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Increasing Corporate Taxes for Welfare Employees

ChunkySalsa

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Lurking in the economics sub-forum, I've heard about corporations not paying a living wage. If the government did not offer welfare, food stamps and other such programs, the employees of these corporations would not be able to afford basic subsistence. As a result, these low wages are effectively being subsidized by the government.

I'm curious about the hypothetical situation of raising corporate taxes proportionately to cover the negative externality imposed by their employees being on welfare. Ignoring how politically unviable it is (and the right-wing wet dream of killing all welfare programs), what would be the economic consequences of such a policy? How would businesses react to such a change? Who would win and who would lose?
 

RabidAlpaca

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We as Americans would all lose. They'd simply move whatever those low income jobs were overseas, then import the products right back in at a higher price. So these people lose their jobs, and we the consumer get more expensive products. The only people who don't lose are the corporations.

For job positions that can't be moved overseas, the larger corporations would crush the small businesses. Wal-Mart could certainly afford to pay their workers double, but Mom and Pop grocery down the street can't. So you push the small businesses out, and the Wal-marts of the world get a bigger market share because they have the kind of deep pockets to take a temporary loss to drive their competition out of business.

Frankly put, you can't make someone pay someone else for MORE than they're worth. No successful businessman is going to hire someone at a loss. We need to instead focus on education and continuing education programs so that those who have the desire to improve their situations can.
 

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Econ 101...

  1. Mr. Baker uses society's limited resources in a certain way
  2. If consumers value how he's using society's limited resources, then they'll give him their money
  3. The more money Mr. Baker receives the more influence he'll have over how society's resources are used
  4. The amount of influence Mr. Baker has reflects how much he benefits others
  5. Transferring Mr. Baker's influence to his employees will decrease the total amount of benefit that we derive from society's limited resources
Everybody would lose. Garbage in, garbage out......
 

Beaudreaux

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I see your point Chunky, but posts 2 and 3 are correct. It would be great to have a more equal society, but we cannot legislate it or tax it into existence. We have to educate, train and work our way toward it. Also, remember that no matter how unpopular the thought is, there are a certain number of people that are not qualified or capable of doing more to get paid more. For the most part, people are paid what there talents, capabilities and contributions are worth to the economy. WalMart pays what they do for two reasons; they can, and they don't have to do more. They and companies like them pay what the market will sustain. We are in a global economy, and no matter how good it might make us feel in the short term, or borders have to be open to trade. For every rule, regulation, standard or wage law we impose on ourselves, we only restrict our ability to compete in the global market. Apple is heralded as a great American success story, but it was cheaper for them to have their products manufactured overseas and shipped back here to sell in the US. If we tax, WalMart for instance, for not paying what some consider a living wage, what do we do with others, Apple for instance, that don't pay anything to American manufacturing workers?

The market governs itself for the most part. It's important for us to regulate and set minimum requirements, but too much unilateral regulation can be deadly to our economy.

How do we compete with products manufactured in countries without our strict environmental laws? In many product areas, we no longer can or do. Batteries for instance. Mexico's manufacturing of batteries has skyrocketed over the last decade. Almost all recycled batteries sold in the US are produced in Mexico now, due to environmental regulations. Similarly, US labor laws (safety, pay, etc.) are what helped China, Singapore and other Asian markets grow tremendously in international sales for the last 40+ years, reducing our ability to compete on a global basis.

I remember Sam Walton stating in TV commercials that WalMart only sold "Made in the USA" products. But they had to change to compete as the global market infiltrated our economy (also Sam died).

Look, I support and agree with the need for worker safety and protecting the environment. I also know that we cannot tell or make Mexico or China or any other country comply with our standards or regulations, or even to adopt their own.

One thing that isn't discussed much if at all when this topic comes up. And that's: Exactly what is a Living Wage? How do we determine what a minimum standard of living is, and what dollar amount is needed to achieve that? Do we all need a car for each person in the house, or just one per household, or just one per three families? Apply that to every other item in a persons life (housing, food, cloths, medicine, education, pets, recreation, drugs/alcohol/tobacco, and so on). My point is, that before we can determine a true Living Wage, we must make the determination as to what defines that wage. And who does the defining? The government? Would the next step required be that the government regulate what, where and how much each of us can or must have as a minimum? If we start setting minimums, what's next? Regulating what the maximum we can have will be? That's already occurring with the management level personnel of companies that took stimulus money from the government. Where does it start, and where does it end?

