Comments on: When Economists Agree, Part 2 http://www.theamateurfinancier.com/blog/when-economists-agree-part-2/ Thoughts on Money, Investing and Life Wed, 08 Feb 2012 18:41:13 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Roger http://www.theamateurfinancier.com/blog/when-economists-agree-part-2/#comment-96 Roger Sat, 25 Apr 2009 05:07:20 +0000 http://www.theamateurfinancier.com/blog/?p=328#comment-96 JR: I will admit, I don't have much experience running a business. My example was simply an attempt to provide a (overly) simplified view on the relationship between the minimum wage and employment. But I stand by the points I made in the original article. If the minimum wage is increased, the costs to a restaurant or any other business employing people at or near minimum wage will increase as well. If the business is profitable enough, it might be able to simply absorb the needed pay increase and continue business as usual. If the profit margins are too slim to cover the increase, or the business owner just doesn't want to see declining profits, there need to be some cutbacks, in supply costs, building costs, or labor costs. In the latter case, this means layoffs if the possibility of decrease the worker's wages is off the table. Furthermore, there will be some businesses that can't handle the pay increase and will have to close down, further increasing unemployment among minimum-wage earners. The real issues that should be discussed when when consider raising the minimum wage are (a) how much will this change affect the number of minimum wage jobs available, (b) how much will the change benefit those minimum wage earners who are still employed, and (c) is the increase in the benefit to the remaining workers enough to justify the lost jobs? Personally, I lean towards thinking that we could increase the minimum wage quite a bit before the bad outweighs the good. But then, I'm not in charge of policy on this matter. JR:

I will admit, I don’t have much experience running a business. My example was simply an attempt to provide a (overly) simplified view on the relationship between the minimum wage and employment.

But I stand by the points I made in the original article. If the minimum wage is increased, the costs to a restaurant or any other business employing people at or near minimum wage will increase as well. If the business is profitable enough, it might be able to simply absorb the needed pay increase and continue business as usual. If the profit margins are too slim to cover the increase, or the business owner just doesn’t want to see declining profits, there need to be some cutbacks, in supply costs, building costs, or labor costs. In the latter case, this means layoffs if the possibility of decrease the worker’s wages is off the table. Furthermore, there will be some businesses that can’t handle the pay increase and will have to close down, further increasing unemployment among minimum-wage earners.

The real issues that should be discussed when when consider raising the minimum wage are (a) how much will this change affect the number of minimum wage jobs available, (b) how much will the change benefit those minimum wage earners who are still employed, and (c) is the increase in the benefit to the remaining workers enough to justify the lost jobs? Personally, I lean towards thinking that we could increase the minimum wage quite a bit before the bad outweighs the good. But then, I’m not in charge of policy on this matter.

]]> By: JR http://www.theamateurfinancier.com/blog/when-economists-agree-part-2/#comment-91 JR Fri, 24 Apr 2009 02:38:22 +0000 http://www.theamateurfinancier.com/blog/?p=328#comment-91 Let's look at the error of this statement "Let’s assume you are running, say, a fast food restaurant. You’d like to have ten people on each shift, and have $50 per hour to spend on salaries." The falacy of this hypothesis is that you base the number of your employees on how much they cost you. Wrong answer!! I spent many years running a fast food restaurant and based my employees on the amount of service I NEED TO PROVIDE at the time of the day and not on what they cost me. This argument is used extensively by those who attack a minimum wage increase. None have propably ever soent time running a business where you have employees. Actually most business owner start with service and end with service and adjust their employees hours accordingly. Any that do not, FAIL miserably. Let’s look at the error of this statement “Let’s assume you are running, say, a fast food restaurant. You’d like to have ten people on each shift, and have $50 per hour to spend on salaries.”

The falacy of this hypothesis is that you base the number of your employees on how much they cost you. Wrong answer!!

I spent many years running a fast food restaurant and based my employees on the amount of service I NEED TO PROVIDE at the time of the day and not on what they cost me.

This argument is used extensively by those who attack a minimum wage increase. None have propably ever soent time running a business where you have employees. Actually most business owner start with service and end with service and adjust their employees hours accordingly. Any that do not, FAIL miserably.

]]>