Quote from a recent study:
https://research.upjohn.org/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1278&context=up_workingpapers
So, considering the full period over which a minimum wage affects prices, we find that a 10 percent increase in the minimum wage leads to a 0.36 percent net increase in prices. That is, if a $10.00 item experienced this average price increase, it would become a $10.04 item.
I know part of the reason is that this is a local minimum wage increase, and the price includes non-local and foreign labor, but how much of the effect is explained by this?
Some more quotes... but keep in mind that I didn't read most of this paper:
Implications for perfect vs imperfect competition:
The size of the price increase (and so the implied welfare loss to consumers) we find is lower than previously reported: Aaronson (2001) reports a 10 percent increase in the minimum wage causes a net 0.67 percent increase in the nine months centered on the month the minimum wage hike is imposed.24 We find a price increase for the same period close to half of that reported by Aaronson (0.36 percent vs. 0.67 percent), and so our findings suggest a lower welfare loss to consumers following a minimum wage hike.
The importance of our findings goes beyond finding a reduced welfare impact on consumers when a minimum wage hike is imposed. Building on a set of reasonable assumptions about the operation of restaurants in a hypothetical perfectly competitive market, Aaronson and French (2007) argue that restaurants in perfectly competitive markets will fully pass through any increase in the minimum wage and that the full pass-through elasticity will be equal to approximately 0.07. Since they find, in various regressions, elasticities near 0.07, they conclude that low-wage restaurant labor markets are best characterized as perfectly competitive. The implication of being in a perfectly competitive market is that any minimum wage increase will reduce employment.
However, we get results inconsistent with highly competitive low-wage labor markets in the restaurant industry: our elasticity of 0.036 for the nine months centered on the month of a minimum wage hike and of 0.043 for the much narrower period of [T − 1,T + 1] fall short of the 0.07 Anderson and French (2009) argue is consistent with perfect competition. However, our finding that the pass-through falls short of that implied by perfect competition does not provide positive support for any particular alternative structure of low-wage labor markets. In the next section, we consider whether the data we have provide positive support for one alternative labor market structure, monopsonistic competition.
Summary of the paper:
SUMMARY
There are several findings in this paper. First, the impact of minimum wage hikes on output prices (more precisely, on the FAFH CPI) is substantially smaller than previously reported. Whereas the commonly accepted elasticity of prices to minimum wage changes is 0.07, we find a value almost half of that, 0.036. Importantly, the value we found, 0.036, falls far short of what would be expected if low-wage labor markets are perfectly competitive. Second, increases in prices following minimum wage hikes generally occur in the month the minimum wage hike is implemented (and not in the month before or the month after). Previous research has reported notable increases in prices the month before and the month after, but we present evidence that such a finding was likely an artifact of interpolation.
Third, the effects of federal, state, and city minimum wages on prices are not necessarily the same: the size of the effect, along with when the price effect occurs, can potentially change for these different types of minimum wage policies. Fourth, small minimum wage hikes do not lead to higher prices, and they might actually lead to lower prices. On the other hand, large minimum wage hikes have clear positive effects on output prices. Such a finding about the different effect of small and of large minimum wage hikes is consistent with the claim that low- wage labor markets are monopsonistically competitive. If such labor markets are indeed monopsonistically competitive, then small increases in minimum wages might lead to increased employment. Our study of restaurant pricing, then, indirectly addresses one of the more contentious issues associated with the employment impact of minimum wage hikes. Fifth, we find no evidence suggesting that exit of restaurants fleeing state minimum wage hikes is large enough to affect output prices.
Finally, we find evidence that the particulars of a minimum wage policy (indexed, one- shot, scheduled) might affect how price changes occur within the relevant area. These results can be used to design future minimum wage policies that best temper the pass-through effect.
One reason I can think of is that capitalist economies don't operate at full capacity. So if wages are raised, people have more money to spend.
So a Borger shop sells 100 borgs a day but workers can make upto 150 borgs a day. An increase in wages will lead to increase in demand for borgs (say 140 Borges) and increased profits.
The capitalist may even hire additional previously unemploymed workers who can now buy Borgs.