It is a good question you pose. Just be careful in where it may lead, and what the unintended consequences may be.
 
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ttwtt78640

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Lurking in the economics sub-forum, I've heard about corporations not paying a living wage. If the government did not offer welfare, food stamps and other such programs, the employees of these corporations would not be able to afford basic subsistence. As a result, these low wages are effectively being subsidized by the government.

I'm curious about the hypothetical situation of raising corporate taxes proportionately to cover the negative externality imposed by their employees being on welfare. Ignoring how politically unviable it is (and the right-wing wet dream of killing all welfare programs), what would be the economic consequences of such a policy? How would businesses react to such a change? Who would win and who would lose?
This situation was not caused by falling labor costs, but by raising social "safety net" spending and increased costs of gov't mandates. The idea that increasing business overhead costs by raising taxes while mandating added labor costs by raising the minimum wage would simply cause prices for goods/services to rise (inflation). What many ignore is that employers view total labor costs, while the employee views only their take home pay. The fact that your employer must now pay more to supply your medical care insurance surely causes your labor cost to increase with no increase in your production (or in your take home pay).

http://www.cato.org/sites/cato.org/files/pubs/pdf/PA694.pdf

http://www.budget.senate.gov/republ...?File_id=34919307-6286-47ab-b114-2fd5bcedfeb5

What has gone up far faster than your wages is the cost of your housing. Is it any wonder that many state and local gov'ts have decided to tax your home's "value" (property tax) and your spending (sales tax) instead of (or even in addition to) your paycheck?

The “Cost of Living”; 1957 vs. 2007 | Mercyman53's Weblog
 

Beaudreaux

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... What many ignore is that employers view total labor costs, while the employee views only their take home pay. The fact that your employer must now pay more to supply your medical care insurance surely causes your labor cost to increase with no increase in your production (or in your take home pay)....
I own my own small company. My payroll that I sent to the direct deposit system on Wednesday of last week that hit my account yesterday, was ~$29.000.00. That was every ones net pay, except mine. After I pay the feds and state, Workers Comp, benefits and other fringe costs (just labor related mind you) the cost to the company (me) is over ~$60,000.00. For one week. I only have one employee that doesn't really understand the real cost to the company and asks for a raise every month. He's also the least productive employee as far as revenue production and positive corporate ROI. He happens to be an attorney with knowledge in the area of law that deals with my industry sector, so I need him (but only until I can find a qualified replacement).

Oh, the reason I said except me regarding pay? I don't write myself a check when things are tight so that I can make payroll for the employees (since 2010 its been once or twice a month on average). Things are looking up since we're diversifying into an IT area, but the investment to make that possible is keeping me from paying myself.
 

ttwtt78640

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I own my own small company. My payroll that I sent to the direct deposit system on Wednesday of last week that hit my account yesterday, was ~$29.000.00. That was every ones net pay, except mine. After I pay the feds and state, Workers Comp, benefits and other fringe costs (just labor related mind you) the cost to the company (me) is over ~$60,000.00. For one week. I only have one employee that doesn't really understand the real cost to the company and asks for a raise every month. He's also the least productive employee as far as revenue production and positive corporate ROI. He happens to be an attorney with knowledge in the area of law that deals with my industry sector, so I need him (but only until I can find a qualified replacement).

Oh, the reason I said except me regarding pay? I don't write myself a check when things are tight so that I can make payroll for the employees (since 2010 its been once or twice a month on average). Things are looking up since we're diversifying into an IT area, but the investment to make that possible is keeping me from paying myself.
Far too many folks do not see this basic reality - that any other increase in your cost to the employer is likely to prevent that from becoming your pay raise. They see PPACA as a "free" perk, granted by the generousity of a benevolent gov't provider, not as simply a mandate that your employer now pay more in labor costs for the same production.
 

