When is a proposed minimum wage hike too high?

No. It balances out in the end. Costs go up and compensates for the increase.

I don’t think there is a formula that is applicable for all purposes. There are too many variables, of which employee wages are just one part. For example:

1) cost of the goods being sold. Can the company buy cheaper goods and sell them at the same price, thereby increasing the profit margin to pay for the higher minimum wage

2) price elasticity – does the company have the ability to raise the price, a little or a lot, in order to make up the $$?

3) overhead costs – can the company lower their rent, or other expenses, or go to a cheaper supplier of toilet paper, or whatever, in order to free up cash?

4) can the business to the same job (and be just as productive) with fewer people?

The thing is that #4 can come back and bite you in the butt. If you lose a trained person, either everyone else does MORE work, or things work more slowly, which has costs in the sense of pissed off customers and ultimately a loss of business. So getting rid of people may not always be the way to go.

Example: Let’s say that McDonalds gets rid of three people that used to make burgers and fries. The people that are still around have to pick up the slack. BUT they were already working hard at their own stations, so they are running around more than before. Things run slower. Those people feel overworked. So they quit too. Then customers are tired of waiting 5 minutes for a burger that used to take 1 minute to deliver. So customers stop coming in. So the company has a higher wage, fewer customers, and is running a loss.

It’s better for the business to look for other ways than getting rid of employees.

The main point is, can the company compensate without going out of business? That would be the ultimate factor.

Raising minimum wage in the past has had little impact on things. But the problem with that statement is that the increases have been few and relatively small…less impactful on the businesses. A big rise in MW could end up costing jobs due to elevated O&M costs. @elbanditoroso has a good analysis, though he did forget one simple option: automation. We are already seeing increases in the use of automation to replace personnel. If, let’s say, the federal minimum wage jumped from $7.25/hr to $11.25/hr. Consider a simple example…McDonalds. That’s a 55% increase in cost of employees alone. Remember, the increase doesn’t just hit the immediate business. The people that make the buns also have that increase, as do the folks making the soda pop, paper products, condiments, french fries…..every aspect of the operation of is likely to go up. Now, it is unlikely that all costs would go up 55%, but I would suspect 20% would be likely. So McD’s is left with the option of eating the loss (which won’t happen, we all know that), raising the cost of their products, or finding ways to cut costs. If I have a situation where I typically have two or three people at the front counter, I can eliminate them with touch-screen ordering…the customer would push a keypad to order their food. If we assume 10 employees on a crew, you just saved 20–30% of your payroll, though it was done through putting people out of work. Now let’s say they find some other efficiencies and can get rid of 1 more person on the crew. All the rest will be expected to work harder or possibly longer hours. Maybe McDonalds decides they just need to close a couple stores. Let’s face it…there is a McDs everywhere. Things would eventually level out at some newer normal, but what would happen due to the change is a matter of speculation. There is one other consideration that is never discussed. We all talk about minimum wage like it will go up and the value of the dollar will remain unchanged. It is highly likely that if minimum wage went up significantly, the overall cost of living would go up significantly as well. The Poverty Level would likely go up as well. So even though people are making more money, it doesn’t go as far. Again…the full impact is a matter of speculation.

The problem with @elbanditoroso‘s answer is that businesses are always looking for ways to reduce their overhead. If they could get lower rent, they would with or without a change in the minimum wage. What actually happens is the floor gets mopped a little less often, the line at the counter gets a little longer at times, inventory gets a little smaller and yes employees work a little harder. The small business owner must pick up some of the slack. Remember that as the profits decline, the business becomes a little less valuable as well. Small increases can be absorbed without major changes to the business but the larger the increase, the more change is required. There is no magic formula to cover this, every business is different. As wages go up employees tend to change. Older employees are more reliable and thus more valuable. Younger employees suffer by not getting their first job until later in life. That has long term effects.

I think the main ingredients used in determining minimum wage increases are cost of living increase, and national poverty level.

I doubt anyone feels there is a formula which will best serve society or businesses. So, what can one do but look over the options, and hope for the best?
There are a great many variables.

The only way to offset the snowball effect of raised wages vs lowered company profit resulting in increased costs leading to need for higher wages…
To offset that momentum is to go Old Testament, and “let them wander in the wilderness until guilt is gone”, or total economic collapse, allowing a new generation to start back low, and work back up.
Who wants to be a part of that?!? Or responsible for it?
To keep snowballing as we are means getting so damn inflated nobody from other countries can afford our goods.
Can our country function fully autonomous?

Is there a formula? Someone may apply some algorithm, but nothing will be a good answer, just a possible best answer.

I’d base it on the average salary of the CEO, CFO, etc. and the top 5 officers.
If the top dogs are getting 10’s of millions per year they can afford to give their employees a few extra dollars per hour by reducing their own salaries.
I know “they” say “they” need to pay the top dogs that kind of salary to attract talent. But if it takes that amount of money to convince someone to work for you then maybe that person is not the right one for your company.

