The $15 Minimum Wage

A doubling of the U.S. minimum wage to $15/hr was recently proposed by Sen. Bernie Sanders, who is running for the Democratic presidential nomination.  It is also being put into place, somewhat bizarrely, for New York fast food chain workers.  No question that the current rate is too low; at 40 hrs/week the annual income of $15,600 is only somewhat above the poverty line for a single individual and is below if that person has even one dependent.  Can we really justify wages for honest work that do not allow a person to escape poverty?

The bloviators proclaim that such a move would be inflationary, would cause businesses to reduce the number of workers, thus pushing more people into unemployment, reduce our competitiveness etc etc.  A simple anecdote will suffice to illustrate the nonsense of such arguments.  

My daughter used to work retail, at minimum wage or barely above, at a well-known clothing store at the local mall.  As a reward for her industry and reliability, she began to be given fairly substantial responsibilities (but no pay raise of any significance, of course).  One day she got to tally the sales for her store, about $15,000.   For fun and illumination, we estimated what the labor costs were for that day.  They had, in addition to the manager, typically 3 minimum wage workers for the 11 hours the store was open.  33 hours at $7.50/hour is $250 total cost for those workers.  This is 1.6% of the sales for that day.  

So, how much would they have to raise prices in order to maintain the same profit levels with double the labor cost?  1.6%.  Not even noticeable.

Or, consider the cashier at the local fast food hamburger joint.  That person is, I estimate, probably processing 1 order per minute at what I would guess is a typical $10 per order.  How much would prices have to increase to cover a doubling of the cashier's salary?  $7.50/$600=1.3%.  No one would notice.

Various calculations like this suggest that labor costs represent an insignificant fraction of service and retail industry costs.  Only irrational greed keeps the wages at such unconscionably low levels.