On the first issue of how does raising the minimum wage get us to full employment, we have to think more broadly......Much is to be gained by doing this!
I'm not sure what you're getting at with this "true cost of labor" stuff, but it is not a company's responsibility to house, provide clothing for, feed, etc, it's employees under most circumstances. I think, but am not sure, you are trying to indicate that it is the government's responsibility to make up the difference between the wage and the "true cost of labor". If so, I completely disagree. Minimum wage jobs are typically jobs that require no skill, very little in the way of education and are typically paid such because anyone can step forward and do so. Regardless, if no one accepted employment for the wage offered, the wage would have to be raised or the job would go unfilled. Ideally, these jobs exist for people to enter the work force and move on to better assignments - either within or outside of the company. The burger flipper at McDonald's is not meant to be a career job. When I was a kid, the fry guy had just got his work permit. He worked there until he got a retail job in the mall. Then he worked in college at some local bar, or retail job until he got an internship (which he worked at for free until getting a corporate job). For those who did not go to college, they learned a trade, something that put them on a path other than the fry guy for life. This was because if they did not do this, they consigned themselves to a life of poverty. Handouts were uncommon, the government provided actual food
stamps which no one wanted to use because of the stigma, and being unemployed went
unrewarded.
Anyway, I'm rambling, but my point is this true cost of labor is irrelevant in the discussion of what should be paid for a job.
Here is another fine example where the common wisdom is dead wrong.....
I'm sorry if this sounds insulting, but have you
ever worked for a corporation and taken a look at the P&L? Labor isn't a COGS component at all. It's an expense line. Traditionally it falles under a payroll object code that is included in SG&A expense. An incremental dollar of SG&A results in an incremental dollar taken away from profit. It's a 1 to 1 ratio. Now, does that mean that the gross sales price is taken up a dollar to compensate? Not at all.
But the price increase is substantial to the consumer.
Follow the simple P+L:
We sell Widgets for $1 each. Last year we sold 100 widgets.
Gross Sales: $100
Trade/Sales Deductions/Pricing Adjustments/whatever that effected the Gross Sales (including returns and damaged widgets): $5
Net Sales (or Operating Revenue if you wish): $95
Cost of Goods Sold: $35
Transportation/Warehousing, etc: $6
Gross Profit: $54
Overhead expenses (Salaries, advertising, Utilities, whatever): $14
Operating Income (Net Profit): $40
In this case, my Gross Margin is 56.9%. My Net Margin (since we're going to look at a rise in payroll expenses) is 42.1%. That is to say that in this imaginary company, for every $1 I take in, $.42 hits the bottom line.
Now we decide to take the workers and bump their salaries up $5 in total compensation. Overhead expenses now jumps to $19, and profit drops accordingly to $35. To get back that $5, with all other expenses being equal, I need to sell just under another
$12. It's not dollar for dollar, it's
more. So I either need to sell more, or raise my price accordingly. How much do I raise my price? About 12%. That's a sizable price increase.
Now imagine every company out there (because the Federal Minimum Wage is hiked) having to take up their business accordingly and watch what happens to inflation. The cost passed on to
each consumer isn't the same amount of
each salaried person who gets a raise (and I don't recall anyone ever saying it was), because there are more consumers than employees (hopefully). But it's substantial and it
is passed on to the consumer. That's your desired inflation.
What really happens when the minimum wage is raised? There are several possibilities: a. a portion of the raise, not the entire raise is passed on. How much gets passed on depends on competition and how much room there is to adjust other costs; b. A raise in the minimum wage is used as an excuse to raise prices beyond what is justified by the wage increase; c. The entire price is passed on but no more or less.
Regardless, and overall, raising the minimum, whenever it is far lower than the true cost of labor, will be highly beneficial. Raising the minimum wage to 10.50/hr (which is about where it should be nationally),,,
How is it you came to the arbitrary number of $10.50?
a) would have an almost a negligible affect on prices or inflation in most regions -- unless employers use the raise as an excuse -- because $7.25 is so far out of balance with what wages should be, that in much of the country there are practically no workers making as little as $7.25. Therefore in a practical sense the pay raise for most lower wage workers would be considerably less than the maximum of 3.25$/hour. And in high cost areas the new minimum would still be below the prevailing wage;
12% in the above example is not negligible. Food stuffs, housing, education, etc., it's all rising already, just not fast enough for some of you crazy people who want it to rise further. Many people are happy if it doesn't rise at all.
b) would put a small amount of disposable income in the hands of each worker, but a large amount collectively. (The amount of disposable income in the hands of minimum wage workers now is zero!) If spent, a portion becomes potential capital in the hands of business, and to the extent this disposable income is retained, the entire amount becomes potential capital. The net effect over time is a boost to the economy, and therefore, ultimately, job growth!
Lower costs and your minimum wage workers have more disposable income. Raise costs and everyone suffers. Sure, those you gave a wage increase to might be better from a percentage perspective, but seniors, the disabled, those on fixed incomes, kids looking for work living with their parents,
all suffer. Not to mention the whole argument (that I won't get into) that has proven that when the poor get more money, they spend it and don't save it - keeping them poor forever.
c) would provide some incentive to work rather than live off the government dole. Presently the incentive is negative, or nearly so, if the only job one can get is paying only $7.25$.
Right. So lower the freebies.
d) would stop tax payer subsidy of minimum wage employers which creates a less honest labor market by favoring some businesses over others. It also forces tax payers to subsidize businesses that they may choose not to do business with.
What subsidy is this? Are we talking about the freebies still? If so, lower them.
Make it not profitable to be unemployed.
e) would move a small but significant number of workers from poverty to the lowest rank of the middle class, and in doing so, restore hope. Sociologists and psychologists know that many societal problems can be traced to a belief that one's situation is hopeless.
And make those on fixed income, unemployed (which might be more under the proposed increase) etc, even more miserable. Sure, you're restore hope to those who got the raise, and heap more pain on those who did not. In effect, socialism to the core - reallocation of money.
f) would be, from a strictly personal point of view the morally right thing to do!
What you consider moral is not the subject of this conversation.
