There was an interesting post on Twitter the other day. Someone argued that many people needed higher incomes, but that increasing demands on employers was not the best way to achieve this.
The person, who lives in San Francisco, made the following comments about minimum wage, job numbers, and the affordability of business:
Raising the minimum wage always increases job losses, but there may be tradeoffs, like jobs lost versus better incomes for other workers;
A $20 minimum wage leaves small businesses to pick one of two options — to price increases that customers might not pay, or go out of business;
People assume that business owners have plenty of margin and could easily increase wages by reducing their profits;
Increasing minimum wages creates an incentive to automate low-wage jobs and as a result drive down costs and increase margins.
If the U.S. had any clear lesson during the pandemic, it was that when many citizens and businesses are under significant economic pressure beyond their control, prioritizing payments to them can help keep millions of people and many businesses (and the jobs they provide) afloat and able to move forward. The result is a quicker end to the problem, rather than, like with the Great Recession, seeing economic disruption for 10 years or more after the initial event.
But that is for a catastrophe, not an ongoing program. The Covid relief programs were also for businesses as well as citizens. Let’s touch on some of the points made. Rising minimum wages don’t necessarily involve loss of jobs — and even if they do, the country is at historically low levels of unemployment. There are businesses struggling because they can’t find employees to work, as the U.S. Chamber of Commerce has reported, and even if everyone in the labor pool took a job, there would still be a shortage of three million workers.
Below is a graph from the Federal Reserve Bank of St. Louis of total open jobs.
There are many aspects of the jobs that aren’t included in the graph. This is a national number that has tucked away within differences in geography, type of job, and needed skills of workers. Making any flat assumption is difficult. Seven years ago, there was debate over Seattle increasing its minimum wage to $13 and whether the number of restaurant jobs would decrease. As I wrote at the time, data suggested that they didn’t. They actually increased. That’s because in addition to a business absorbing the margin hit or charging people more, there can also be more people with more money who will spend it.
But some of the poster’s points are quite true. Many people do assume that companies have any amount of money necessary for raises. As I pointed out early in 2023, while many assumed that StarbucksSBUX
could pay people far more, there are limits. If only the company’s 248,000 U.S. store employees would get a $15,000 per year increase, that would wipe out all Starbucks’ profits, leaving no money for investment.
There must be a balance. Either a lot less going to the employees, a lot less going to those institutional shareholders that include pension funds and insurance companies using investment to pay future obligations to individuals, or a lot more coming from consumers via the costs of what they purchase at a local Starbucks.
That brings us to the original poster’s thought that government should pay basic standards of living, including basic medical care, food, clothing, and shelter. Perhaps, though as one works through the list, there will be big questions in some of these areas, like shelter, clothing, and food. Government picking the food, like government-supplied cheese to the poor as once was the case? Or maybe stipends to buy food, like SNAP benefits? Government standard issue clothing or a stipend for such? Government-run apartments? Or, again, stipends for such?
The stipend would seem the more logical solution. However, doing that to spare businesses would be a massive subsidy. Then why not push down wages further, if there’s going to be a Universal Income program?
It would immediately become a transfer of a company’s responsibilities to government, meaning the taxpayers. Businesses go out of business every day because they can’t compete or run their operations well enough to keep going. Keeping companies afloat through subsidies is bad for the economy and communities. You both get a backlog of more zombie companies that become dependent on handouts and large companies that can afford higher pay but just keep levels where they are and pocket the savings — because employees get enough between UI and work pay that they’ll be fine.