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... They see PPACA as a "free" perk, granted by the generousity of a benevolent gov't provider, not as simply a mandate that your employer now pay more in labor costs for the same production.
True, but, among the dozens my primary concern with the PPACA is that's its on a Federal level. I really wouldn't have a problem with a Massachusetts style state level program. It would more than likely help reduce my costs as my tax may be less than my fringe costs. But the actual reason I would prefer it on a state level is that state government is more accessible to, reactive to, understanding of, and supportive to local businesses. The Federal government cannot provide a one size fits all solution on something as diverse as medical care. Heck, the IRS couldn't even fins there own receipts when the IG audited them... And these are the guys that are supposed to run the program? I've done the math, and if the PPACA actually goes into full force, I will have to pay the "fine" and drop the benefits for the employees, because it will cost me far less to do so.

I'll stop there because I don't want to derail this thread, since the OP, IMHO, had a good question and this thread deserves a full vetting.
 

JP Hochbaum

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We as Americans would all lose. They'd simply move whatever those low income jobs were overseas, then import the products right back in at a higher price.
How would Walmart move their jobs overseas?
 

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I addressed this in the post. How about instead of quoting one sentence, you quote the entire post?

You're getting lazy, JP.
Seriously, most minimum wage jobs are jobs in local retailing. Those jobs really can't be moved. And minimum wage has nothing to do with all those "high paying" manufacturing jobs that have moved overseas as to be "high paying" they obviously have to pay more than minimum wage.

Rather than higher business taxes on businesses that pay low wages, a higher minimum wage would be a lot easier to implement, and still have the same effect.
 

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Seriously, most minimum wage jobs are jobs in local retailing. Those jobs really can't be moved. And minimum wage has nothing to do with all those "high paying" manufacturing jobs that have moved overseas as to be "high paying" they obviously have to pay more than minimum wage.

Rather than higher business taxes on businesses that pay low wages, a higher minimum wage would be a lot easier to implement, and still have the same effect.
Unbelievable. Now you join JP in being too lazy to read. Instead of replying to my post, you reply to me correcting JP for isolating a single sentence out of a post where I directly addressed what he said.
 

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Unbelievable. Now you join JP in being too lazy to read. Instead of replying to my post, you reply to me correcting JP for isolating a single sentence out of a post where I directly addressed what he said.
No, it's quite believable. I never bothered to read in school either.

Anyhow, I did skim back over your post, and I guess I owe you somewhat of an apology as you did touch base on such issue.

However, if larger corporations could afford to pay more, and were required to pay more, then the mom and pops could also pay more, as they wouldn't lose any competitive advantage to each other or to the bigger companies.

As an employer, if I am forced to pay higher wages, then I either increase my selling price by a small percent (to make up for a 50% increase in the cost of my low paid workers I would need to increase my prices by about 3-5%), or I absorb the additional costs.

I agree that a mom and pop business (like mine) likely can't absorb the cost - unless sales (demand) increases.

I would fully expect my sales to increase if many of my customers had a 50% wage increase (I have customers every day who are interested in purchasing my products, but simply can't afford them, so they leave my shop empty handed or with a product that is less desirable than they desired). If I did have an increase in sales, I could easily absorb the additional labor costs without increasing prices. If we were able to reduce taxes, due to the guberment spending less on means tested welfare, then I would be able to absorb the cost increase even more easily.

So why would I even be willing to absorb any additional labor costs? Because my business exists in a price competitive environment, and I seek to not lose sales to my competitors, as doing so may reduce my net profit. Businesses seek to price their goods and services at what they feel is the profit maximizing price. A small business with an income of $100,000/yr would prefer to absorb $X in costs increases, than to lose their entire profitability to the competition due to not being price competitive.
 

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Sorry Rabid :).

But I disagree that local retailers would go out of business. Walmart already pushed local biz away at a lower wage, so I don't see how a higher wage will really change that landscape.
 

ChunkySalsa

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We as Americans would all lose. They'd simply move whatever those low income jobs were overseas, then import the products right back in at a higher price. So these people lose their jobs, and we the consumer get more expensive products. The only people who don't lose are the corporations.

For job positions that can't be moved overseas, the larger corporations would crush the small businesses. Wal-Mart could certainly afford to pay their workers double, but Mom and Pop grocery down the street can't. So you push the small businesses out, and the Wal-marts of the world get a bigger market share because they have the kind of deep pockets to take a temporary loss to drive their competition out of business.

Frankly put, you can't make someone pay someone else for MORE than they're worth. No successful businessman is going to hire someone at a loss. We need to instead focus on education and continuing education programs so that those who have the desire to improve their situations can.
First, I tend to agree with JP and imagep that jobs that can be outsourced already have been, and that Walmart has already squashed the local competition. That said, you (RabidAlpaca) do have a point about these changes further hurting Mom&Pop shops.

