Originally Published: March 1, 2014 6 a.m.
Myth: There is no point in raising the minimum wage, as it will just push up prices and eat up all the wages gained.
The reasonableness of this statement has resulted in this common misconception. But, if we look closer, we can discover the truth.
We know that all businesses have expenses and that payroll is just one part. For example: Company A has weekly receipts totally $100k and a weekly payroll of $30k. That means that payroll is just 30 percent of their $100k.
Company A's current hourly wage paid is $7.50. This wage is now increased by $2.50 per hour totaling $10 hour. Payroll is increased by 30 percent, raising payroll from $30k to $33k. Now, payroll is 33 percent of Company A's weekly receipts. If Company A wanted to pass the entire increase onto the public, they only need raise prices by $3,000, or 30 percent.
Given that the $2.50 raise will bump up area employees' pay by $100 and that prices went up 30 percent, their income has just jumped the remaining 70 percent of $70 per week. The result being, that a raise in wages will always result in more disposable income for the employees.
There are also a couple of great ancillary benefits associated with raising wages today. Let's say there are 20,000 employees in the quad-city area, and as a result of each employee having an additional $70 of income per week, the local economy experiences a $1.4 million infusion ... WEEKLY! Employers will experience a nice sized jump in demand, either helping them become more stable, or forcing them to expand (J-O-B-S).
Next, two important results will come out of the raise of wages: 1. Thousands of workers with the additional income will be moved out of poverty; 2. 20k more people will be paying sales tax on the additional $1.4M being spent. Both of these outcomes will reduce the burden on current taxpayers. And isn't that what taxpayers want?