Minimum Wage Boosts GDP

A post in a Mensa forum said:

Most small businesses object when the government imposes higher minimum wages or additional regulation costs or new taxes.  Their cost increases yet there is no increase in revenue, so they usually can only cut cost by letting a few workers go and increasing the workload on the remaining workers.

My reply: Relating to the minimum wage point here.  This overlooks the aggregate effect of increased consumption which grows GDP and the markets those businesses sell to.

A back of the envelope calculation in a discussion like this should consider the effect of the general increase in GDP.  Money is being transferred (in the starkest version) from the owner’s profits to the worker’s pocket.  The owner’s consumption of excess income is much less than the worker’s consumption.  More of the worker’s income goes into economic activity, increasing GDP while the owners build their savings. (Their excess money isn’t spent. It doesn’t increase GDP). Analogous details are developed for tax reduction effect.

New versus Share of Existing

Oh, and before you lament that this will cut down on new investment, just look at the market today with Twitter’s IPO.  Money raised in that IPO are going to new investment, while other billions buying stocks are not new investment.  That is not new money funding new buildings or hiring. They don’t grow GDP.  That money represents bets to claim portions of the existing economy and our hopes for its future, internal growth.

Living Wage

Photo of woman carrying a poster saying, Living Wages on a Living Planet.

Companies should pay workers, who make them money, a living wage, not a wage that needs to be supplemented by government with food stamps or health care. Minimum wage, below living wage, requires such support for full-time workers.


Apt Quotes

It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. – Franklin Delano Roosevelt

A business that makes nothing but money is a poor business. – Henry Ford


Effect on GDP of more money in pocket also revealed in tax cut calculations

Image of protester carrying poster. The All-Nite Images from NY, NY, USA, CC BY-SA 2.0 https://creativecommons.org/licenses/by-sa/2.0, via Wikimedia Commons

Economics

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