From IACKnowledge:
One of the major arguments businesses use to justify not supporting a minimum wage increase is that they would subsequently have to raise prices to pay for it. They say that any gains a minimum wage earner might have gotten from better pay will be wiped out when the cost of living readjusts to the increase. What they don’t mention is the fact that paying their workers more turns out to not cost very much more. Sometimes, the cost of their products will go up by such a miniscule amount that consumers would hardly notice.
This point was reinforced recently on an internal earnings call from the executives at fast food chain, Jack in the Box. Management was discussing California’s impending minimum wage increase (first to $9 an hour next year, then to $10 in 2016). Far from being a bleak projection, the wage increase that will affect many of Jack in the Box’s workers will hardly cause a blip on the menu prices.
Here is what Jack in the Box plans to do:
Yes, if I said federal, I misspoke, I meant California. Thank you, Carol, for correcting that. So the California — let me just restate that, California’s about 20 basis points this year, it’s only 1 quarter, and that’s on the Jack In The Box level margins. That is — again, that is in the numbers for 2015 and forward. We do have — in our 2015 numbers, we’ve assumed that we will take some price to offset the California minimum wage, which we estimate to be about 1.4%, this is just for California restaurants, and a little less than 1% if we take it across the entire system.
In other words, if Jack in the Box wants to just raise the prices of menu items in California they would have to increase the cost by about 1.4%. If they want to spread the cost around nationally, the cost increase drops to less than 1%.
And Jack in the Box isn’t alone in this. Recently Cheesecake Factory, which operates over 20% of its business in California, raised their prices to get ready for the minimum wage increase – by 2 percent. If you have been to Cheesecake Factory recently, you probably didn’t even notice.
Wal-Mart, which has had a love-hate relationship with rising the minimum wage, also shows signs of barely being affected by paying their employees more. Caroline Fairchild, writing for the Huffington Post, ran the numbers and found that if Wal-Mart were forced to pay every every one of their employees at least $12 dollars an hour (two dollars higher than the minimum wage being discussed in Washington), consumers would only have to pay around 46 cents more per trip.
Spread across the entire year, the wage hike would cost customers roughly $12.50 annually (the average Walmart shopper spends around $1,200 per year).
The wage hike to $12 would increase Walmart’s hourly payroll by $3.21 billion per year, the researchers write. But even if Walmart decided to pass 100 percent of the cost on to customers, store prices would still only increase by 1.1 percent, they say. [source]
So what would a 1% increase in hamburgers, a 1.1% increase in toilet paper, and a 2% increase in cheesecakes get us? For starters, a 30% pay raise for 28 million workers.
The infinitesimal price increase would also mean over one million people lifted above the poverty line. In one day, one million people will be pulled up and put on a path towards financial stability. It would also mean a $31 billion increase in earnings to the poorest Americans annually.
That also means $31 billion more dollars for Americans to be using in the economy. The very businesses who barely had to adjust their prices will begin to see a lot more people able to buy their products. In this context, raising the minimum wage seems like a no-brainer.
Of course, the conservative argument isn’t just that the minimum wage would cause damaging increases in spending (which we’ve seen that it won’t), they also claim that it will hurt jobs.
“When you raise the price of employment, guess what happens? You get less of it,” House Speaker John Boehner (R-OH) said at a House Republican press conference on Wednesday. Sen. Marco Rubio (R-FL) agreed, explaining that “the impact of minimum wage usually is that businesses hire less people.” It’s a fairly logical and simple argument: increasing the cost of labor causes competitive employers to cut employment or hours to make up for the additional cost, hurting the very low-skilled workers that the policy was designed to benefit in the first place. [source]
What’s the point of higher wages if no one is able to get a job to earn them? That would be a compelling argument, if there were evidence to support it. Fortunately, the evidence suggests that this is a myth.
According to a report by the Center for Economic and Policy Research in Washington, D.C., the relatively low increase in costs to businesses more than offsets the threat to jobs. Businesses are already working with absolute minimum amount of employees they think they can manage with. It actually harms businesses more to cut employees further, even if the alternative is to pay them slightly more.
So next time you hear a politician or businessperson bemoan the minimum wage increase, ask them if they have ever heard of a better return on a one percent investment.
