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I don’t understand the rationale behind raising the minimum wage, doesn’t that make things more expensive?
it’s basic economics
the cost of a product is based on raw materials + direct labor (how much the worker works X wage) + manufacturing overhead, which is computed based off of labor costs (like .25 of labor costs)
for example if to make a salad in a restaurant, it costs .50 for the lettuce (im throwing random numbers here) $2 for the labor (15 minutes @ 8 dollars an hour) and manufacturing overhead is .25 of labor costs or .50 the cost of the salad (not the price) is $3 and the owner wants to make 10% profit the price would be $3.30 but if you raise the cost of labor to 15 dollars an hour the cost would be .50 for the salad $3.75 for the labor and .94 for the overhead it would cost $5.20 (2 dollars more for the same salad) whereby the owner sells it for $5.72 and actually the owner makes more money however food costs more therefore. it doesn’t help anyone
so someone please explain the rationale
Yes, the minimum wage raises the cost of products. No one, even Democrats, thinks otherwise. The minimum wage is designed to help the employee not the employer.
There are some particular circumstances where another factor upsets the balance and raising the minimum wage solves that. Rare, but possible.
The price of a product isn’t the price of its inputs. For example, Starbucks sells coffee, which costs them almost nothing to make, at a couple of dollars, but gives away milk and (in most locations) usage of their real estate, which are relatively expensive, for free. Price is a function of where the meeting point is at which a product will be supplied and consumed.
In your example, if the owner was rational and could sell the salad for 5.72, that would be the price regardless of what wage the employees were getting and the surplus over the 10% he’d have been happy with would go to the owner. If you’re arguing for an increase in the minimum wage, you’re most likely saying that for some reason the market isn’t adequately allowing the worker’s to negotiate to get a share of that surplus. It’s more complicated than that, but that’s a short version of it.
Joseph, that makes no sense. If the employer can’t afford to pay the employee, both suffer. And the employee also has to pay twice as much for his salad.
I said the minimum wage is designed to help the employee; I didn’t opine whether it is successful or not.
Its called populism.
Similar example: TAX THE RICH! It doesnt really help you (or anyone for that matter) at the end of the day if the millionaire pays more, but it sounds good to the poor masses.
All about votes.
homer is right on target. It’s all about votes by an ignorant uneducated public that thinks they’re actually getting something. It’s not the wages that count, it’s what those wages can buy.
Increasing the minimum wage does two things; 1. It’s inflationary so the net effect is the buying power is diminished; 2. it causes layoff, since most people getting minimum wage are teens or entry level jobs whose purpose is to train people for the workforce.
In the case of a small businesses like a pizza shop, where they have a lot of employees and the business owner makes a decent living, but is certainly not getting rich, raising the minimum wage erodes his income, since he can only raise prices just so much, he will lay people off to compensate.
The same applies to most mom and pop businesses. Even larger businesses will make adjustments to compensate.
The bottom line is that raising the minimum wage harms the very people that it was designed for. If an employee produces more and is worth more money, they will get more than minimum wage anyway, but when it’s raised, a business owner is forced to raise most hourly wages in some proportion. It could destroy some small businesses.
Should the minimum wage be eliminated entirely?
If the minimum wage is set at or below what would normally be negotiated for an unskilled, untrained workers, it has no impact other than for n individual is not very good at negotiating, in which case the minimum wage helps him/her. If on the other hand, the minimum wage is set at higher than what would be worked out by the law of supply and demand, it helps those individuals who get the jobs, but results in employers cutting back employment (using automation, outsourcing, etc.). For example if the minimum wage is $10/hour, an employer will choose not to hire an employee who is not producing $10 of extra profits every hour – the higher the wage, the harder it is to justify the employee.
The Democrats believe that most employers are making a huge profit on each employee, and therefore the employers will not reduce employment if forced to raise wages. The Republicans tend to feel that the law of supply and demand works so that wages stay in sync with profits, and therefore raising the minimum wage about what would be produced by a free market results in lower employment.
Because many large companies can afford to pay a lot more to their employees so that raising the minimum wage won’t affect them. The affects only smaller and mid-sized companies who will be forced to lay off workers and/or hire illegals for under minimum wage. But the vast majority of minimum wage workers work for places that can well afford an extra 50k a year to pay their workers.
Coffee
Economics is not quite as simple as you lay out. Mcdonalds doesn’t just add up the cost of a burger add some profit and charge that amount. There is also an element of them charging what they think they can get for it. If they think they would sell just as many burgers charging $1.50 vs $1.00 of course they would charge the $1.50! So increasing the minimum wage wouldn’t automatically increase the price. It’s not like the reason they dont charge the extra 50 cents is out of the goodness of their hearts to provide cheap burgers.
In other words the reason they charge a dollar for a burger instead of 1.50 is not just based on how much a burger cost them. It is far more complicated than that.
