Increase wages

Most people who pay attention to such things understand that the gap between the rich and poor is widening and many think we should narrow this through tax policy. While that will help a little the better way is to pay higher wages to low income earners. If wages increase, how does this affect prices and will we go into a wage-price spiral inflation that will offset any increase in wages. Let’s examine two retail businesses to see what happens. In a fast food place like McDonalds the cost breakdown is one-third for labor, one-third for material and one-third for expenses. A regular hamburger sells for one dollar meaning the labor cost is 33 cents. If the average wage of $8 per hours is raised to $16 then the cost of the hamburger will increase to $1.33. Would most people be willing to pay that knowing that the employees will benefit? If Walmart increased its employee pay from $8 to $16 it would cost the company 6.5 billion dollars but the average shopper would pay an extra $25 per year to shop at Walmart. Would this increase cause customers to shop elsewhere? That 6.5 billion represents 2% of the annual 320 billion in sales so on a $1,000 TV the customer would pay $1,020. Would people pay that extra knowing that it was increasing the wages of the workers? There is another factor in that Walmart has about high turnover and training of a new employee cost about $2,500 so higher wages would reduce turnover which would lower labor cost. Personally, I don’t eat fast food but I do shop at Walmart and I don’t believe I would notice a 2% increase in prices. I would be happy to pay 4% more and increase salaries to $32 per hour and I doubt that this would have much effect on the rich since they likely don’t shop at Walmart. I don’t know where wages should be but it is something to look into instead of automatically looking to the tax code to close the gap.