Tuesday, July 11, 2006


Phew! I'm Back

As we all know, the Republican congess once again voted against raising the federal minimum wage. One of their stock arguments has always been that a raise in the minimum wage will lead to higher consumer prices. To hear them tell the story (and they do ad nauseum) the increase in prices would be so high that it would wipe out any gains made by the wage earner. But like all other Republican noise, this simply is not true.

A recent Op-Ed piece in the Chicago Sun-Times sheds some light on the true effect of a raise in wages.

The "retail living-wage ordinance" currently being considered by the [Chicago] City Council would make large retailers (with stores of at least 90,000 square feet) pay a starting wage of $10 an hour, plus $3 of health benefits. Though the proposal would apply to numerous large retailers in the city, including Target and Costco, it quickly got the attention of Wal-Mart. To put it mildly, the world's largest employer, with plans to open numerous stores in the city, wasn't happy and immediately threatened to suspend the store openings.


The $13 an hour total compensation cost mandated by the Chicago ordinance is roughly a 20 percent raise over what Wal-Mart claims to pay its employees. A raise of this size could be financed through a combination of Wal-Mart allowing its profit margin (after-tax profits divided by sales) to fall from its current 3.6 percent to 2.9 percent and by raising its prices 0.7 percent -- less than a penny on a $1 pair of socks.

0.7 percent? That's the massive price hikes the Republicans are warning us about? To put things in perspective, the price of $100.00 of groceries bought at one of Wal-Mart's "Supecenters" would cost a whopping $100.70 after the 0.7 percent price increase. That's right - 70¢.

To be honest, the proposed raise in the federal minimum wage would have been an incremental raise of 40% over the next two years - double what the above quoted scenario investigated. However, the numbers clearly show how small of an impact a raise in the minimum wage would actually have on consumer prices.

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