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Discussion: (11 comments)

  1. In fact, I can recall situations where companies implemented an across the board 10% pay cut rather than face layoffs of their personnel. That preserved jobs, but at a lower wage.

    But, of course, that is the real world where business decisions are made.

  2. PeakTrader

    And what if income or productivity rise 25%? Or, consumption rises and saving falls?

  3. Actually a raise of the minimum wage would cost employers more than the $9.00/hour part, right?

    That new hourly rate will now be added to the already existing costs of FICA, workmens comp insurance, other mandated government paperwork…

    What are the upsides for an employer? Where is the ‘value added‘ in that equation?

  4. Greetings from the Virginia School of Political Economy! Walter Williams is exactly correct. “Ceilings and floors” have never once worked in economics. Enter Walter’s friend James M. Buchanan: politicos enjoy ceilings and floors, as they generally work in politics. The problem being, both Williams and Buchanan are correct. Which is rather large clue.

  5. Recently at work they raised the prices of the drinks in the machine from $1 to $1.25. It didn’t effect how often I purchase the drinks.

    1. That’s because you value the drinks at more than $1.25, and don’t have what you consider to be an acceptable alternative. At some price level you will change your behavior.

    2. givemefreedom

      It would effect your buy decision is all you had in your budget for softdrinks was $1.00.

    3. If your boss walked up and, for no reason at all, gave you a 25% raise, that might change things. If the raise applied to all workers, that would certainly change things. It might even put the company into financial distress.

      And, assuming you buy one drink a day and work about 200 days a year, if someone walked up and said, “If you want to be able to buy drinks for a dollar for the rest of the year, you need to pay us $50 now”, you might see that differently, too.

  6. Yes, but the question was are people responsive to 25% changes. I gave one example where I was not and I imagine many other people are not as well.

    1. yes, let’s imagine a person earning $50,000 being faced with a $50 annual cost increase. That is 0.1% of their income, a tiny, tiny fraction. So sure, people don’t care about such tiny things. That does not mean an employer of those at the minimum wage would see things the same way.

      Let’s say an employer of a small business like a Subway employs 20 minimum wage workers who work full time.

      that is $15080 per worker per year (excluding payroll taxes, benefits, etc.)

      so we’re looking at a total salary cost of 301,600 per year.

      now add the 25% increase: 377,000

      that change is equal to 5 jobs at the original rate.

      does it seem likely that places like Subway that average somewhere around 500,000 in revenue per year are going to be able to accept a $75000 salary increase and stay in business?

  7. I’ve never been in any subway that had 20 employees working at one time. You’re continuing to miss the point. I’m fully aware that you’ll find many many examples where a 25% increase will have very real and noticeable effects on outcomes. You’ll also find many examples where it will not. As to the blog post question, the answer is most certainly “it depends”.

    I hope you can understand that.

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