Congressman Cleaver speaks to crowd about the need for an increase
in the minimum wage (picture from EC from DC newsletter)
LEE’S SUMMIT, SEPTEMBER 3, 2012 – Congressman Emanuel Cleaver cosponsors H.R. 6211, the Fair Minimum Wage Act of 2012 which proposes increasing the minimum wage from $7.25 to $9.80 per hour. This is an increase of thirty five percent (35%) with no increase in efficiency. It is this type of economic ignorance that is dangerous. The inflationary pressure alone at a time when the FED is pushing money into the market can cripple the United States.
If you lived through the Carter years of runaway inflation climbing over 13%, and prime lending interest rates that soared past 15.5% in the late 79 you’ll know what I mean.
Not only has Cleaver not spoken against the FED’s inflationary pressure, but he is cosponsoring a bill that will create greater inflationary rates, while at the same time eliminate thousands of jobs for those who need it the most.
If businesses are not hiring because they believe costs are going up and their markets are drying up; what makes Congressman Cleaver think raising the minimum wage will have a positive impact? It truly seems that Reverend Cleaver not only does not understand business and economics, he has no one in his staff who can explain it to him.
In his latest report from Washington to his constituents he states “Residents in Missouri’s Fifth District should not have to decide between paying rent and putting food on the table.” Yet, what he is proposing – in a sad way – will have that very effect. Since people who depend on those low wage jobs won’t have them, they won’t have to make a choice. They won’t have a job!
Business is simple. Let’s take a hamburger joint for instance. You take your revenues (all the burgers, fries, and coke you sell), you take away your variable costs (meat, potatoes, coke, and wages plus your share of the employment taxes), you take away your fixed costs (building payments, electricity, insurance, property taxes, and license fees, maybe franchise fees if you use a big name) and now you have what is called your operating profit. Then you pay your profit taxes on that. The rest you get to keep to invest or take as a profit – for which if you distribute it to your investors each will have to pay taxes on again.
On average, labor is 30% of sales for fast food (runs from as low as 22% to as high as 40%). Now, you take the minimum wage and you increase it by 35% where does that money come from: The profit of the business. The increase in labor will reduce profit margin ten points simply to pay for the same workers. No business can afford to lose that much in profit and survive.
Any businessman faced with that large a loss in profitability will find a way to reduce costs however they can. The variable costs are mostly people and food related – can’t stop serving food, so they cut employment. The other choice is to increase prices.
Congressman Cleaver will put both inflationary pressure on the market and unemployment pressure in the job market. The very people he wants to help will pay the highest price – they will bear the burden of higher prices and less work.
Mr. Cleaver, did you learn nothing from the Carter years?
Respectfully Submitted
The Lee’s Summit Conservative
September 4, 2012 at 6:54 am
I agree with your assessment. In addition the costs that Cleaver mentions (food versus rent) will also go up. Business pass the increased cost to their customers.
The net result is that by using a false wage floor, the very people he claims to want to help end up losing again. When a business increases their costs, they build in a measure of safety. Therefore the minimum wage earners actually have less buying power.
Historically, this has been a play to assist Unionized labor. Since the labor unions use the change in minimum wage as one of the keys components in increasing their members wage scale.
Why not let market forces determine wages?