I’d use a formula like: Take half of all the top dog salary and benefits, stock options warrants… and divide that up and give it to the minimum wage people.
For example: if a CEO gets 25 million to run a company with 5,000 minimum wage (or within $2) employees. . Take half of anything over 5M (10M) and give that to the employees. That would be $2000 per employee. Say they all work 40 hour weeks for 50 weeks. That would give them a wage increase of $1 per hour. The CEO would still get $15M
If that same company was paying the CEO $45M the salary would be reduced to 25M and the employees would get a $10 increase.
Private companies would be exempt.
The equation needs to be fiddled with a bit but that is the idea.

This would ultimately make our country stronger.

@LuckyGuy – The problem is that those companies don’t have minimum wage employees or at best very few. Most of the minimum wage jobs are in small businesses. Say Apple has a couple of janitors that make minimum wage, you would make them instant millionaires. I’m not sure how that would help anyone except the couple of janitors.

For me the real negative to raising the minimum wage is that it amounts to an attempt to close the barndoor when the horse has already galloped 15 or 20 miles down the road. The topic isn’t even brought up unless the current minimum is so far below the mark that 40 hours of work at that wage guarantees the recipient dire and undisputed poverty. That’s the problem with all of our proposed remedies for chasing down poverty. They ignore basic facts inherent in the ordering of our society. The fact that basic wages have remained flat for some 30 years while the gross national product steadily soars is a hint. It in effect is the skinny on who (or rather who isn’t) getting paid. If those increases in productivity aren’t reflected in the checks of those doing the work, WHERE is the money going?

@Jaxk Think McDonanlds, WalMart, Chickfillet, Starbux. Home Depot, Lowes, etc. The CEOs make a fortune but the first line employees are working at poverty levels. Many make up the difference by going on public assistance. We taxpayers end up paying for it either way. give the low level employees more money they will spend it immediately and put it into the economy.

I see what you mean about big companies that do not have many minimum wage earners, e.g. Apple. We would have to work out a formula for that: something that takes into account the percentage of employees at minimum wage.
It might be something like half of the CEO’s pay is the base Minimum Wage Dock Charge. That is multiplied by the percent of employees at or near minimum wage. If all of them are working for peanuts then the CEO is fully docked on 50% on anything over $5M. If only one employee in a big company is at minimum then the CEO is docked that small fraction. Would the CEO of Apple notice a $2000 reduction in pay? Nope. But that same money would make a huge difference to that janitor who is barely keeping his head above water and just had a flat tire that put his car out of commission .
Think of it as robbing from the (obscenely) rich and giving to the (working) poor.

Minimum wages aren’t a solution. That much I can agree with.

A cap on profit, or CEO wages, and a percentage of company stock, would help a LOT. I know that’s not capitalism, but I don’t think capitalism is sustainable.

@LuckyGuy – I think you need to think this through a bit more. Businesses like McDonalds (most fast foods in fact) are not owned by McDonalds, they are small businesses owned by the franchisee. Not to mention you’d end up with widely diverse salaries for the same job, depending on the company

Minimum wage jobs are not, nor were they ever intended to be a career choice.

Slavery is not a career choice either. The problem as I see it is too much income disparity. We can fix it if there is the desire. The top dogs are in power and have reason to change.
I truly believe if we keep going this way we are headed toward a revolt. It would be far better to address this in a more controlled manner.

^Oh Hell yeah! If Washington doesn’t stop this crap, there WILL be a revolution. It will be ugly. It will change the country forever.

I’ll go with @LuckyGuy‘s answer.
I’m sure “Minimum wages are not the solution” (@MrGrimm888) must be a typo, I’m guessing, otherwise you’re advocating even 1 cent day.

@LuckyGuy is right. The issue will be settled one way or the other. The mild lesson of the current insanity is nothing compared to the grim possibilities awaiting us if the issue remains unaddressed.

^^^ ^^ ^ Yep! It will be ugly.
How many people will tolerate giving all their money for rent, utilities, and food day in, day out. Eventually there will be a straw that breaks the camels back.

@flo . No. Opining that one option is not the answer, does not mean that someone supports something else…

1cent/hr , is great, if the employee makes $60/hr in tips. There are many variables.

I don’t think there is a job (other than seasonal) that should pay less than 12 dollars an hour because of the increase in cost of living. If you have a small business than maybe 10 (Like a mom and pop store). But larger more successful business can usually afford the increase. What businesses don’t understand is that underpaying leads to lower production. Who wants to work hard when you have to go to another job to make up for the cheap pay. Lower production cost them in gains. Pay people better so they only have to work one job to live and you will get a better worker because they don’t want to lose the job.

Underpay them and they won’t care to stay. The moment they can get a better paying job they are gone and they aren’t going to kill themselves for employers who don’t care about them.

