Wages

Today, Ill show you the impact that the minimum wage has on
employment, and the direct correlation between a high minimum wage
and unemployment.
Lets begin with recent history of the minimum wage in British
Columbia, Canada (Thats where I live, so its where I have the most
familiarity. The same principles apply to any society with a minimum
wage).
In March 2011, British Columbia released a structured plan to raise the
minimum wage from $8.75/hr to 10.25/hr by May 2012. Christy Clark,
the Premier of BC (the Canadian equivalent to a governor), said her
reasoning for raising the minimum wage was Wages for workers must
keep pace with the challenges average British Columbians face.
Again, to most peoples first look, this makes sense. If people arent
able to afford to live somewhere with a minimum wage, you simply
raise it. Problem solved, right?
However. Once you look at it with an eye to how economies work; it
begins to fall apart.
Think of it this way, using the hypothetical Company A as an example.
Company A has 100 full time workers. As they are the most EVIL
business around, literally every worker makes minimum wage, and
cannot make more. (For the purposes of this example, I will use $8.75
as minimum wage)
Lets say they have a profit margin of 30%, similar to that of
McDonalds.
Lets say Labor Costs are 30% of their total expenses, similar to
McDonalds.
Accepting these numbers, the company has gross annual revenues of
just over $6 million. [A]
Now. Lets raise the minimum wage to $10.25, and see how that
affects the company.
Profit margin shifts from 30% to 25%, as labor costs increase from
30% to 35% of revenues. Now, you may be saying that a 25% profit
margin isnt bad; and youre right.
However.
Scenario A: You are a massive corporation like McDonalds, and these
are the numbers from one of your many stores. Profits drop 5%. Does

your stock price stay up? Does it rise at the rate you want? Do you
raise prices on your goods in order to make up the shortfall? Do you
lay off employees? No matter which option is chosen; even with the
most understanding shareholders around, the company cannot grow at
the same rate.
In fact, by having 5% more of your total revenue tied up in labor, youre
slowing the growth of the company by 16.67%. [B] (As you can only
grow a company using profits. The rest of the money is tied up in
running the business.)
Scenario A isnt a death blow, but it is ethanol fuel in the engine of
economic growth (i.e. it degrades it, and runs less efficiently).
Scenario B: You are not a huge corporation with massive buying power.
You are a new start-up, a growing independent business. Replace the
30% profit margin with say15% (Which is still more than Exxon
Mobil).
Your profit is all the money you, the small business owner, make. The
government raises the minimum wage, and you now lose 33% of your
income. That income goes to expanding your products reach, growing
your company, paying back any debt you incurred when starting the
company, keeping shareholders happy (if youve gone public), keeping
the Board of Directors happy, and keeping you and family living
comfortably.
Again, in Scenario B, the company doesnt die. It survives. But maybe
you cant open that second store. Or the third.
Scenario C: You are a small business that is barely scraping by. Your
profit margin is 8%. You lose. You lose everything.
Now look at the entire economy. Any business that is hiring people for
their first job has their labour costs increase by 17%. [C]
Im not even going to get into the argumentum ad absurdum portion
of this issue (i.e. If raising the minimum wage is good, and doesnt hurt
businesses, why isnt the minimum $15 an hour? Why not $45 an hour?
Why not $1,000 an hour?)
When you increase the cost of operation, in any sense; either prices go
up, or growth goes down.
Raising the minimum wage will stifle the engine of economic growth
that is capitalism.
Any questions, leave me a comment. Ill do my best to answer it.
Math

A: 8.75/hr * 40 hours per week * 52 weeks a year * 100 workers =

$1,820,000
$1,820,000 / 30% = $6,066,666
B: Total Revenue of $6,066,666 * 30% = $1,820,000
Total Revenue of $6,066,666 * 25% = $1,516,667
$1,820,000 $1,516,667 = $303,333
$303,333 = 16.67% of $1,820,000
C: 8.75 * 1.17 = 10.23 (close enough)