Why An Increase in the Minimum (Hourly) Wage (Requirement) Is Bad for the Poor - Part 1: As a public service to those who have believed the Democratic propaganda to the contrary, I will be presenting, as time allows, a step by step proof, in layman terms, of my and most economists assertion in the head. Because this is a proof and not a debate, I will be deleting any comments which attempt to interrupt the progression of the proof with points which will be addressed later or which are irrelevant to this proof. Of course, ad hominem attacks, whether made directly or by falsely claiming that I have made a similar attack by presenting this proof and thus showing the Democratic position to be an outright lie, will also be removed. Let us proceed, then, by first noting the words placed in parenthesis in the title. If included in the name of the measure being proposed by the Democratic Party, they provide a more accurate, thus less misleading, description of that measure. Specifically, total wages are not being addressed, nor are hourly rates unaffected by the increase. Only the hourly rates which were previously below the new minimum, and not exempt from the minimum are affected. For example, if the specific proposal is to raise the minimum hourly wage requirement to $15 per hour and you are earning $16 per hour and are not a server or otherwise exempted from the requirement, your employer will not be required to increase your hourly pay rate. For this set of positions, then, an employer previously had to pay out $X per hour for Y hours worked (which are called man-hours even if women are working them) for a total labor cost of $XY. The new pay rate of $X+I per hour can be handled, without changing the labor cost for these positions, by decreasing the man-hours proportionally to YX/(X+I) man-hours. For example, if the position previously paid $7.50 per hour and the company previously had 400 man-hours allocated for that position per week, for a total weekly position cost of $3,000, then a minimum hourly wage requirement of $15 per hour can be handled by reducing the weekly man-hours to 200, and keeping to the same weekly cost of $3,000 for that position. Those of you who have managed a payroll know first hand that this is the first calculation you do with any price increase. Can I reduce my quantity purchased of that item so that I do not have to change anything else in the company? It does not matter if the company is big or small, whether it is a price setter or a price taker, reduction of man-hours will always be the first response to a forced increase in the hourly wage. It is the first response because it is the easiest response and does not require other changes for which the consequences may be more dire, like pricing oneself out of the market or missing a payment on a business loan. Even if the consequences are not dire, there is an additional expense in effecting a change. If prices are changed on some items, there has been the expense of determining which set of price changes are likely to increase revenue – when a simpler and less expensive calculation has determined the last price list – and then the expense of publishing the new price lists, of redesigning packaging with new prices and of affixing price stickers on inventory. That is also assuming there such a beast of a price list which increases revenue. But cutting total hours for certain positions in half is a tall order, too. There is no question that this will place some companies in dire straits, thus eliminating all wages from such companies. Short of that, there are several strategies which companies can use to reduce the number of position man-hours while still functioning: increasing productivity by short-staffing, automation/self-service, outsourcing/offshoring, shifting work to professional salaried employees who are not paid overtime, etc. It may be a tall order, but that makes it a challenge to the can-do business person. All of this is to underscore, in laymen terms, a fundamental law in economics which, when applied to an increase in the minimum hourly wage requirement, means that we can expect no better than the same total wage for those currently employed in the affected positions. That would be the initial effect. #TheWayOut amzn.to/1tabS3j
Posted on: Sun, 09 Nov 2014 12:58:31 +0000