The minimum wage “domino theory”

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Tony Silva:

There are no doubt progressives who are naive enough to believe that more than doubling the minimum wage would have no serious consequences to the economy. In their minds, the surrounding economy remains static as the individual worker gets a 100% pay raise. However, it is more likely those in congress proposing such an increase are fully aware of the consequences, and for them that is the point. Such short-sighted policy making can result in an economic “domino effect” as the consequences come into view.

Heritage Foundation estimates the increase of the minimum wage from $7.25 to $15.00 per hour can add more than seven million workers to the unemployment line. That’s seven million more people dependent on the government for long-term unemployment benefits, food stamps, and other needs-based public assistance. To a Democrat, that’s seven million more voters. Granted, not all politicians are that cynical. But, they cannot be that ignorant either.

James Sherk, a Research Fellow at Heritage Foundation, points out in an article on the minimum wage issue that the real cost of hiring a full-time worker at the new minimum wage would increase to $18.61. Given that the largest operating cost for most employers is staffing, small businesses could see their typical manpower costs more than double over the period the policy is implemented. If they’re lucky, they’ll be able to pass some of the cost along to consumers. That’s the first thing those of us with a high school economics background think of. However, when you buy something at your local store, you’re not just paying for the business’ overhead – the cost of operating his business – you’re paying the pass-through costs of the goods he sells. For things manufactured in the U.S., the manpower costs of making the product is passed on to the businesses that sell them. That cost increases for American manufacturers just as it does for retailers and service providers.

While the Democrats have baked the minimum wage issue into their platform, settling on the somehow significant figure of $15.00 per hour, the Republicans are coping with a candidate who has had several positions on the issue from the traditional GOP market approach to his latest appeal to raise the minimum wage to $10.00. Neither Donald Trump nor Hillary Clinton has given a clear rationale for their respective bids. Why not $11.13 or $27.04?

Sherk’s analysis shows the proposed increases would affect 44.9 million employees by 2021 – a third of the full-time workforce. He also notes “spillover effects” from employees near the minimum wage who would receive pay increases to maintain pay differentials. In every “Help Wanted” sign, there are looming cost increases for the employer beyond the new hire who joins his team. Along with his skills and abilities, the new full-time employee brings with him government mandates for health care, co-payments for Social Security, disability compensation insurance, and more.

There will be a disproportionate impact on states with lower costs of living. For example, an employer in Mississippi might pay generally lower wages than one in California where the cost of living is higher. Currently, the lower wage in the low-cost state buys more goods and services than the same employee would make with a comparable wage in California. A radical change in the minimum wage would not have a proportional impact.

Sherk compares the impact on Hawaii, where the minimum wage would have to skyrocket to $20.00 per hour to have the same buying power as the $15.00 increase would have in South Dakota, Arkansas, or Alabama.

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A higher minimum wage does have its tradeoffs.

This month, McDonald’s medium quarterpounder with cheese combo in Bothell (15 miles NE of Seattle) = $7.02. In Seattle’s Capital Hill = $8.65; a 23% higher cost.

What comes around gose around they wanted higher wages and get replaced by robots they need to stop their whining

Isn’t it also true that those states and cities with the higher minimum wages have LOWER unemployment rates?
Should we really be trying to follow the economic policies of the poorest (red)states?
Is that the key to prosperity ? Listening to conservatives that told us that Obama would kill the Dow and that we would have rampant inflation which is what the Heritage Foundation warned us of years ago. The Heritage Foundation also warned us about the dollar becoming weak, which never happened.

@john: This is only anecdotal, but, when we left CA it had a high unemployment rate and a high min wage.

Well, in June 2016 CA had a 5.4% rate of unemployment, Utah had a 4% rate.
BUT, remember, that rate is based only on those STILL looking for work! Once you give up, you are considered ”employed.”

Here in Utah there is a low min wage: $7.25.
But there are help wanted signs EVERYWHERE!
And most of them promise a higher-than-min wage starting point.
Our favorite supermarket has a sign reading base pay is $11 and a raise at end of 3 months’ probation.
But the sign stays up because everybody is already employed.
Hubby keeps getting offered jobs all the time.
Yikes!

Scan down to “Red State Advantage?” to see what’s happened since Obama took office, nice graph:
http://www.cnbc.com/2015/08/13/are-red-or-blue-states-better-job-creators.html

http://www.spectrumlocationsolutions.com/
Joseph Vranich, president of site selection consultants Spectrum Location Solutions (VLS) in Irvine, found that roughly 9,000 California companies moved their headquarters to out-of-state locations in the last seven years due to the Golden State’s “hostile” business environment.
VLS estimates that many former California companies that moved to more business friendly locals have experienced “astonishing” operating cost savings of 20 up to 35 percent.

The Tax Foundation established a direct inverse correlation between purchasing power and the percentage level of state tax rate. California, with a 13.3 percent top state tax bracket, leads the nation.

Democrat-leaning and high-state-tax northeast and west coast areas have the least purchasing power and the Republican-leaning low-tax southeast and mid-west have the highest purchasing power. http://taxfoundation.org/blog/real-value-100-each-state-2016

California’s 16.4 percent poverty rate is substantially higher than the 14.5 percent national average and near the top overall.
http://www.ppic.org/main/publication_show.asp?i=261

@Nanny G:
Nanny using Utah as an example is a bit misleading since Utah consistently ranks first or second in red states in continental US median income
Would/could/should Utahalso be used as an example of the booming Obama economy ?

so when the waiter hands me a bill with the min wage of $15, does he/she expect a tip when my overall food bill had increased by 23% minus taxes that make the base line bigger?

