Does raising the minimum wage and raising taxes create job growth ?
Most businesses that employ minimum wage workers are 5% profit service sector operations--cutting into profits isn't a possibility. Five percent is the bare minimium to keep the doors open. There are only two possible alternatives. First, raising prices sufficiently to cover the addtional cost or second cutting staffing to what the market will bear. For the most part, it depends on what the consumers--the ones that are really in control--feel about it. Around here, a great many service sector businesses went out this year with the hike in minimum wage--couldn't get their prices up enough and cutting staffing resulted in lousy service and drove off their customer base.
Ironically, the need to raise retail prices reduces consumer purchasing power more than the wage increase, so min wage workers end up with bigger checks that buy less. Sucks don't it?
What consumers are willing to pay has more to do than anything else with what a business can afford to pay.<<<
Just ten years ago, GM and the other Fortune 500 companies were the largest employers with the highest wages. Now, Walmart is the biggest with McDonalds running right behind with their largely minimum wage workforce. GM and the other biggies are trending toward extinction--victims of wages/benefit packages that consumers refuse to support anymore.
What is happening is that consumers are rejecting the higher prices of American produced products in favor of cheaper imported goods. This, in turn, wipes out high paying jobs and boosts the demand for low paying jobs. You don't think Wllmrt keeps their prices so cheap by paying high wages, right?
Interestingly enough, it is surprising what the average person perceives as what profits really are. When asked to guess, many people answer 40-60%, but the real answer is a range from 5% to 10% of sales. The oil industry, for example, does about 8% on average. Exxon topped the list at 9.8% for the first time ever last year. Its not the dollars that matter, its the percentage.
Outsourcing, by the way, has been the most effective program of the decade in saving American jobs. It has allowed hundreds of businesses to keep going when they could no longer remain price competative in the marketplace. The theory, as it is practiced, is that outsourcing a percentage of the workforce allows the remaining workers to continue on against the near certainty of shutting the doors for good. For most companies forced to consider outsourcing, there really was no other option--its not something they wanted to do...
I'm not very well versed on macroeconomics, but I believe there are two main schools of thought on this one, one says yes, one says no. When I earned minimum wage, of course I wanted it up. As a business owner, I could care less, because I've never paid minimum wage.
A friend who sold their business cared a great deal, b/c they paid minimum wage to some of their employees, so increasing the min. wage lowered their profit.
Personally, I think lowering the barriers to creating businesses & increasing transparency for investment & confidence in business as an institution is the way forward :) Where does that put me?
You unfortunately have to throw in outsourcing into your thought process to recalculate the job loss created in America by wages growing above what employers want to pay or can pay to keep their profits higher.