How much tax does a small business pay compared to a big corporations? A quick search showed 17.88% for corps and ~30% for S-corps and partnerships. I imagine corporations have armies of accountants and lobbyists that find and create loopholes to get their taxes so low. Small businesses don't get those loopholes, so they already pay a higher tax rate.

Instead of a blanket increase in taxes for welfare employees, could we eliminate tax exemptions? The CostCos with few/no welfare employees would get to keep their sweetheart deals, while the Walmarts are forced to pay the absolute maximum corporate tax rates. Small business wouldn't be hurt to the same degree because they create/take fewer tax loopholes and already pay close to the max.
 

ChunkySalsa

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Econ 101...

  1. Mr. Baker uses society's limited resources in a certain way
  2. If consumers value how he's using society's limited resources, then they'll give him their money
  3. The more money Mr. Baker receives the more influence he'll have over how society's resources are used
  4. The amount of influence Mr. Baker has reflects how much he benefits others
  5. Transferring Mr. Baker's influence to his employees will decrease the total amount of benefit that we derive from society's limited resources
Everybody would lose. Garbage in, garbage out......
Conflict theory 101

4. The amount of influence Mr. Baker has reflects how much he benefits others himself
5. Transferring Mr. Baker's influence to his employees will decrease the total amount of benefit that we he derive(s) from society's limited resources
 

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ttwtt78640[/QUOTE said:
This situation was not caused by falling labor costs, but by raising social "safety net" spending and increased costs of gov't mandates.
That's exactly what this question is intended to address. Social safety net spending has gone up because good paying jobs have gone away and many corporations aren't offering jobs that pay enough for their employees to stay afloat without government assistance.

Optimally, businesses would be a symbiotic economic partner, utilizing our collective resources and deriving personal benefit from the transaction, while also enriching society in the process. If a business does not pay enough for their employees to subsist without government assistance, and they refuse to pay more taxes to cover the welfare their employees draw...why should society continue to allow them to parasitically extract wealth when there are more symbiotic alternatives?
 

Xerographica

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Conflict theory 101

4. The amount of influence Mr. Baker has reflects how much he benefits others himself
5. Transferring Mr. Baker's influence to his employees will decrease the total amount of benefit that we he derive(s) from society's limited resources
What vitiates entirely the socialists economic critique of capitalism is their failure to grasp the sovereignty of the consumers in the market economy. - Ludwig von Mises
The entrepreneur in a capitalist society depends upon the market and upon the consumers. He has to obey the orders which the consumers transmit to him by their buying or failure to buy, and the mandate with which they have charged him can be revoked at any hour. Every entrepreneur and every owner of means of production must daily justify his social function through subservience to the wants of the consumers. - Ludwig von Mises
You get paid and you give your money to the people who use society's limited resources for your benefit. As a result, we maximize the benefit that we derive from society's limited resources. Consumer sovereignty isn't that difficult of a concept. Just try and be more self aware the next time you buy something.
 

RabidAlpaca

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No, it's quite believable. I never bothered to read in school either.

Anyhow, I did skim back over your post, and I guess I owe you somewhat of an apology as you did touch base on such issue.

However, if larger corporations could afford to pay more, and were required to pay more, then the mom and pops could also pay more, as they wouldn't lose any competitive advantage to each other or to the bigger companies.

As an employer, if I am forced to pay higher wages, then I either increase my selling price by a small percent (to make up for a 50% increase in the cost of my low paid workers I would need to increase my prices by about 3-5%), or I absorb the additional costs.

I agree that a mom and pop business (like mine) likely can't absorb the cost - unless sales (demand) increases.

I would fully expect my sales to increase if many of my customers had a 50% wage increase (I have customers every day who are interested in purchasing my products, but simply can't afford them, so they leave my shop empty handed or with a product that is less desirable than they desired). If I did have an increase in sales, I could easily absorb the additional labor costs without increasing prices. If we were able to reduce taxes, due to the guberment spending less on means tested welfare, then I would be able to absorb the cost increase even more easily.