^Lower wages definitely affect production, quality, and employee/internal theft…

@MrGrimm888 Here is some articles re. tipping not being helpful.

https://tinyurl.com/yb7bfuyw (Washington post tips distribution ..)
https://tinyurl.com/ycaylr8s..0j0i131k1j0i22i10i30k1.0.cTryRU0_GC0 (Google search “problem with tipping”)

And by the way what percentage of people get a lot of tips, guaranteed?

When is a proposed minimum wage hike too high? Markup cost is simple Pre-Algebra. Companies, that have stood the test of time are able to absorb the increases of their employees wages. Of course, managers will feel indifferent, or slighted because of it. Because there is a such a thing as markup, something will have to be considered. Increasing a few companies “the conglomerates” entry level employees wage is not going to hurt the entire or even affect the entire economy if certain business owners accept a smaller paycheck. There paychecks are not in the hundreds of thousands. Their paychecks are in the millions and billions on a yrly basis. They would have to accept a cut off price of employing people, machines and paying for all other factors of production, just as they have been doing. The thing is, many business owners become greedy. It’s ok to have more, however, at what cost? The only people in business able to really be able to answer these questions are more than likely the c suite managers and business intelligence officers. Just as with other things it mainly about ratios, wants and needs. Smaller companies mean less income for all individuals, within that company. Minimum wage should instead be a ratio that starts at a minimum rate based on a given region, and then the minimum should increase based on a specific company’s metrics. It is then that a general formula can be derived.

I would say it would be based on local variables, the main being what would be the minimum amount that would allow a person to rent a two bedroom apartment and still be able to eat, get around, pay medical bills through a socialized medical account and have a little extra each paycheck. Some people might say a one bedroom should be the standard but unfortunately many minimum wage workers are family members with a spouse and children.

@flo . Cash tips are something that I would prefer over a paycheck. While it is true that no tips are usually guaranteed, cash tips can be better for tax purposes.

@MrGrimm888 But this is not about what a few people prefer.

More articles that addresses the negative/s (i.e low pay) of the tipping culture.

https://news.vice.com/en_ca/article/5954kd/north-americas-tipping-culture-is-increasingly-oppressive
https://www.economist.com/gulliver/2015/10/26/the-case-against-tipping

^I am not suggesting that tips are what everyone wants. But they are relevant to the thread…

The countries that have the best living standards for middle class and lower class people (the Nordic countries) don’t have minimum wages, because the governments give unions great power. They also allow unions to collaborate and share balance sheets with employers. This results in high wages, and cooperation. https://www.forbes.com/2009/08/31/europe-minimum-wage-lifestyle-wages.html#1fbc3aef680c

@Kraigmo You make a good point. The necessity for a minimum wage amounts to recognition that the system is rigged against wage earners. Minimum wage proposals are invariably a matter of too little too late. And to illustrate the point, try to name a minimum wage hike that turned out to be “too high”. It never happens. There must be better ways to address our society’s urgent problem of the working poor. The Europeans have done a much better job of providing a social floor in comparison to our brutal abandonment of low wage earners.

Here is a relevant article about Henry Ford raising the wage of workers from $2.34 per day to $5 per day, while reducing working hours from 9 hours per shift to 8 hours. Saturday Evening Post
Note: $5 per day in 1914 is equivalent to $126.07/day or $15.75 per hour today. U.S. inflation calculator
He found it boosted production and benefited the company. He retained workers and they were willing to help find ways to improve efficiency. It also enabled the employees to buy the very products they were making. Everyone benefited.

So, if a government says “In 6 months employers should pay $14/hr instead of the current $9/hr.” How will that work for the smallest businesses with 2 employees or so?

Thanks @Kraigmo and @LuckyGuy for those links.

Obviuously a 50% pay hike would be a decided handicap on the smallest businesses, and would mean the end for a substantial number of them. But you have to ask the question “what is the future of a society where an ever growing percentage of the workforce cannot support itself through full time work?” As things stand, The McJobs in the country are heavily subsidized by our overextended and failing public assistance programs like food stamps, subsidized housing, etc. This simply translates to the the rest of us feeding and houding these folks while the money which the corporation should devote to those necessities is shifted to the top 10% as dividends.

It’s of note that small business, the ones whom would be most vulnerable to the market fluctuations caused by a minimum wage hike, have not been mentioned by anyone on this thread until the last couple. Perhaps this is indicative of the fact that no one believes small businesses even have a future.

There are global trends towards consolidation and monopoly. The hegemonic corporations are on the rise again. This has happened before. Henry Ford’s minimum wage hike is noted earlier, but what should be more relevant is the 1911 defeat of Standard Oil and breakup into 30some other companies. This signaled the beginning of the end of the robber barons, increased competition, spurred innovation, quite literally saved American democracy, and given the events of the next 35 years, probably saved the world.

If there is a savior in the form of law, it’s Anti-trust law, not minimum wage.