The unaffordable higher minimum wage fallacy

originally posted by: bigfatfurrytexan
Prove it with math....

Up to a certain income threshold people don't take money out of their local economy. The vast majority of it gets spent in local shops and with local businesses. Rent checks, grocery bills, gas bills, and everything else. The bottom 40% of people collectively own 1% of all the wealth. If you could increase that to two percent their spending power would double. It wouldn't make them wealthy but it would make them participants in the economy.

Our economy is predicated on the idea of there being an upper class of super consumers. Because their income is so high they'll purchase 20 bed sheets, 18 mattresses, 16 cars, enough food to feed 100 people, and all the rest. The problem is that this is a false notion. A wealthy person doesn't consume a disproportionately larger number of resources, and that means they don't create jobs for those people. Someone who is rich might by 10 rather than 5 pairs of jeans but that's not enough to offset the lack of participation by everyone else.

Below a certain percentage of wealth, people at that level and below are functionally non participants in the economy. If someone is living on $1000/month they aren't really participating in the local economy at all.

The idea of raising the minimum wage (or instituting a maximum wage) is that you shrink the gaps between the highest and lowest. Those in the middle also get condensed, with some doing better and some doing worse, but those on the extremes see the most change.

When this happens much more of the population is able to participate in the economy. That leads to more demand for jobs, and more demand for products.

The reason people don't naturally do this is that there's no benefit unless mandated by law. If everyone pays a high wage, one person can pay much less and massively increase their margins which turns into a competitive advantage. Shortly after, every business does this and we get in a race to the bottom.

The businesses themselves become structured to take advantage of that economic climate and can't easily revert.

You wanted math so here right now only 60% of the working US population participates in the economy. The other 40% are very low income and collectively have no impact. Wage increases (in any form) get you closer to having 100% of the population participating in the economy, at the cost of the middle class doing worse, and the top doing much worse. But to defray that, sales volume increases which handles the business side in being able to reinvest in the company.

a reply to: Aazadan

If someone is living on $1000/month they aren't really participating in the local economy at all.

Really? How many of them are there? What's $1,000 times that number? Who are they renting from? Who are they buying food from? Whose drinks are they buying? Whose hamburgers? Where are those various $1,000/month going?

You wanted math so here right now only 60% of the working US population participates in the economy.

Really? Where is the income of that other 40% going? Savings accounts?

But to defray that, sales volume increases which handles the business side in being able to reinvest in the company.

Sales just magically increase, even though demand stays the same and prices increase? Interesting math.

a reply to: Aazadan

The poor shouldn't be allowed to participate in society. They are a drain, and it's completely their fault for their circumstances. They should be forced to work menial labor to serve the well off while their income is taxed by 99% to supplement those who were smart enough to rise above the level of poverty and afford their homes, and in California, their water. Matter of fact, I believe that a special housing should be implemented to imprison them out of their own income.

No longer should the poor, homeless, and hungry ride on the coat tails of the successful.

/sarcasm off

originally posted by: onequestion
What we need to do is create the conditions needed in order for people to run their own business.

In order to do that more money has to stay in and circulate the local economy. There cant be giant mega corps sucking all resources out of a community and hoarding all of those resources in singular accounts that then in turn don't get spent in the area they are taken from.

I'm blown away with all the alleged econ understandings that this concept is not or misunderstood.

The free market doesn't allow for small business. In a free market the larger companies eat up the small ones, until eventually there's only a handful left. Then they take each other out until there's just one umbrella corporation. Look at what Walmart does to small businesses.

Small business can only survive when there's regulations to protect them.

a reply to: Aazadan

Small business can only survive when there's regulations to protect them.

Yea!
More government! That'll fix it!

originally posted by: PhageReally? How many of them are there? What's $1,000 times that number? Who are they renting from? Who are they buying food from? Where are those various $1,000/month going?

The 1st-40th income percentiles combined have a total share of the national net worth of 1%. That covers income ranges from 0 up to around 33k.

Really? Where is the income of that other 40% going? Savings accounts?

No, it's getting spent, it's just completely ineffective in having any market influence. I assume you're familiar with the concept of voting power? Multiple people vote on a subject and different peoples votes have different influence? The economy is like that. 40% of the people make up 1% of the money flowing around. The remaining 60% make up 99% of it. Those 40 effectively have no voting power. Voting in this place being the ability to support or reject corporations with their purchasing decisions. They have no say in the economy. 40% of people could literally disappear from the country with all of their possessions and assets and nothing would happen to the economy. Their effect on it is that small.

Sales just magically increase, even though demand stays the same and prices increase? Interesting math.

Demand doesn't stay the same, there is an entire group of people out there in untouched demand, the 40% who have no purchasing power. When they have the ability to buy things, that increases demand.

originally posted by: Phage
Yea!
More government! That'll fix it!

Without government regulations you get situations like the Hunt brothers where well funded individuals can corner the market for a product and massively increase it's price rather than letting the market decide.

a reply to: Aazadan

The 1st-40th income percentiles combined have a total share of the national net worth of 1%.

