I found the recent letter from Joseph Berey to be very insightful, and it presented some strong points that any government entity should consider before making regulations to raise the minimum wage on either the local or national levels. I’d like to add my two cents to his discussion, taking his thoughts just a little further.
It is my belief, just as it is Berey’s, that when the minimum wage is increased, there is a ripple effect throughout the entire economy. This effect is more pronounced when the percentage of the increase is more dramatic. One should realize that as this ripple flows along, all businesses are hit with higher costs of operations. While our governmental leaders like to think that the businesses will just absorb those higher costs and keep the prices of their products or services the same as before the wage increase, economic realty tells us that businesses will increase their prices by approximately the same percentage as the wage increases.
With those increases passing through the economy, it will not take long before the workers who received a wage hike because of the new minimum wage will find that their new wage will only buy the same amount of goods and services as their pre-wage increase had purchased. Under this scenario, the only beneficiaries of the wage increase will be the government entities. The higher incomes will more likely result in higher income taxes, the increases in the selling prices of goods and services will result in increased sales tax collections, and the increased cost of real estate, and equipment will give the property tax a nice boost.
So, think before you endorse a minimum wage increase. Particularly if it will be in the sizes currently being proposed. After it is all said and done, you may be worse off than before the increase, but the governments will definitely be the final winners. Maybe that explains why so many political leaders are in favor of sizable wage increases.