Positives and Negatives of a $15.00 Minimum Wage

Introduction

Economically, a minimum wage is simply a price floor. The minimum wage employees are the suppliers of labor (they are selling their time) and the companies are the demanders of labor (they are buying that time). So we can draw a supply curve and a demand curve, and make some predictions.

 Negatives:

1. Increase in unemployment

According to the Law of Demand, the more expensive a good is, the less it is purchased. That law applies the same to labor as it does to anything else. The reason is two-fold. 1. Some companies don’t have the profit margin to support the higher labor costs. 2. Many companies have a labor budget. Mathematically, if each labor unit costs more, than the company can purchase fewer of them. Some research has shown that smaller increases in the minimum wage don’t have adverse effects on employment (likely due to the particular elasticities of the curves of the labor market), but more than doubling the minimum wage to $15.00 I imagine would be classified as a large increase.

2. Increase in the prices of goods

The reason is two-fold. 1. An increase in production costs due to the higher labor costs would cause lower margin companies to be forced out of the market. They can’t simply raise their prices because their higher margin competitors aren’t raising their prices and thus competition would destroy them anyway. A company is not going to choose to stay in business if they can’t earn what they believe to be an acceptable amount of profit. A reduction in supply drives the price up. 2. Companies simply can’t afford to produce as much, as more of their money is wrapped up in labor. There will thereby be more demand than can be supplied, and prices will rise to make quantity demanded and quantity supplied equal.

3. Less economic activity from the owner

Every owner in addition to selling something is also someone who buys things. If they have less money than they can’t buy as many goods, which means they don’t stimulate the economy as much as they did before and aggregate demand is reduced.

Positives:

1. Greater quality of life for the people who are still employed

The minimum wage is higher so people with those jobs have more money to spend. There is more economic activity. They buy goods, which stimulates the economy by increasing aggregate demand.

2. An increase in the skill of hired minimum wage employees

An increase in minimum wage would increase the number of labor suppliers entering the market. The number of positions would be the same as before so there would be more competition for each position. As the applicants can’t compete on the basis of price (due to the price floor), they have to compete on the basis of skill. Competition raises the skill of the hired minimum wage employees.

3. The higher wage means minimum wage employees will work longer hours and thus be more productive

People will work as long as their marginal benefit exceeds their marginal cost. Marginal cost grows over time as people have to give things up in order to continue working. Things they give up are time with their family, sleep, etc. If we increase the marginal benefit by increasing the wage, the point when marginal benefit equals marginal cost thus occurs at a later time.


Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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