What might happen though is increasing the minum wage would put more money in the hands of the “burger buyers” thus letting them spend more for burgers thus increasing the price of the burger.
Less profit also means less capital investment in new locations meaning fewer new jobs created. Less profit means less paid in taxes, because the company pays taxes at a higher rate than the employees it would be giving the money to. And that’s just for major corporations.
For a smaller business, raising the minimum wage could force it to close. So stop being so cavalier.
Ubiquitin, of course cost is a factor in price.
DY
I never said otherwise
“…is not just based on how much a burger cost them. It is far more complicated than that.”
CA
“additionally, if the price of burgers go up (because people have more money to spend on them as you say) then there is inflation where the burger is anyway the same percentage of a persons hourly wage”
That is essentially what I said, Barry said it above too.
When gas prices fluctuate obviously the cost of a burger (to the manufacturer) fluctuates as well since they need to truck the cows, meat etc. Do you think their burger prices fluctuate alongside increases/decreases in gas prices?
Ubiquitin, “So increasing the minimum wage wouldn’t automatically increase the price.”
It pretty much would.
I like burgers.
With Russian dressing.
Raising the minimum wage isn’t an end of itself. Next, they plan to put caps on all prices. For example, McDonald’s will be banned from selling burgers that cost more than a dollar. Pretty smart, actually.
DY
i’ll pose the same question to you as to CA:
“When gas prices fluctuate obviously the cost of a burger (to the manufacturer) fluctuates as well since they need to truck the cows, meat etc. Do you think their burger prices fluctuate alongside increases/decreases in gas prices?”
Ill also pose a second question
why do you think McDonalds doesnt charge 1.50 a burger instead of $1. Do you think its because they dont think that 1.50 is a fair price since given the cost of meat, labor etc say it comes out to 50 cents a burger and they only deserve 50 cents profit?
As an aside I’m not sure how much labor factors in to the price per burger at all. For example, you may or may not now this but Dunkin donuts spends more on the cup then they do on the coffee. If the price of a coffee bean would double it would barely (if at all) effect the price of coffee at all since the coffee is so cheap to the provider in the first place.
When gas prices fluctuate obviously the cost of a burger (to the manufacturer) fluctuates as well since they need to truck the cows, meat etc. Do you think their burger prices fluctuate alongside increases/decreases in gas prices?
Of course, although the effect on prices will be less immediate and less drastic.
why do you think McDonalds doesnt charge 1.50 a burger instead of $1. Do you think its because they dont think that 1.50 is a fair price since given the cost of meat, labor etc say it comes out to 50 cents a burger and they only deserve 50 cents profit?
Of course not, it’s because they’ll sell fewer burgers and therefore have lower profits. If costs were higher, though, they would profit more at higher prices.
Obviously, this is an oversimplification; for one thing, certain overhead costs may not fluctuate directly with volume. I am working with the assumption that the more burgers you sell, the more people you need to take deliveries, cook them, and sell them.
As an aside I’m not sure how much labor factors in to the price per burger at all. For example, you may or may not now this but Dunkin donuts spends more on the cup then they do on the coffee. If the price of a coffee bean would double it would barely (if at all) effect the price of coffee at all since the coffee is so cheap to the provider in the first place.
I’m not sure what that has to do with labor, which I assume to be a much higher percentage of the cost of a burger than the price of a coffee bean to a cup of coffee.
BTW, that doesn’t mean that I agree with the OP. I do agree that prices will go up and sales will go down, but the net result will still be wealth redistribution.
DY the thrust of my comment was correcting the OP’s oversimplification
“the cost of a product is based on raw materials + direct labor (how much the worker works X wage) + manufacturing overhead, which is computed based off of labor costs (like .25 of labor costs)”
This is not all there is, what is probably more important is what the public is welling (or has available) to spend on the item. I can have a cheap item that costs me 0.50 that only I know how to make but that is very popular and charge a lot of money. On the other hand if there is an expensive item that is in little demand I cant charge the cost and might have to sell it a loss.
I can have a cheap item that costs me 0.50 that only I know how to make
A lot of people besides Ronald McDonald know how to make hamburgers.
Bottom line: the increase in minimum wage would increase the price of fast food, which would lead to fewer sales and some layoffs. The remaining workers would get paid more, and that increase would very possibly be more than the lost wages of the laid off workers.
DY
I’m not sure about your bottom line. there are leading economists and many studies on both sides of the issue. Thus I dont claim to know either way.
The OP said “the cost of a product is based on raw materials + direct labor (how much the worker works X wage) + manufacturing overhead, which is computed based off of labor costs (like .25 of labor costs)”
This is simply not true. The determinants of cost are (mainly) supply and demand if those don’t change the price of an item wont change.
