So input costs rise, some business cut services, some raise prices, causing inflation. Not sure what the news story is here.
Anyone interested in the truth will tell you that raising the minimum wage will destroy at least some jobs.
Anyone interested in the truth will tell you that raising the minimum wage will destroy at least some jobs.
This is the "big lie" used to justify keeping it low. The reality is that minimum wage hikes hit profit margins first and hardest, inflation next and jobs get hit last (maybe if it gets hiked $10 / hour).
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.421...
>"Studying profitability is important because the empirical evidence suggests that minimum wages do raise the earnings of low wage workers, but do not seem to have large negative employment consequences."
>"Across both datasets our results show that that profitability was significantly reduced by the introduction of the minimum wage. "
Minimum waged labor is very, very, very inelastic. For better or worse the people who clean your toilets and serve you coffee in the mornings are extremely necessary and very hard to substitute. Much more so than most middle class jobs, even.
Business lobbies know this to be the truth, but they know that they will get nothing but by asking the general public to have sympathy for their falling profit margins.
So, they try to scare the shit out of you by claiming that they will be forced to fire you instead (e.g. this expensive billboard for the national restaurant association demonstrating their concern):
https://pando.com/2014/07/17/new-san-francisco-billboard-war...
Businesses that slash necessary costs in response to cut margins have a special word to describe them:
Bankrupt.
In a brutally competitive industry such as restaurants, where profit margins of 6% are considered extremely healthy, there has to be some sort of downstream effect to keep the business viable. Most likely they'll all just raise prices, but something has to happen for these businesses to have any chance at surviving the next recession.
So you're right that minimum wage labor is inelastic for many businesses, but in restaurants a small change in costs can make a large number of businesses no longer viable.
Non chain restaurant industry is brutally competitive, yes. Burger King/McDonalds not so much.
In non-chain restaurant industry the costs are typically either pushed on to diner (in the form of higher prices) or the rentier (in the form of lower rent).
The one quirk of the non-chain restaurant industry is that if there is a cost push in the form of higher minimum wage or higher rent it often leads to bankruptcy and a replacement of the business with a different cost profile rather than a smoother transition to higher prices. This is why they fight so hard against unionization and minimum wage hikes.
Literally the opposite. It's so elastic they can't demand any wages for what they do. Minimum wage is about turning it inelastic with the punishment of prison.
The best argument I have heard around MW is that businesses can afford to pay more but have too much market power to let that go. I tend to disagree in a 3.5% unemployment economy, but its possible.
These famous studies of minimum wage always come with caveats, on both side of the aisles. If you increase minimum wage today you might not see the unemployment ever in a stat, because you are sacrificing future employment (businesses that don't open because upstart costs are higher). In the end, MW is a handout from left leaning people passing the bill to businesses: they could help the working people they want to target just as well with suplemental labor income, but that implies reducing other expenditures from the government, whereas MW looks like a freebie from businesses.
This is why it's inelastic. Employers naturally optimize their headcount no matter what the size of the overall wage bill is.
In which case we should see toilets going uncleaned, coffee not being made in response to minimum wage hikes and a clear spike in unemployment that couldn't be attributed to anything else. Doesn't happen (c.f. Dube, Lester, Reich (Nov 2010)).
>These famous studies of minimum wage always come with caveats, on both side of the aisles.
Dube, Lester, Reich is the only one I'm aware of which comes without caveats.
This effect could be explained by capital consumption. If you already have a business you can't switch your entire capital to adjust to the new costs. But new businesses will invest more in less-labor-intensive coffee machines, smaller/worse bathrooms, and wouldn't fire the staff immediately and take the profit hit now and not invest later. Human systems tend to hide away consequences by playing with future expectations, because they are easy and invisible.
This topic is actually academically difficult as it is, I'm not an academic or professional economist, and I simply distrust all parties. Thus, in case of doubt, do no harm. Do nothing.
It also makes sense to me that restaurant jobs are more elastic than janitors as they are a product of discretionary spending.
Yet the study I linked to very much disagreed with this hypothesis of yours.
You can cut profits without cutting jobs. In fact, it's very easy in an economy where the ratio of profit : GDP is so high.
The government institution in charge of controlling inflation is the Fed, through monetary policy.
Sidenote: getting a bit tired at the insta-downvotes on any straight-forward opinion.
Inflation is the generalized increase in prices which means that supply/demand shocks that change the prices of some goods but not others are not inflation by definition. Goods change prices all the time relatively (a new technology makes something cheaper, a climate disaster makes a produce more expensive, etc).
Changes in MW are not going to impact all goods: for starters it will not impact goods you import.
It is a bad habit of news to call inflation to a subset of goods (asset inflation, healthcare inflation, etc) but that is just plain incorrect in terms of economic terminology. The Fed is not concerned for healthcare costs rising, they are concerned for inflation which is when everything rises because the money supply outpaces economic output growth.
Going deeper: before the Milton friedman era, the Keynesian era had the argument that inflation was a problem of the cost of production of goods. So if you could stop that from happening you could stop inflation, resulting in price control policies, collective union bargaining for fixed prices, etc. It was considered and thought that fiscal policy and regulation could stop inflation and even Nixon got into that. Milton Friedman ushered the new era with the phrase from another comment: Inflation is always and everywhere a monetary phenomenon.
Countries today that use the old model, that price controls could fix inflation, include Venezuela and Argentina, that have the worst inflations in the world. Argentina has taken this concept that inflation is on the measuring of the basket of goods that they manipulate the statistic two ways: first, the agree to price controls and make sure the controler products are in the basket of goods, to claim lower inflation than real. Second, to actually fudge the numbers of inflation as measured. Naturally, neither strategy works, because as long as you have a monetary imbalance, you have inflation.
Hopefully you are at least amused by my expose!
"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." -Milton Friedman