Similar things happen in other direction too. Company sees a store is unprofitable, shuts it down, people have less money to spend. This may not be a problem if it's just one but if many close at once, the whole chain becomes unprofitable. Fallacy of composition.
That makes sense. But in that scenario, even the capitalist benefits, so why do capitalists strongly oppose raising wages? Are they just afraid that concessions to labor will cause the labor movement to gain momentum and push additional demands?
Capitalists operate at different levels and for this topic and its contradictions I think it's good yo think about a few of them. You can group caoitalists by their ecological level (like petty bourgeois vs haute), by their level of concentration and organization (individual businesses vs. consortia and cartels), national vs. international, industrial vs. finance, etc. Fundamentally this is a case where capitalists are, in aggregate, working against themselves by fighting wage increases due to its impact on demand. Marx talked about how they would do this in even more dire circumstances and under conditions where finance was much weaker than it is today, driving down wages below even the level of workers being able to sustain themselves and become useful for the industries in question, which is a step even farther than "non-optimal" demand.
One aspect is indeed labor discipline. This is also why they target certain levels of unemployment by making more or fewer businesses fail. Precarity drives the reserve army of labor and this shows its face in the form of people taking lower paying jobs and worse conditions rather than being unemployed. In a sense, being unemployed is really the lowest you can be paid when it comes to driving demand and so these deliberare attempts to increase unemployment via interest rates are intentionally cutting into demand. So in terms of fiscal policy, the prevailing wisdom is perfectly fine with destroying demand in order to serve othet purposes, namely labor discipline and consolidation and managing the next recession.
For individual businesses, they try to minimize wages as variable cosy, of course. They don't want to pay their employees more, their balance sheets say, "but that makes the red bigger". Most businesses are run by petty tyrants with no concept of balancing demand, so this is a goid chunk of where small business coakitions and chambers of commerce are coming from. In addition, smaller businesses tend to be more geographically localized, so wage increases that are local (as minimum wages often are) are seen as reducing local businesses' competitiveness. For example, a local business might make bespoke machine parts and has to compete with a larger company with employees in other states with lower minimum wages.
This general dynamic plays out across a lot of levels. There are no, "let's increase the minimum wage" national efforts led by business groups because they're all looking for their own unique angles for reducing costs or crushing their competition and they are not overly concerned with aggregate demand. And by the time you get to the tippy top groups you are looking at finance, not productive capital, and they are, to simplify, looking to maximize debt so long as it can be serviced enough to be traded and repackaged and offset by various scammy behaviors and federal bailouts. They are fairly removed from caring that much about demand and would usually rather liquidate an entire industry to sell its parts for a profit (because it makes them more money) than try to stimulate demand through wage increases.
I think a big part of it is small businesses will get squeezed in the short term, and they may running much thinner margins or have to proportionally taken more debt. McDonalds can afford this even if the dip lasts a long time, but Dad Burger could go out of business very quickly (potentially a few pay cycles even). And typically "small businesses" provide the cultural force of capital (by virtue of being vastly more numerous than big capitalists).
Many restaurants also cater to non-minimum wage burger enjoyers, and their burgers sold wouldn't go up as quickly as McDonald's, even though their staff is getting paid more.
they were fighting to raise unemployment using interest rates (didn't work well)
https://www.msnbc.com/opinion/msnbc-opinion/tim-gurner-australian-ceo-unemployment-video-rcna104957
To start it's important to remember that money is fictional.
In a very short, simple view, say minimum wage workers were getting 10% of the revenue, while the bourgeois owner gets 90% - After a minimum wage increase, the minimum wage workers are getting 50% more, so they're now getting 15% of original revenue and assuming prices are only raised to cover this rise while keeping the bourgeois owner's income the same (ie 90% of the original revenue), then the total revenue (and thus, inflation/prices) only need to go up 5%.
The effect is that workers are getting a larger slice of the pie, and the bourgeois owner's income effectively goes down in real (inflationary) terms. Prices don't rise because that margin is effectively being taken out of the pockets of the rich (and in a more complex model, out the pockets of higher-earning workers).
