Revisiting Minimum Wage Debate

Not long ago, I wrote about minimum rate debate in my blog post, Expensive tool: Minimum Wage to Meet the Targeted U.S. Inflation, I recognized that the title of the blog was misleading readers. What I intended to deliver was increasing minimum wage is not a good solution or rather insignificant solution for helping U.S. inflation rate to rise in the long term. However, I believe that raising minimum raise will have a definite impact on raising inflation on a longer term. In my previous blog post, I have illustrated why increase in minimum wage will push up the price level, thus Consumer Price Index (CPI) will also doubtlessly go up. Today, I would like to reiterate an important point made by Michael Saltsman, who was an undergraduate student in our school. Michael wrote, Why Subway Doesn’t Serve a $14 Reuben Sandwich inside of WSJ and made a distinct point that is worth mentioning for the last class blog post.

According to the article, Costco, Michigan-based deli Zingerman’s , and East Coast burger chain Shake Shack  were recognized during the White House’s minimum-wage promotional tour. Michael then, argues these stores should be used as the well representative cases why the president’s plan to raise the minimum is not a good idea or promptly meets the wall of reality. For example, Costco can “afford” to pay a higher minimum wage to their employers because

“Costco charges its customers as much as $110 a year for the privilege of shopping at the store. That’s a $2 billion-per-year luxury no grocer or restaurant enjoys. As a result, the warehouse retailer rakes in what amounts to a more than $10,000 profit per employee, according to data from business research company Hoovers. A casual dining restaurant, on the other hand, earns a roughly $2,000 profit per employee, which explains why most businesses aren’t following the president’s “just be more like Costco” advice

For small business, not like a Michigan-based deli Zingerman’s where president stopped during his visit to our campus last month, it is also very hard to afford higher minimum wage without losing their customers. I will present the same examples which Michael used in his opinion page. Imagine you have to pay $14 for the subway foot-long sandwich, of course the assuming that quality of sandwich is directly related with the cost, or pay $14 for a Double Quarter Pounder at the McDonald. I cannot count how many meals I have to skip in order to meet my budget constrain during my academic year. The point is that in order for the owner of subway to pay their employees the higher minimum wages of $11.50 like Costco or Zingerman’s, the food price have to be as least twice expensive than the current price, otherwise business has loses customers and its competiveness against other business. When government forces higher minimum wage law, either the quality of food has to go down in order to compensate the higher wage, or person like me, have to skip a few meals because it is just too expensive. Thus, personally I prefer that minimum wage stays the same or just gets raised within the range of 5% to 10%. Otherwise, we are going to see more negative side effects.

P.S. This is the last blog post for the course. I would like to thank our classmates for the comments on my blogs, and our GSI, Ryoko Sato for reading all of the blog posts.

2 thoughts on “Revisiting Minimum Wage Debate

  1. psseo

    Very nice analysis! I really enjoyed reading your post. I hope this increase of minimum wage would not hurt consumers surplus. In some sense, I also think this minimum wage increase will contribute to the alleviation of poverty problems. As you pointed out, politicians should think about more incremental approaches to this minimum wage problems.

  2. josimon

    I like the points you make in your statement. It will be interesting to see how this whole process pans out over the next year. I do not believe this may be the right time though. Our government should be smarter with certain decision made during this time period.

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