@john:

Listening to conservatives that told us that Obama would kill the Dow and that we would have rampant inflation which is what the Heritage Foundation warned us of years ago. The Heritage Foundation also warned us about the dollar becoming weak, which never happened.

Those things would have happened if the government had followed the long held rule that you don’t get the Federal Reserve to buy US Treasuries, of which it has bought several trillions worth now. Without this (called debt monetization – you basically print money and buy your own debt), without question, the Dow would have tanked and inflation gone up substantially.

The real question is how long can we get away with monetization before the shit hits the fan. Nobody has ever done it before – we are in uncharted waters. All economists seem to agree that we are on borrowed time, but nobody knows if we can stretch this out more (That’s HRC’s plan) or if we need to put on the brakes (Trump’s plan).

For many years we’ve been demanding that Federal Reserve be audited. In fact that was one of the founding principles of the Tea Party – audit the Fed and find out what poison assets they are sitting on.

Now about that number of companies relocating a bit more than 1000 per year. In a state with a population of 38MILLION is 1000 a significant number? When 50000 new businesses are started each year is 1000 signifiant ?
Whenever a stat is given we should always look at its real significance.
Who are the people and companies leaving CA? The ones that are poor and the ones that can not afford to stay.
Who moves to CA? The people and companies that can afford to live and work in a place they consider more desireable than Plano TX or Cedar City UT

@john:
As long as all those other countries believe that the US dollar is their most secure form of fiat we are A-OK

@john:

Now about that number of companies relocating a bit more than 1000 per year. In a state with a population of 38MILLION is 1000 a significant number? When 50000 new businesses are started each year is 1000 signifiant ?

Wake up – It’s the biggest companies that are relocating, not just the average. The average business is small – your local hardware store, fast food franchisee, etc. Companies that have left CA or are in the process of leaving include Toyota, Charles Schwab, Bechtel, SpaceX, Kaiser Permanente, Google, Electronic Arts, Kraft Heinz, Panasonic, Pfizer, Abbott Labs, Raytheon, Oracle, and even Apple. The list goes on and on.

http://www.spectrumlocationsolutions.com/pdf/Businesses-Leave-California-.pdf

@john: You can read, correct?
First thing I said was ”this is all anecdotal.”
That means it is NOT scientific, just based on my personal experiences living in each place.
Utah has the highest birth rate of white people in the USA due to the Mormon,large family thing.
And, it appears Utahans live better for less than Californians.
I have house sat for a neighbor who has traveled to Iceland, Denmark, Russia, Turkey, Israel, Brazil and more….all places on her ”bucket list.”
She’s also had gall bladder surgery and her wisdom teeth extracted.
All before hitting age 30!
Yeah, she’s 29.

In CA a lone female with the same sort of job would be struggling financially.
She’d rent, not own.
She’d probably take a room mate.
Maybe even a 2nd job part time or something.

Meanwhile this young lady eats out, goes off to Wyoming and Idaho and southern Utah just for a festival.

Nanny this is just anecdotal not scientific, OK?
I showed your post to some people and they thought perhaps you were still angry of being caught in telling that story about the speed skaters
Are you still harboring a grudge over that?
Look Nanny some people are happy living in CA, some would rather live in Utah. I would not presume to tell people where they would be happier living, I guess you would.

@Dreadnought: A large number of start ups fail each year. The companies that are moving are well established.

@john:

Isn’t it also true that those states and cities with the higher minimum wages have LOWER unemployment rates?

I don’t know… is it? I doubt it, but I’m sure you wouldn’t have brought it up unless you have confirmation at your fingertips.

I showed your post to some people and they thought perhaps you were still angry of being caught in telling that story about the speed skaters
Are you still harboring a grudge over that?

I wonder why someone that never posts any supporting data so often questions the posts of others? Is it because you know YOU are lying and assume everyone else is as well? Perhaps others don’t have the ideological NEED to lie.

Obama and the Democrats are cratering the economy. Pay attention, john, to what the Dow does whenever some of Obama’s bogus numbers come out (before they are revised downward when no one is looking) and talk of ending quantitative easing. It tanks. Printing money and loaning it out for 0.0% interest is what what keeps this lethargic, foundering economy from collapse. All Obama had done is put a band-aid on it while throwing all the regulations and taxes at the economy he can conceive.

Thus, very few good jobs are created. The majority of the jobs bragged on are part time and low paying. So, the Democrats embark on their campaign to artificially jack up the minimum wage, because they have no concept of economic reality.

I think we need to reconsider the basic concept. What right does government at any level have to decide a wage? That should be between the two people involved. Government should come in only as an enforcer of the contract.

@Bill: The Dow is up because interest rates are at historical lows with the economy in an extremely modest recovery. Real estate is up with low rates and equity returning for homeowners.
Both are fragile, near all time highs. A strong recovery, sending interest rates higher, would actually hurt these markets on a near term basis.

@Jim S:

What right does government at any level have to decide a wage?

What right does the government have to step in on the exploitation of workers by the ultra wealthy?

What right does the government have to step in on the wealthy manipulating the system where employees are “working for the company store”?

What right does the government have to demand that employers pay their full time workers a living wage rather than be subsidized by those making an above living wage?