Originally Posted by
spoonitnow
I don't think I've ever chimed in with my thoughts on the minimum wage thing.
@bold, So many jobs have already been lost due to the minimum wage that further decreases (from increasing the minimum wage) are lost in the noise of all of the other factors that go into employment rates, so it's hard to make any real connections there.
Generally speaking, it's a simple math problem that raising the minimum wage decreases jobs, not some kind of grand conspiracy. There's this idea that raising the minimum wage will force companies to just give more of their bazillions in profits to employees. The problem with that idea is that a unified increase in minimum wage prevents a ton of businesses from being profitable in the first place. Lots of other employment opportunities (particularly in government-funded jobs) get screwed over with this as well.
Suppose I have a business where I hire high school students to mow yards at $10/hour as independent contractors so that I don't have to account for payroll taxes. I have 50 yards that we mow each week, and the average yard takes two hours to do. That's 100 hours of labor that I have to account for with a total cost of $1,000. If I'm getting paid $40 per yard, then I'm bringing in $2,000 each week. Take out another $500/week in gas, maintenance and other fixed costs, and I'm profiting $500/week before I get fucked by taxes, which probably brings me down to about $400/week if I'm lucky. If I spend an average of 30 minutes dealing with each yard per week, I'm doing about 25 hours/week, and that comes to about $20/hour that I'm paying myself before taxes.
Along comes a minimum wage hike to $15/hour. That kicks up my labor costs by $500, so my pre-tax profit just dropped to $0. Now instead of $1,000 being distributed in labor each week, there's $0 being distributed, and I have a handful of high schoolers who are out of jobs.
"Aha," someone might say. "But the high schoolers can come in and offer your clients to mow their yards at the same price of $40 per yard and make $20/hour for themselves since the average yard takes two hours." Even if they were able to maintain my $10 fixed cost/yard that I mentioned above, that would drop them to $15/hour right away. So far so good until you remember they have no equipment. That option just doesn't work out.
Another alternative to deal with an increased minimum wage would be to raise my prices by $10 per yard (a 25 percent increase). In response to this, let's say that I lose 10 percent of my clients, and now we're down to 45 yards. I now have 90 hours to distribute each week at a rate of $15/hour for a total of $1,350. I'm bringing in $50/yard * 45 yards = $2,250 each week, and that leaves $900. Subtract the $450 in fixed costs (the same $10/yard rate we've been using), and now I'm bringing in $450 before taxes, and this translates to about $325-350/week after taxes. I'm still doing about 30 minutes/yard/week, so I end up doing 22.5 hours of work each week for 45 yards. Before taxes, that comes to about the same $20/hour.
What we see here is that if I want to make the same amount that I was making before, then I'm going to have to increase the number of yards that I'm mowing. Everyone else who is mowing yards in the area will also be trying to expand their market share. This increased competition drives down prices. It's easy to see the problem here: Somebody is going out of business.
And the end result is exactly what raising the minimum wage always does: Unemployment goes up, and the people who are still employed (not to be confused with the employers) make slightly more money than they did before.