NHLN Editors Note: This is a letter to the editor from Denis Drew a blogger from Chicago who writes about income inequality facing Americans.
Physicists theorize that inside a black hole the laws of physics breakdown. When the minimum wage falls far enough below what the market would bear the laws of supply and demand breakdown. Doubling today’s federal minimum wage should lead to a disproportionate explosion of demand for the goods of minimum to median wage paying employers.
If we cut today’s minimum to median wages in half that wouldn’t help McDonald’s or Wal-Mart, would it? This wage cut must already have taken place when we would need to triple today’s minimum wage to catch up with doubled productivity since 1968 (almost quadruple the early 2007 minimum wage — the median wage stagnated as productivity doubled too).
Doubling today’s minimum wage to $15 an hour would add 50% to Wal-Mart’s wages but only 5% to Wal-Mart’s prices – 100% to McDonald’s wages but 33% to McDonald’s prices. $15 an hour being today’s median wage, half the workforce would get raises percentage multiples of pass through price increases.
This win-win effect could not go on forever. At $30,000 a year consumers would buy a lot more fast food and retail items than they will at $15,000 a year – hugely pent-up demand. Going from a $30,000 year minimum wage to $40,000 would raise prices (3% at Wal-Mart; 11% at McDonald’s) but not add much to demand – though some people would have more money to spend — a wash? Somewhere in between is the edge of the black hole.