We are told by people who want to keep wages low that raising the minimum wage will cause employers to lay off workers. We are told that a business that employs 100 workers @ $8 an hour has a wage expense of $800 an hour, and if those workers are paid $10.00 an hour then the company can only employ 80 workers for that hour.
Well think about it. What is wrong with this picture? Well it leaves out company profits. The above scenario assumes of course that company profits are sacred and must be untouched. We have seen both the minimum wage and the average wages for American workers decline over the last 40 years. If the above scenario were true, there should have been an increase in employment rates because workers are cheaper! But instead we have the highest corporate profits in history and the highest unemployment in 75 years!
That is because the increases in worker productivity over the last decades have been captured into corporate profits and have not been shared with workers. This is truly “redistribution of wealth” – from the working poor and middle class into the pockets of the rich corporate elite.
The cost of labor is just one of the costs of production. Suppose that the company is making widgets, and each widget requires the company to purchase one thingamajig as a component to make the widget, and the thingamajigs cost $8.00 each. Suppose the thingamajig supplier announces a $2.00 price increase. Will the company then make only 80 widgets instead of 100? Of course not, because their profits would suffer. They will still have to buy 100 thingamajigs and spend the extra money. The same is true with employees. The company above is employing 100 employees because they need 100 employees to produce what they are producing. If you think that the company is employing 20 extra employees out of kindness you are mistaken. If they cut back on employees they will be cutting back on profits.
Large companies and corporations have been so profitable for the last few years because they have been able to raise the prices for the goods they sell and they have been able to drive wages down. They can’t have it both ways.