I mentioned it could come from the profit too. If you're a business owner you can forego your margins to account for added costs and run it the exact same. Some businesses like cosmetics have a lot of room to play with. Some don't and it becomes less attractive to be a business owner, having employees, legal risks, lines of credit, etc.
However, many businesses simply respond by upping the price on their menu or adding a surcharge. The price the consumer pays for the same good they received before is now higher. How is that mythical?
The myth is the relationship between the price increase and wage increase. There are more cost inputs than just labor and of course the consideration of profits.
It's true the price of goods may rise, but relative to the increase in wages to workers, it will be a net win for redistributing wealth to the lowest earners, with the cost born by the variety of cost inputs (and profit) for the business.
The second argument is that shifting money towards the lowest earning group will stimulate economic activity and unlock more wealth potential for the local market, thereby in some ways compensating for the increased prices by bringing more prosperity for all.
That's not to argue that increasing wages always results this way, just like one would not argue that you can boost the economy by simply reducing or abolishing the min. wage.
Labor is usually the #1 cost for most businesses. Many businesses have slim margins already.
The average net profit margin for privately held companies across all industries was 8.6%, manufacturing was 6% and retail trade was 3.9%. [1]. Grocery stores are 2.5% and gas stations are 2.4%. [2]
Not everyone can keep prices the same and forego profit to pay for more costs, especially when other costs have risen dramatically like healthcare. Many businesses and employers of minimum wage people are already in slim margin territory as evidenced above.
> It's true the price of goods may rise, but relative to the increase in wages to workers, it will be a net win for redistributing wealth to the lowest earners, with the cost born by the variety of cost inputs (and profit) for the business.
I agree and think $15/hr is a reasonable step, esp. in an expensive city like Seattle. But my point is that every city is different, there's a lot to consider, and there's a lot we don't yet know.
> The second argument is that shifting money towards the lowest earning group will stimulate economic activity and unlock more wealth potential for the local market, thereby in some ways compensating for the increased prices by bringing more prosperity for all.
Perhaps. But it could also result in pushing workers outside the city to suburbs where they have lower costs. They'll make their money in the city and spend it outside where goods are already cheaper. Or maybe they'll pay their debt instead (student/auto/etc).
> many businesses simply respond by upping the price
Which should be "some" businesses for "some" products. The price/wage spiral is mythical because it does not occur in reality - not "everything costs more," only certain products and services will increase in price. Inflation of the kind you are talking about is caused by monetary policy. Your second argument is a common logical fallacy that is trotted out by many opponents to minimum wage increases.
Oh yes I see now. I shouldn't have written everything as I mentioned that foregoing profit is an option too. Thanks for clarifying.
> in a competitive market the salary increases would not be passed on to the consumer but would come from the profit of the business owners
I still don't agree here. Very few people run a business to break even and it's hard to make even 10% net after taxes these days. The huge profits you see for public companies do not translate to the bulk of employers. If a business owner can pass it on to the customer by raising the prices or adding a surcharge they will. As an example, I've seen health care surcharges for waiters on San Fran restaurant bills before.
If they can't pass the added cost onto the consumer and they have low margins, it's unattractive to keep the business running with all the headaches and liability. Or they'll outsource in response or possibly cut hours of hourly employees and demand more from salaried. Or move to another state or country.
I do think a min wage hike of a reasonable amount will do no harm and will improve a lot of people's lives. The levels we are currently talking about probably won't affect most businesses or economies and that the opposition is probably overblown. I support Seattle's move. But I think it's silly to suggest that you can hike it to whatever you want and the theories from economists will align and the consumer won't pay more; that it just comes from profits and that won't affect anything.
It's not as simple as "everything will be fine, businesses will just take it from profits". And it's not as simple as "it seems to work in Seattle; we know exactly how it will play out even though we're doing it during a boom and only have a few studies to go off".
> But I think it's silly to suggest that you can hike it to whatever you want and the theories from economists will align and the consumer won't pay more; that it just comes from profits and that won't affect anything.
Well neither me nor the economists suggest that. For a given money supply, a marginal increase in minimum wage will act as wealth redistribution as long as there are profits to redistribute. On average a single worker can only do a fixed amount of workW, so a business that needs a minimum amount of work Z done to be viable needs to employ at least N = Z / W people. At some point on the increasing wage scale the profits run out and you cannot employ the minimum number of workers and the business is forced to close. At that point the only alternative is to increase the money supply, which is where inflation and general price increases will come from.
Note that the wealth redistribution is aggregate: the minimum wage increases are intended to redistribute wealth to the lower-middle class. There will be less jobs (I am surprised there was not more job loss found in these studies), but the total amount of money going to minimum-wage employees will increase.
Businesses that rely on exploiting workers to be viable should go bankrupt. Suppressing wages to prop up otherwise unviable businesses is a slippery slope that ends up at "well, at least we feed the slaves."
However, many businesses simply respond by upping the price on their menu or adding a surcharge. The price the consumer pays for the same good they received before is now higher. How is that mythical?