Raising the minimum wage. (RG finds time to post.)

[RandomGuy]

MELLISSA wrote:
Here is my question, how can employers afford to pay these wages many companies are barely scraping by themselves! Do companies get tax brakes or how does this work? Does the company charge extra for there product therefore increasing the cost of living! If you start doing the math the 2.10 raise equates to about the same as what you were making before if prices increase.

Here is some perspective about this from an accountant.

This can be applied to just about any business, and is intended to be more demonstrative of principle than accurate to the penny:

You own a small neighborhood bakery and do all management functions yourself.

Your average monthly cash expenses:

Rent:-------------$1000
Utilities:----------$800
Small loan-------$200
Employee pay---$1800 (includes payroll taxes and benefits)
Phone------------$50
Advertising-------$100
Taxes & Permits--$150
Insurance---------$200
Maintenance-------$100
Ingredients-------$1000
TOTAL EXPENSES---$5400

Total Revenues: $8400

You have two minimum wage ($5.15) employees who work about 31 hours a week.

If you do the math, you will note that employee pay represents exactly 1/3, or 33% of your expenses.

Now increase the minimum wage by $1.85. According to this model, your wage expenses, if you keep them working the same hours, rise by $320. Plug that back in and your total expeneses are now $5720. Labor has gone from 33 percent of your expenses, to 37 percent of your expenses.
You labor costs have increased 36 percent, but more importantly, your overall costs have only risen 6 percent.
Even more importantly, your prices are reflected in your revenues, not your expenses.

That $320 represents about 3.8 percent of your revenues, meaning that you will only have to raise your prices by 3.8 percent to cover a 38% raise for your employees.

Fit this into the overall economy now:
Assuming you pass the entire increase on to your customers you raise prices by about 4 percent.
The law firm next door employs no minimum wage workers, so they don't raise prices.
The mechanics down the street don't employ anybody affected by the increase either, their prices stay stable.
Some of these price increases will be passed on to the economy, but most companies would not be effected largely.
On the opposite side of the coin, those minimum wage workers will take any increases and simply spend them increasing aggregate demand for all goods and services. Businesses will find increased revenues/profits will slightly offset any increases required by increased costs.

Hardly a jobs apocolypse, is it?

Some businesses with thin profit margins and tight markets that don't allow for much price increases will be forced out, but by and large the overall effects on the job market are minor.

[01Snake]

Did you get a raise?

[RobinsontoDuncan]

its not like the minimum wage has never been raised before, we didnt suffer massive economic stagnation then, we wont now either

[01Snake]

I'd like to know excatly what % of the population makes minimum wage.

[Yonivore]

its not like the minimum wage has never been raised before, we didnt suffer massive economic stagnation then, we wont now either
I'd like to see a graph of unemployment rates, productivity, and earnings overlayed on the last minimum wage increase.

Of course, you may be right but, I'll bet there was a rise in unemployment, a drop in productivity, and a drop in overall employee wages to compensate for the rise.

[Nbadan]

he mechanics down the street don't employ anybody affected by the increase either, their prices stay stable.
Some of these price increases will be passed on to the economy, but most companies would not be effected largely.
On the opposite side of the coin, those minimum wage workers will take any increases and simply spend them increasing aggregate demand for all goods and services. Businesses will find increased revenues/profits will slightly offset any increases required by increased costs

Nice stuff RG, how's the kid?

In many cases, businesses will simply 'adjust' packaging instead of raising prices to cover the added labor costs. A very thin margin of minimum wage workers may lose their jobs, but at >4.8% unemployment those shouldn't be too hard to replace, hell, we maybe even doing these workers a favor.

I've posted before about how raising the minimum wage can be a instant catalyst to economic growth that may easily offset the added labor costs to employers and generate tax revenue for the government.

[Yonivore]

...but at >4.8% unemployment...
Dayum! Nbadan notices fantastically low unemployment rate!


...hell, we maybe even doing these workers a favor.
How benevelont.

[Nbadan]

Dayum! Nbadan notices fantastically low unemployment rate!

Don't you mean artificially low unemployment rate? What happened to those millions of workers (and taxpayers) who's jobs simply disappeared in the 01 Bush recession? Oh, that's right, they simply stopped counting.

[2centsworth]

Here is some perspective about this from an accountant.

This can be applied to just about any business, and is intended to be more demonstrative of principle than accurate to the penny:

You own a small neighborhood bakery and do all management functions yourself.

Your average monthly cash expenses:

Rent:-------------$1000
Utilities:----------$800
Small loan-------$200
Employee pay---$1800 (includes payroll taxes and benefits)
Phone------------$50
Advertising-------$100
Taxes & Permits--$150
Insurance---------$200
Maintenance-------$100
Ingredients-------$1000
TOTAL EXPENSES---$5400

Total Revenues: $8400

You have two minimum wage ($5.15) employees who work about 31 hours a week.

