The Minimum Wage(again)

Well, yesterday in a fairly ugly piece I tried to argue against some talking points about the minimum wage, by going over some BLS data and shit. But now I want to focus my attention on more abstract thinking about the minimum wage.

Argument #1: A High Minimum Wage Will Lead To Businesses Raising Prices

This, while on the surface a seemingly logical assertion when thought about harder falls apart entirely. A businesses job is to generate a profit, to do this they must minimize costs, and maximize revenue. To determine revenue(black striped), simply multiply the price(blue) times the number of customers(green), Now, price and customers are pretty obviously inversely related, the higher the price the fewer the people willing to pay to but the thing/service you're selling. For this model, I'm assuming that it is a perfectly inverse graph, even though in reality the situation is more complicated.

Black Striped : Revenue
Blue Solid : Price
Green Solid : Customers

This is just the graph of the relationship I was outline above. Notice how revenue spikes in the "middle", and begins to fall when price is either too high, or too low. This same exact mechanic is why everything doesn't cause $50 million dollars. And similarly is the reason that an increase in the minimum wage will not cause any drastic increase in prices. If labor costs go up, there's no reason I would decide to reduce my revenue too.

Secondly, this assumption also assumes that, oh my, businesses already pay their employees so much it would hurt them so much to make them spend a little more. Well, again pricing for labor has absolutely nothing to do with how much revenue they generate. If, I could hire let's say 100 people to work for me at the very most for this scheme to work, and I made $100 per man hour, and this jobs requires unskilled labor, which is very abundant on the market place, so much so that other people are paying employees $7.5 per hour. Now, how much do you think I am going to pay my employees, if you answered $7.5 or maybe $8 to reduce turnover. This is the case in real markets to, businesses are dependent on the labor being cheap, it's just that it's so abundant that they can keep wages low.

Argument #2: A Higher Minimum Wage Will Lead To Higher Unemployment

I have heard to general premises that this argument follows, either that businesses will go broke, and that they will magically automate every affected job or a lot of them. 

Firstly, most businesses will not go broke, because of the reason I mentioned above which is that most businesses aren't just skimming the margin, and if they are then I would like to then start talking about the economic effects of giving low wage workers more money, which is more demand for consumer goods, and generally more spending in the economy. You see, unlike richer people, the poor generally don't have enough to satisfy most of their demands, hence when you raise their wages, the money will actually go into the local economy, rather than flow into offshore bank accounts. This spending then generates more economic activity, both for the people who have to service the servicers, and the effect that now more of these workers have a higher wage and hence, more money to spend.

Secondly, I would like to discuss this idea that a higher wage will lead to a massive amount of automation. While, this also makes sense in theory, consider the example a lot of people use, fast food workers. Well we could just replace them with iPads, while I do see the argument, I also have been to places like McDonald's and Tacobell and I don't see Robo Rob taking my order. And why would businesses have any less incentive to automate them at the current minimum wage of $7.25 a hour, which roughly translates to about $15,121.43 for a year if we assume they work 8 hours a day, 5 days a week no holidays. Now if you instead spend around $30,000 for labor, there's a larger incentive to automate the job. However, an iPad costs what $400? and imagine if you're buying them in bulk, like a corporation like McDonalds would, how much do you think it would cost then like $300 or $200, and unlike humans, your iPad won't decide that it has finals and can't make a shift, and will last longer in the job too, it won't demand a raise,benefits or worker's rights.