San Francisco Proves Raising Minimum Wage is a Lose, Lose, Lose Situation

One of the many rallying cries of liberal Democrats is the need to raise the minimum wage from $7.25 per hour to $15.00 per hours. On the surface it sounds great. After all, who wouldn’t like a 107% increase in pay? I know I would, wouldn’t you?

Many conservatives have warned the liberals that raising the minimum wage that high would have more negative effects than positive ones, but they refuse to listen to any warnings.

San Francisco has to be the most godless liberal large city in America. In typical liberal fashion, they moved forward and passed a city wide increase in the minimum wage from $10.74 per hour to $12.25 per hour, an increase of 14%. Now they are starting to see the very ramifications predicted by many including myself.

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A number of small businesses including a comic book store have closed their doors because they could no longer afford to pay the increased wages.

Fast food chains and restaurants are also suffering from the effects of having to pay the higher wages. They have been forced to raise their prices in order to recoup the increased cost in labor as Chipotle restaurants in the Bay area have had to do.

Consider the industry statistics that say the average fast food restaurant spends 30% of their income on wages, 30% on ingredients and 35% on other things such as rent, advertising and general upkeep. That leaves a mere 5% profit margin which anyone in the business world knows that it is a dangerously low profit margin for any business.

Now add a 14% increase to the wages they pay and where does that leave the restaurant? To put this in proper perspective, Tim Worstall of Forbes explains:

“So, if we by legislative fiat raise the price of one of those inputs then something, somewhere, has to give. Those profit margins are already pretty thin and so they’re not going to be where that extra cost comes from. More than that if we reduce the returns to capital in a particular line of business then less capital will be invested in that line of business in the future. This means fewer jobs in that line of business: This is one of the ways that a rise in the minimum wage destroys jobs. Fewer will be created in the future than would have been in the absence of the rise in the minimum wage.”

“It’s possible that employers will be encouraged to deploy their labor in a more productive manner as a result of the price increase. This is the same statement as fewer jobs will be created. For if I go and raise labor productivity then by definition I need less labor for any given level of output. Or of course employers could just automate the process a little more and that also means fewer jobs.”

“So, if employers either economize on labor or profits, there will be job losses: the minimum wage rise does reduce employment.”

“Or there is this final method: raise prices. Which also causes job losses: for the more money that consumers are spending on reasonably priced Mexican food (although now less reasonably priced Mexican food than it used to be) the less they have available to spend on other things. We might think that there could be an interesting overlap between those who consume reasonably priced Mexican food and those who frequent comic book shops for example. If the food now costs more then there might well be less being spent in the comic book shop: again, we see reductions in the number of jobs.”

“And just to head off at the pass one of the more insane points that people try to make. That if the workers at Chipotle are now making more money then they’ll spend more at Chipotle, and the company’s profits will rise! This doesn’t even pass the basic math test, let alone any economic one. For note above the split in revenues. About 30% of revenue is spent upon labor. The other 70% is spent upon other things, including that 30% or so on food ingredients. So, if Chipotle raises wages by $100 (just as an example) and all of those wages are then spent in the same store, it is impossible for profits to rise. Think about it for a moment: the wage bill has just gone up by $100. Revenues have just gone up by $100. But the food bill has also gone up by $30. So, the increase in costs is $130 (even in the very best, best, case) while revenues have gone up by $100. This is known to the cognoscenti as a loss, not an increase in profit.”

Now realize that San Francisco only raised their minimum wage by $1.51. Seeing how it’s affecting so many businesses and employees, what would happen if Democrats got their way and raised the minimum wage to $15.00 per hour? If small businesses can’t survive paying their people $12.25, how will they survive paying another $2.75 an hour more than they are now?

No matter how you do the math, raising the minimum wage so high doesn’t add up to helping anyone. How many more people will find themselves out of a job or how many more small businesses or restaurant chains will be forced to close their doors?

San Francisco proves that raising the minimum wage so high is a lose, lose, lose situation that America cannot afford.


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