If you do the math, you will note that employee pay represents exactly 1/3, or 33% of your expenses.

Now increase the minimum wage by $1.85. According to this model, your wage expenses, if you keep them working the same hours, rise by $320. Plug that back in and your total expeneses are now $5720. Labor has gone from 33 percent of your expenses, to 37 percent of your expenses.
You labor costs have increased 36 percent, but more importantly, your overall costs have only risen 6 percent.
Even more importantly, your prices are reflected in your revenues, not your expenses.

That $320 represents about 3.8 percent of your revenues, meaning that you will only have to raise your prices by 3.8 percent to cover a 38% raise for your employees.

Fit this into the overall economy now:
Assuming you pass the entire increase on to your customers you raise prices by about 4 percent.
The law firm next door employs no minimum wage workers, so they don't raise prices.
The mechanics down the street don't employ anybody affected by the increase either, their prices stay stable.
Some of these price increases will be passed on to the economy, but most companies would not be effected largely.
On the opposite side of the coin, those minimum wage workers will take any increases and simply spend them increasing aggregate demand for all goods and services. Businesses will find increased revenues/profits will slightly offset any increases required by increased costs.

Hardly a jobs apocolypse, is it?

Some businesses with thin profit margins and tight markets that don't allow for much price increases will be forced out, but by and large the overall effects on the job market are minor.
This is why I would run to the hills if you offered advice.

1st you said 2 minimum wage employees working 31 hours per week. That's

2*31*1.85*4 weeks. That totals $460. Now you have to take into account extra Payroll taxes 7.65% which increases the totals to $493.

Now in your example the Business owner was barely making it at $3000 per month but you want him to reduce his income by over 15%.

In your scenario I'm laying off one of those employees.

[101A]

This is why I would run to the hills if you offered advice.

1st you said 2 minimum wage employees working 31 hours per week. That's

2*31*1.85*4 weeks. That totals $460. Now you have to take into account extra Payroll taxes 7.65% which increases the totals to $493.

Now in your example the Business owner was barely making it at $3000 per month but you want him to reduce his income by over 15%.

In your scenario I'm laying off one of those employees.


I'm laying them both off, and hiring a different one; who is WORTH more money, if I'm only going to have a single employee, I can get more bang for my buck.

Better, I'm closing my doors, because ain't no way I'm trying to run a business WITH employees for less than 30K in income - dude still has to pay himself, AND pay his own taxes (remember as a business owner he's paying ALL of the Social Security and Medicare taxes on his own income; That's another roughly 6,000 for those of you keeping score at home. He still has to buy his own insurance; and probably pay for his employees bene's as well REAL soon if some of our politicians have their way; that'll easily suck up another $1,000 a month; meaning he's down to around 18K in salary left for himself;

Let's see; he's a baker with a couple of minimum wage employees. How much time do you think he's putting in a week? I'm betting, minimum, 10 hour days, 6 days a week - 60 hours.

18,000 per year divided by 52 weeks = 347 bucks a week/60 hours = $5.77 an hour.

Fuck it, fire both of them, close the bitch and go work a McDonalds; you'll make 50% more.

[01Snake]

This is why I would run to the hills if you offered advice.




:lol

[Yonivore]

Don't you mean artificially low unemployment rate? What happened to those millions of workers (and taxpayers) who's jobs simply disappeared in the 01 Bush recession? Oh, that's right, they simply stopped counting.
Boy, you have been asleep, eh Rip?

[Nbadan]

Maybe we need to start sending Americans overseas?

Jobless claims rise to 16-month high
By MARTIN CRUTSINGER, AP Economics Writer 1 hour, 43 minutes ago


WASHINGTON - The number of Americans filing applications for unemployment benefits shot up last week by the largest amount in 16 months, reversing two weeks of big declines.

The Labor Department reported Thursday that 325,000 newly laid-off workers filed claims for jobless benefits last week, an increase of 36,000 from the previous week. That was the biggest one-week rise since a surge of 96,000 claims the week of Sept. 10, 2005, when devastated Gulf Coast businesses laid off workers following Hurricane Katrina.

The increase of 36,000 was bigger than the 20,000 rise that had been forecast. Analysts, however, cautioned that it is difficult to read the claims figures at this time of year because of unusually wide swings caused by the holidays and other factors.

Based on past trends, claims numbers often surge in third week of the month as retail businesses shed seasonal workers hired to help with the crush of holiday shoppers. However, this year, the layoffs were much higher than in past years.

Yahoo News (http://news.yahoo.com/s/ap/20070125/ap_on_bi_go_ec_fi/economy)