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i actually don’t support ANY minimum wage laws but as a CIB intern watching all of this go down i really want to, at the very least, reframe the debate so we can ensure that we are asking the right questions. because there are a lot https://twitter.com/lilysmuckusa/status/1350211251587133440
all right so to start it off....here’s my favorite and most dependable document of all time. a cash flow statement.
cash flow statements are great because they tell you exactly how a business spends its money. where does all of its income go? big things to look at are operating costs, capital expenditures (various lines of investing activities), share repurchase programs, & acquisitions
(items in parentheses are subtractions to the cash line, whereas line items not in parentheses are additions to cash flow)
hard to believe but...wages fall within the operating activities of a cash flow statement, which is pretty non-discretionary. basically, raising the minimum wage would definitely jack up operating costs significantly
if operating costs are increased, a company has two choices. the immediate assumption is increase the number at the top of the page. but most often...they’re not gonna do that. a company wants to remain competitive and keep prices low as possible. so how can they afford it??
the beauty of discretionary spending.
we don’t live in a society of perfect competition. companies run massive operating profits, which they use to acquire smaller businesses and pay dividends and such
this means that when a company’s operating costs (wages) are raised dramatically, prices are unlikely to increase significantly; instead, their dividends will decrease, they will be unable to engage w repurchase programs, capex expansion may decrease
a strong example of this is actually the pandemic. a lot of businesses struggled with decreased revenue but fixed costs, and as a result, there were very few acquisitions in 2020, for example. companies reallocated within their cash flow statements
this also is possible for small businesses!! no, they don’t do acquisitions, but they almost definitely do financing and investing activities. in fact, arguably, they’re less likely to be bought out by larger companies who are forced to reallocate away from competitive spending
THIS IS NOT AN ARGUMENT FOR THE POLICY. because these changes are not necessarily good things.
the first thing that comes to my mind is “what kind of hit is the stock market going to take?!” because shareholders are going to be bearing the brunt of this reallocation, most likely. and they’ll predict that, and there would be a huge crash
also, while i said small businesses *can* reallocate, it is more difficult, particularly in areas that don’t have the same economic scale to achieve revenue (ie kansas vs new york city)
so—
people arguing for the policy are not economically illiterate.
people arguing against it are not doing it just to be heartless and classist
people arguing for the policy are not economically illiterate.
people arguing against it are not doing it just to be heartless and classist
in this debate, the best thing to do would be to examine differences in wages and revenue by location and how policies affect them differently. we also need to weigh risks to the market, which is linked to the economic stability of everyone
no one is going to read this but it feels good to get off my chest