So why would I even be willing to absorb any additional labor costs? Because my business exists in a price competitive environment, and I seek to not lose sales to my competitors, as doing so may reduce my net profit. Businesses seek to price their goods and services at what they feel is the profit maximizing price. A small business with an income of $100,000/yr would prefer to absorb $X in costs increases, than to lose their entire profitability to the competition due to not being price competitive.
How would Mom and Pop magically have the same pockets at Wal-Mart? Wal-Mart is sitting on 10's of billions, if not more of hard cash in the bank, Mom and Pop are trying to keep their **** together. You're just adding one more expense to their business.

You're assuming that YOUR situation would be identical to every other small business in America that employs low income workers. You're assuming that every business who employs low income workers also markets their products to low income workers, which is entirely incorrect. If they don't market to the same people they're employing, they're just taking a loss.

Not to mention the fact that no businessman is going to pay someone for more than he's worth. Why would you rather have somebody unemployed at home drawing a welfare check instead of working, gaining skills, and being a respectable member of society?

You can NOT sit there with a straight face and tell me you would hire a kid whose work value is worth $5/hr to you, when you have to pay him $10/hr and pay for his medical insurance. Businesses are not charities.


Sorry Rabid :).

But I disagree that local retailers would go out of business. Walmart already pushed local biz away at a lower wage, so I don't see how a higher wage will really change that landscape.
A high wage changes the landscape entirely. You can't sit there and tell me every small business in America that employs low income workers that they can all magically afford to double their workers salaries. They're already having a horribly hard time competing with the Wal-Marts of the world who can buy products in packs of a million. You want to increase their operating costs without any return. Those with deep pockets will have a much, much easier time making through that.

First, I tend to agree with JP and imagep that jobs that can be outsourced already have been, and that Walmart has already squashed the local competition. That said, you (RabidAlpaca) do have a point about these changes further hurting Mom&Pop shops.

How much tax does a small business pay compared to a big corporations? A quick search showed 17.88% for corps and ~30% for S-corps and partnerships. I imagine corporations have armies of accountants and lobbyists that find and create loopholes to get their taxes so low. Small businesses don't get those loopholes, so they already pay a higher tax rate.

Instead of a blanket increase in taxes for welfare employees, could we eliminate tax exemptions? The CostCos with few/no welfare employees would get to keep their sweetheart deals, while the Walmarts are forced to pay the absolute maximum corporate tax rates. Small business wouldn't be hurt to the same degree because they create/take fewer tax loopholes and already pay close to the max.
I can agree 100% with a simplification of the tax code. There should not be easy loopholes. Businesses should not need an army of lawyers to stay within regulations.

I don't think the government should be in the business of picking winners and losers, the government is supposed to be an impartial arbitrator. The entire concept of a minimum wage is fundamentally flawed. Businesses will never hire people for more than their worth, and let's face it, some people are just worth jack ****. Minimum wage cuts everybody whose value is less than the minimum wage off from the working world. There is no good way to improve the value of that person's work, because he can't work to learn.
 
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How would Mom and Pop magically have the same pockets at Wal-Mart? Wal-Mart is sitting on 10's of billions, if not more of hard cash in the bank, Mom and Pop are trying to keep their **** together. You're just adding one more expense to their business.
All businesses compete in the same market. As long as all businesses have the same minimum wage, then regardless of how much that minimum wage is, a change in minimum wage has little if any effect on their relative competitiveness.
 

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All businesses compete in the same market. As long as all businesses have the same minimum wage, then regardless of how much that minimum wage is, a change in minimum wage has little if any effect on their relative competitiveness.
First, you did that ****ing **** again where you just pick one tiny sentence of what I wrote and ignored everything else. Pretty lame.

Second, you're trying to say that Mom and Pop can react to a huge financial change EXACTLY AS WELL as Wal-Mart with billions of dollars. If we made minimum wage $100/hr, for instance, do you think Mom and Dad has the immediate capital to implement such a thing, without immediate replacement of that capital through increased sales?

You've ignored all of the questions I've posed for you, so I think I'm done answering you until you do that.
 

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First, you did that ****ing **** again where you just pick one tiny sentence of what I wrote and ignored everything else. Pretty lame.

Second, you're trying to say that Mom and Pop can react to a huge financial change EXACTLY AS WELL as Wal-Mart with billions of dollars. If we made minimum wage $100/hr, for instance, do you think Mom and Dad has the immediate capital to implement such a thing, without immediate replacement of that capital through increased sales?