However, there is always risk of an inflationary-wage spiral, which is a product of the rich holding society hostage. Where the bourgeois decide they won't be forced to lose money, even in inflationary terms, so the workers get a 50% rise, to cover this, inflation goes up 5%, so the bourgeois pay themselves 10% more, so now inflation is ~15%, so wages have crashed, so workers demand another rise, etc. etc. Essentially a battle between workers and the bourgeois as to who must lose out on their share of the pie.
In western countries, this battle is forced in favour of the bourgeois by raising interest rates (increasing the flow of wealth from the poor to the wealthy) and policies to promote unemployment, making workers desperate enough to not demand any wage increases. And that is not just speculation, these two goals are explicit policies most central banks will actually publically admit to.
Fundamentally, it's because price is more correlated with exchange value than wages, and exchange value is correlated with the amount of labor time that went into the commodity. All raising wages does is cut into the surplus value that the bourgeoisie can extract from the commodity being sold.
Basically, this is just Marx being right once again.
price is more correlated with exchange value than wages, and exchange value is correlated with the amount of labor time that went into the commodity
Indirectly, isn't this saying that price correlates more with labor input than wages? How can that be? Aren't the two multiplicative? The capitalist pays for wages x hours.
I'll tell you my understanding, and you tell me if it matches or disagrees with yours:
My understanding is that price correlates with labor cost (wages x hours) because competition between capitalist firms drives prices down until they are close to costs, and most costs are ultimately labor costs—e.g., metal costs money because someone had to dig it up and smelt it. Capitalists manage to profit only because competition is imperfect, due to a combination of price-fixing, oligopoly, and "consumer irrationality"—to use the dorky term for "I buy food from the place closer to my house even if the place across town sells it slightly cheaper, and there is so much variety on the shelves that I can't always make an objectively optimal choice."
As for exchange value... my understanding is that exchange value, like price, also correlates to labor cost. Concretely, the idea is that you can log onto ebay and sell some stuff, then use the money to buy different stuff, and when lots of people do this you start to get a consensus about the relative values of different goods compared to each other. That makes sense to me, but, ultimately, doesn't exchange value tie back to the price charged by the original producer, which ties back to the labor cost? I don't understand the idea that prices correlate more with exchange value than wages, I don't see how price can correlate with one and not the other.
I'm still learning all this theory so I don't know if I have it all right in my head
Marx addresses this in Wage Labour and Capital and Value, Price and Profit. There were bourgeois economists who argued that higher wages would correspond to high prices, meaning a fight for higher wages would be futile because cost of living would go up, meaning workers should stop striking for higher wages because striking is pointless. Marx wrote (well, gave lectures that were later compiled into literary works) those two to tell those bourgeois economists to take their liberal economic treatises and shove it up their ass.
Now, there might be additional and more in depth analysis, but the standard Marxist answer was more or less already addressed by Marx.
Let's take generous estimates and say that there are 170M people in the workforce, and the average minimum wage is $11.00, that comes out to $1.87 trillion, as the theoretical maximum amount that could be made up by minimum wages.
The GDP of the USA is about $29 trillion (2024).
1.87T/29T is about 6.45%.
The example in the study is 3.6%.55.9% of all workers in the country could be making minimum wage or something closely tied to it, and that would line up with the findings of the study. But it's probably a little bit more, because of our generous estimates. That's the real noteworthy takeaway.
The rest of the GDP, the $27.13 trillion, is made up of wages not tied to the minimum, capital gains, and other revisions of valuation. Total wages were $10.5 trillion in 2022, and $11.1 trillion in 2023. They're trying to tell you that wages make the price go up, but wages only make up 40% of prices today (with minimum wages making up less than 1/6 of that); the remaining 60% is something else.
You spend a total of $1.36 on something after taxes. State and local taxes take $0.10, federal takes $0.26. $0.07 is spread out amongst all workers for the minimum wage. $0.33 is spread out among higher-wage workers. $0.60 goes to Porky. "Boss makes a dollar, I make a dime" is surprisingly accurate for minimum wage workers today: for every dime each one of them makes, the owners of the company make about a dollar.
This analysis is entirely leaving aside the principle that poor people spend more on tangible things, and spend it more quickly, which arguably increases the velocity of money in the economy, but that's a harder thing to measure.