This is not about net worth. That's a different topic.

40% of people could literally disappear from the country with all of their possessions and assets and nothing would happen to the economy. Their effect on it is that small.

I don't believe that. Can you provide some actual numbers on the income and spending of that 40%?

When they have the ability to buy things, that increases demand.

What happens to that buying power when prices increase due to increased costs?

originally posted by: Phage
a reply to: Aazadan

Small business can only survive when there's regulations to protect them.

Yea!
More government! That'll fix it!

If it was a true for the people government the regulations wouldn't be on small business, it would be on big business.

a reply to: Aazadan

the only real issue i see is that you phase in and out and referencing economic impact in absolutes and percentages.

If i were to give out pay increases to each employee, the increase will show in the end price. We may take the opportunity to make a slightly different model, with different pricing schemes for high vs low end....but in the end the cost is passed along.

The 1% will not change. What WILL change is more compression downwards, as middle class wages won't be raised. At least not for a few years. So raise minimum wage to $10/hr. All that ends up happening is we will make $10/hr a poverty pay wage. And devalue the remuneration received by everyone above that $10/hr rate.

The "fix" isn't to raise wages. It is going to have to be top down, with regulations at the highest levels. Bottom up only compresses the middle class. It has no effect on the upper class. They are going to still have the same 99%. Well, plus the part vacated by folks who use to be in that upper 60% of earners you references, but now see their wages being matched by the lowest earners.

a reply to: bigfatfurrytexan

The thing you didn't offer and what is the problem? YOUR profit, it's set and come hell or high water you're gonna make it. Good for you, you have set a price on yourself.

originally posted by: Aazadan

originally posted by: Edumakated
Who else's fault would it be? The beauty of America is you don't have to stay poor. If you work hard, get an education, don't have kids out of wedlock, and avoid the criminal justice system the odds of you being poor or needing to work a minimum wage job are virtual ZERO.

4 college degrees... 3 associates and a bachelors
No kids
Clean record

I have never been paid more than minimum wage in my life.

If I may ask, what are your degrees in? I would think doing anything that by now you could be making more.

a reply to: Vector99

i do have a set price on myself: my salary. I don't own a business, i manage businesses for third parties who don't have time/expertise to do it themselves.

Their profit is what is left over after paying all the bills. It isn't "hell or high water". It is a plan we execute, and if revenue has high flow through profits are higher. Low flow through: we could operate at a loss.

Like i said: its a business model. If you increase price (absolute) in one area, then you have to balance the budget by increasing the other absolutes. That is the way a ratio driven model works. To yield x%, you have to have a target of what your cost of goods, accrued costs, etc, and labor will be. The you set price point to balance the system. If you find that you have more price tolerance available, the you trickle the balance back into labor and cost of goods.

Gladly.

Many years ago i began to work for a fledgling pizza company. They were local, owned a single business and made the best pizza I've eaten.

They paid me minimum wage. I wasn't expecting much more, i was a student with no skills, and after all, i was only delivering pizza. They started to do well, and began to make modest improvements about the business. A provincial election was called, and government was elected. One of their platforms was to "tax businesses". And this they did. Our provincial business tax rose. Profits declined.

They kept on. Things became more difficult. They were a very new company, had very little profit margin, and could barely afford to keep afloat. The two owners poured more money in. A civic election was called. The candidate won on a promise to "make things fair" for the people, won. Civic business taxes increased.

Within 6 months, they were both broke and sold the business. These were not rich people, they were honest, hard working Canadians who made good pizza.

Increasing minimum wage hurts the small business. McDonalds can afford it, Mom and Pop businesses can't, and those are the ones we should be championing.

a reply to: nightbringr

Bingo.

Not to mention that what is a "livable wage" in the city isn't what it is in the country. $15 might seem "minimum" in NYC. But in West Texas, its a premium wage for a skilled employee.

The Civil War in the US will be fought over this whole urban vs rural dynamic. Because what happens in NYC and Chicago shouldn't effect me in West Texas.

originally posted by: bigfatfurrytexan
a reply to: nightbringr

Bingo.

Thank you.

Im all for the little guy getting a bigger chunk of the cheese, but this is NOT the way to go about it.

a reply to: nightbringr

So taxes and rent cost drove them out of business, not paying their employees.

Let's be clear about that.

originally posted by: onequestion
a reply to: nightbringr

So taxes and rent cost drove them out of business, not paying their employees.

Let's be clear about that.

I agree, lets be clear.

These were honest, modest living Canadians trying to start up their own business.

Im not sure im following your logic? They didnt make enough, therefore they deserve to lose?

It wasnt rent that drove them out, it was the ridiculous taxes asked of them that did. Are you defending this?

a reply to: onequestion

The problem is, none of it lives on an island.

And the approach that was taken to "level the playing field" was to raise taxes. Not force a local minimum wage hike.

As usual, governments solution to your problems is to enrich itself. Then make you beg for it back.

a reply to: bigfatfurrytexan

Propose a system and maximum ratio is my solution.