This causes things:
- The buying power of the American people increases, meaning those that previously didn't have money around to spend on things suddenly have "disposable" income (I put that in quotes very carefully because it may allude to something else.)
- This feeds the whole supply and demand model, meaning that people will have more money to spend, which by buying things will make corporations more money, which theoretically would go directly to its employees, which will have even more money to spend, which would make corporations even more money, which theoretically would go directly to its employees... you get it.
- Inflation due to the above, which by definition is driven by the over-abundance of dollars in the economy (not quite sure if this is good or bad, but it is a fact of our economy as it stands today).
- Mad cash money for the Government due to all of the above going down.
In theory, this all sounds like a positive thing. The costs that corporations would potentially endure could be offset by the public having more purchasing power to buy a company's products, while all the while the Government keeps drawing in additional income through taxation. In the end, the two big winners from this will be the public and the government, while corporations would see a benefit once the supply/demand model churns for a couple cycles - IF ALL ELSE STAYS THE SAME.
I will attempt to explore some potential hurdles (i.e. if not all else stays the same) that could put a damper on the positive feedback loop that I outlined above:
From a Corporation's viewpoint that has little to no jobs at less than $15/hr
- "Well, I mean this doesn't really impact me much. However I'm curious to see how other companies react to this. This could potentially affect the revenue that my company is able to bring through. However, my costs should remain the same, unless I deal with a lot of companies that employ people that fill a lot of jobs for less than $15 an hour. Shit - are their costs going to go up? If they do, that means they could try to pass it on to me. So now my costs are going to go up? Shit. Should I raise my prices to try and cover these costs if they do go up? Will my revenue then take a hit because people won't be able to afford my products anymore? But wait, people should be making more money now, so they should be able to afford my new costs, unless the cost of my product is just not worth it for the type of product it is. Hmmmmmmmm..." In other words, this Corporation, depending on the amount of exposure he has to other corporations from which he purchases products or services from, could simply raise prices. If so, his hope is that inflation outperforms the raise in cost of his product or service (i.e. his company's price raises by less than the purchasing power of the general public).
From a Corporation's viewpoint that has a significant number of jobs at less than $15/hr
- "HOLY FUCKING SHIT WE ARE SO FUCKED WHAT THE FUCK HOW ARE GOING TO EVEN MAKE MONEY WE ARE GOING TO GO FUCKING BANKRUPT SHIT SHIT SHIT SHIT SHIT SHIT SHIT" (I kid. It'll probably go more like this...)
- "HOLY FUCKING SHIT. Ok. Breathe. Got it. So, I need to first understand how much of my costs are associated with wages for my employees. If my wages are a very high percentage, I have no choice but to start cutting positions in order to bring my costs down if I want to keep making money. Fuck. Now this means that my current staff is going to be potentially understaffed (unless I had a bunch of workers that weren't bring value), so I either need to start selling less to try and stay afloat so my people don't go postal, or I have to start making some changes to my current processes thru some sort of innovation. Or, I could raise the shit out of my prices to try and offset the higher wages I'm going to be taking on and keep all my people. But I could be pricing stuff too high at which point no one will buy jack shit. I don't fucking know. I need a drink." In other words, this Corporation has a big hurdle ahead of itself depending on the number of people he staffs, what percentage of his total costs are wages, and how much exposure he has to other corporations with the same problem.
The above is a straightforward look at the fundamentals. One of the potential variables in this whole thing has is the state of the public as it pertains to their current financial situation. Here's a scenario I can see playing out:
If I'm a person that has had his/her wages increased to $15 an hour, but I'm still recovering from the financial crisis of 2007
- "Nice! This is awesome! I finally have more money to pay off all my debts and get my shit back together! Man I tell ya, I really learned my lesson from those tough years back in 2007 and 2008. There's no way I'm going to start spending my money on stuff I want until I really get myself some savings." The situation here outlines a person that is using the increased buying power in order to get himself in a "comfortable financial position" (since comfort is relative depending on the lifestyle of any one person.) What this means is that we could have a portion of the public that will choose to not spend their additional dollars from the wage increase on "wants", but instead will invest in their security. However, this could lead to...
If I'm a Corporation that has taken on significant costs from the wage raise, but my revenue isn't increasing
- "Well, my costs have gone up. My revenue is the same. I need to fire people or be ok making less money. This sucks."
A very big variable is that the general public, learning their lesson from the recent cluster fuck in 2007, could "invest" their additional pay from the wage raise into themselves - be it lowering debt, adding to savings, or both. The length of time the general public spends doing this could very realistically make establishments either a) significantly cut labor, which reduces the amount of people that are making money, period, or b) go out of business entirely.
My basic mind has this whole thing boiling down to the following: if the public can, in relatively quick order, return the additional pay they receive from this wage raise to corporations, and if corporations are willing to retain most if not all of their work force by either price increases or giving up profit, we should be ok.
However, if anything shifts from the above, I would make the argument that we will face some very real risks. Again, not nearly smart enough to fully define these, but they could be made up of the following:
- A higher paid public, but less jobs to go around, so net effect could be negative.
- A lower stream of revenue to the Government due to the above, which will force it to cut programs like Social Security and others.
- Less companies around to innovate, which will potentially slow down the growth of technology.
In the end, the goal of raising minimum wage to $15/hr is to give everyone a living wage. It all hinges on the public's perception of what "living wage" means, and how greedy corporations are.
Yeah I think I'm going to have some whiskey now.
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