You've ignored all of the questions I've posed for you, so I think I'm done answering you until you do that.
I do believe that Mom and Pop CAN react to a small financial change (like an increase in minimum wage) exactly as well as Walmart. Smaller companies can often be more nimble.

You are making up an absurdity when you use an example of minimum wage suddenly going up to $100/hr, when it's quite obvious that minimum wage can't exceed the mean average income (the smallest number in any set of numbers can't exceed the mean number - it's a mathematical certainty). If you are trying to make a legit argument, you need to stay within the realm of possibility.

Regardless of how much we increased minimum wage, sales would increase in most industries, because higher incomes lead to increase demand, which results in an increase in sales. Even a small increase in sales, when it doesn't take any additional advertising expenditures, can increase a companies profitability far more than a modest increase in operating costs can harm it.
 

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I do believe that Mom and Pop CAN react to a small financial change (like an increase in minimum wage) exactly as well as Walmart. Smaller companies can often be more nimble.
You've never even attempted to address my question about what businessman would hire a worker for a loss? What businessman will hire a kid worth $5/hr to him for $10/hr? He will simply be more selective by only hiring those whose value is worth the new, higher minimum wage.

So I guess if you're not worth the new minimum wage, **** you, you'll stay on welfare.
 

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You've never even attempted to address my question about what businessman would hire a worker for a loss? What businessman will hire a kid worth $5/hr to him for $10/hr? He will simply be more selective by only hiring those whose value is worth the new, higher minimum wage.

So I guess if you're not worth the new minimum wage, **** you, you'll stay on welfare.
Companies only hire people when they can profit from doing so, so you indeed have a point there. Assumably, companies always strive to operate their business with policies that result in maximized profits. They already have the minimum number of people that they need to maximize profits, and don't have excess employees. So when sales increase due to an increase in demand, they have no choice other than to hire more people to meet that demand. Doesn't really matter how much they pay, if they have to pay more, then they will pay more, and they can afford to pay more due to the increase in sales.

Even a small increase in sales can offset a fairly large increase in operating costs. Well run businesses see the financial advantage in higher sales levels, thats why McDonalds is willing to pay a million bucks for a one acre plat of desirable land. No business ever based their profitability on operating as inexpensively as possible, they base their profitability upon sales.

I will conceed that if we increased minimum wage, there may be some particular individuals who find themselves jobless, due to their lack of personal productivity. There will however be many more individuals who find that the increase in demand has created new jobs, that otherwise wouldn't have existed, and I believe that the quantity of new jobs created would exceed the number of sorry arse individuals who become permenately jobless due to their own failure to be productive. It's a tradeoff, as is everything in economics.
 

Beaudreaux

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No, it's quite believable. I never bothered to read in school either.

Anyhow, I did skim back over your post, and I guess I owe you somewhat of an apology as you did touch base on such issue.

However, if larger corporations could afford to pay more, and were required to pay more, then the mom and pops could also pay more, as they wouldn't lose any competitive advantage to each other or to the bigger companies.

As an employer, if I am forced to pay higher wages, then I either increase my selling price by a small percent (to make up for a 50% increase in the cost of my low paid workers I would need to increase my prices by about 3-5%), or I absorb the additional costs.

I agree that a mom and pop business (like mine) likely can't absorb the cost - unless sales (demand) increases.

I would fully expect my sales to increase if many of my customers had a 50% wage increase (I have customers every day who are interested in purchasing my products, but simply can't afford them, so they leave my shop empty handed or with a product that is less desirable than they desired). If I did have an increase in sales, I could easily absorb the additional labor costs without increasing prices. If we were able to reduce taxes, due to the guberment spending less on means tested welfare, then I would be able to absorb the cost increase even more easily.

So why would I even be willing to absorb any additional labor costs? Because my business exists in a price competitive environment, and I seek to not lose sales to my competitors, as doing so may reduce my net profit. Businesses seek to price their goods and services at what they feel is the profit maximizing price. A small business with an income of $100,000/yr would prefer to absorb $X in costs increases, than to lose their entire profitability to the competition due to not being price competitive.
Your labor cost is 24% to 40% of your total OH? That's a large spread. And you're in retail also? Just wondering, because that's what I thought I read.
 
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