Now as I and Barry laid out earlier. Increasing minum wage might increase the affordibality for burgers and thus increase the demand and thus increase the price. But not for the reason the OP said
CA
“however everyone agrees the price cannot be less than the cost of the product”
This isnt remotely true. You can develop something with little demand say a mud-flavored lollipop. You spend a lot of money developing the exact taste of mud. Say it cost you $5 a pop to develop.
Trust me with little demand you arent selling it for more than $5.
You might be able to create some demand and sell it as a novelty item or a trick lollipop or something but you will have to sell it at less than cost. There is absolutely no doubt if you want to sell it your price will have to be less than cost (obviously you wont be profitable, but its better than not selling them at all)
As I said in the last comment. The main determinants of price (i.e what the consumer is willing to pay) are supply and demand.
CA
“however everyone agrees the price cannot be less than the cost of the product”
This isnt remotely true. You can develop something with little demand say a bad-tasting lollipop. You spend a lot of money developing a particular bad taste. Say it cost you $5 a pop to develop.
Trust me with little demand you arent selling it for more than $5.
You might be able to create some demand and sell it as a novelty item or a trick lollipop or something but you will have to sell it at less than cost. There is absolutely no doubt if you want to sell it your price will have to be less than cost (obviously you wont be profitable, but its better than not selling them at all)
As I said in the last comment. The main determinants of price (i.e what the consumer is willing to pay) are supply and demand.
ca
The consumer doesnt care about cost. He cares about price.
and besides in your OP you said
“I don’t understand the rationale behind raising the minimum wage, doesn’t that make things more EXPENSIVE?…it’s basic economics…the cost of a product is based on raw materials + direct labor (how much the worker works X wage) + manufacturing overhead, which is computed based off of labor costs (like .25 of labor costs)”
Expensive for whom? In context it seems clear you meant the consumer, which is not necessarily correct.
He’s arguing that because the cost will go up, the price will go up. It’s hard to think he’s not right when it comes to fast food.
CA
There is a third possibility: that Mcdonalds will still sell burgers at more than cost though make less profit than they do now.
alternativly they will recoup their losses in other ways by cutting down the size of the burger (slightly) less pickles lettuce etc… OR hire fewer workers
alternativly they will recoup their losses in other ways by cutting down the size of the burger (slightly) less pickles lettuce etc…
Because currently the portion size is determined by their generosity?
DY
Lol
No.
but if you dont like that option I gave 2 others
Option #1 is remote. If the cost goes up, the price point at which profits are maximized will most likely be higher.
Option #3 is just as fallacious as #2. Do you think the number of employees is a function of goodheartedness? If prices go up (or portion sizes reduced) and sales decrease, then yes, they will let go of some employees because there will be fewer sales and less work to do.
DY
Not neccesarily good heartedness, I’ts not like Mcdonalds is reevaluating their profit margins daily and checking all branches to make sure all minimum wage empoies are working as hard as they can. If the minumum wage goes up and their profits go down then they might be pushed to reevalute and come up with a solution.
I’m confused though. ARe you really saying the price of an item is not (primarly) determined by supply and demand?
Of course it’s determined by supply and demand, but as the price goes up (and it almost has to if cost goes up), demand goes down. Or, in other words raising the price doesn’t affect actual demand, but does affect the number of sales.
You said it yourself: why do you think McDonalds doesnt charge 1.50 a burger instead of $1. Do you think its because they dont think that 1.50 is a fair price since given the cost of meat, labor etc say it comes out to 50 cents a burger and they only deserve 50 cents profit?
CA, he was being facetious, that a company sets its prices on factors besides profits. (Then he went on to make arguments that essentially assume that.)
CA
I was asking “Do you thi9nk…” Mcdonalds decided to make 50 cents a burger becasue they (Mcdonalds) feels thats all they deserve even though they can just as easily charge more money per burger and sell the same number of burgers.
I was asking that rhetoricly, since it obviously isnt true. Rather since price is detemrined by supply and demand. If Mcdonalds charged more per burger (artificaly increasing the price) demand would drop and they would not make more.
The reason they charge 1.00 a burger is NOT because that Is the cost + profit, like you said in the OP (and if they felt they deserved more profit they can just charge more). It is becuase based on current supply and demand models that is all they can charge (to make the money they make). If they could make the more money by charging 1.50 of course they would!
Granted this is an oversimplification. But your question in the OP is built on an incorrect premise
CA
Consider the reverse. Say instead of increasing the minumum wage. We approached Mcdonalds with a fresh batch of laborers who are willing to work at half the current minumum wage (PRetend that for whatever reason this is all legal) therby dropping th cost
Do you think Mcdonalds would say “no thank you, if we drop the cost that will just drop the price so we dont gain anything” Or would they jump at the oppurtunity to produce the same burger charge the same amount and make more profit?
If McDonald’s is the only one getting this offer, they’ll decide whether they can profit more from higher profit margin or more sales, and act accordingly
Even if all burger places got the offer, they might all lower prices, but would profit from more sales.
Either way, they gain.
Your scenario proves nothing.
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