Dear Econominauts,
Over the past year we've heard tirade after tirade about how increasing minimum wage is the only way to get America back on track. It'll create a middle class, let low wage earners afford college, decrease crime, and if you don't support it you're a huge monster asshole who supports corporate greed and should be tied to a splintery post and flogged.
The part they leave out is how it will utterly destroy America's economy and lead to a global depression that makes 1930's Boston look like a utopia.
Before I really tear into this issue let me say that at NO point will I discuss the morality of increasing minimum wage, which, unfortunately, are the only reasons against it I typically hear. I personally wish everyone on earth owned a jet ski, had a private buffet in their 4000 sq ft mansion, never got sick, and had orgasms on command. Alas, it is not so (but it's a goal).
Let the thrashing begin!!! The sections are outlined below.
1. Think like a small business owner
2. Think like an American worker
3. Macro Impact
Part 1: I own the busty bagel breakfast joint and have 5 minimum wage workers underneath me. Since they all work 40 hours a week, I have a $1450 weekly labor cost. When minimum wage jumps to $15, this increases to $3000. To offset this so that I don't foreclose on my home and lose my wife to a life of vein thumping and pimp humping I can do one of four things.
A. Increase prices
B. Cut workers
C. Cut production costs
D. Increase production efficiency (the scary one)
In reality I'll probably end up doing all four, however, for now we'll focus on them one at a time.
Increase Prices- To deal with the increase of labor, I decide to increase the prices of all my busty bagels. As anyone who has ever taken an economics class knows, when you increase the price the demand for your product decreases. As a smart business owner, you had already price tested your products and knew that your current prices represented the perfect intersection of supply and demand. By increasing your prices, less people are wanting to buy your product. Now you have two problems. You have to pay your employees more and there are less customers. This solution will not work. (I will focus on the problem of inflation once I take a more macro look at the problem).
Cut Workers- I really liked the number of people I was employing before, but now that they've voted for a moron who artificially increased their pay...I have to fire those fuckers. To bring my labor costs back down to $1450 a week, I can only employee 2.41 people. Since I haven't hired any midgets, I'll need to round this up to 3, I now only have 3 people doing the work it normally took 5 people to do. No body is happy, my business isn't running properly, and unemployment has increased. Wonderful.
Cut Production Costs- So I've decided that I simply can't part with any of my little turds, even though they voted for the anti business christ and threw their own lives and lives of billions into the gutter, I do love them and don't want to see them destitute. So I start using rat meat. All of my once busty bagels are now smaller, more A cup bagels, and I've decided to use old product instead of throwing it away. It's okay though, because now that everything I serve comes in a frozen bag it makes cleaning up a breeze. Except when my loyal customers decide that they don't want to pay the same price for an inferior product. They every stops coming and the business goes down and we're all hustlin crack for a cheese burger.
Increase Efficiency- I'm going to cut the shtick on this one and just tell you what I mean. When businesses are forced into increased costs they look for ways to become more efficient. Innovation is what drives capitalism and this scenario will produce the greatest increase in efficiency since the industrial revolution. I'm talking about the replacement of human workers with automated processes. Don't laugh at this one. It's already happened. Go into any industrial complex today and you'll see human and robot working side by side on the assembly line. The only reason the service sector hasn't went fully automated is because of the cost of inventing and implementing the technology. Once the cost of human labor is greater than the cost of automating the process, you better believe you'll be ordering food from mcdonalds from SIRI and Cortana. They can already recognize your accent and use of slang, it's not that far off that they'll be able to take your order at the drive through, take your money at the window (electronically or physically) and then extend a double cheese burger and fries without a human hand ever touching it. Our current economic structure seriously cannot handle this. Increasing minimum wage is done in the spirit of decreasing the wage gap. Once the only people who are employed are the high level skill positions that can't be automated, it will be millions of times worse. It would cause a global revolution that would cripple the world economy. We have not planned for this and while it's an inevitability, we can stave it off long enough to create a plan, let's not be premature about our own cultures destruction.
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Part 2- Now lets think like an average college educated, middle-class, American worker. Let's say you currently make $35,000 a year at a really stressful firm and have no kids. Minimum wage increases to $15 and now every minimum wage worker who is a full time employee is making $31,200. Is it really that big of a difference? Do you REALLY value that extra $3,800? Why work 60 hours a week as a salaried employee when you can go pop popcorn and tear tickets and make nearly the same amount of money? You won't, and the people who currently have these minimum wage positions, the ones who want the increase, will be fired because of the increased competition for their positions from college educated persons. As a business owner why would you keep on the girl who barely got her GED when you could hire someone with a B.A in sales management?
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Part 3- Lets discuss macro trends below:
Increased unemployment- Businesses will be letting people go because of the bottom line. Those who aren't let go immediately will be replaced with those who previously held skill positions but no longer saw the responsibility as worthwhile.
Decrease in college educated individuals- Counter intuitively the number of college graduates will actually decrease due to the decreased reward for completing a degree. While those with degrees will have first dips at the jobs, no longer can you be promised a significantly higher salary for the effort you put into education.
Inflation- As I mentioned in part 1, businesses will look to increase prices. While some businesses have products that are very price sensitive and may shy away from losing consumers on a macro level it will happen. Increasing labor costs will lead to increased prices, every example of the minimum wage increasing ever has proven this. When inflation rises the value of money decreases, which means those who did not get an appropriate level bump in pay i.e. everyone who isn't a minimum wage worker, will now have a lower standard of living. This post cannot possibly cover everything that happens to an economy that goes through rapid inflation, but needless to say a few civilizations have been destroyed by it.
In conclusion. If the minimum wage increases every single thing will go to shit and it will actually be the worst on those who were supposed to benefit the most. If you love your friendly neighborhood fry cook, do not under any circumstance vote for someone who wants to raise the minimum wage. His life, America's economy, and truly the world's financial structure depend upon it.
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