Quote:
Originally Posted by STLRAY
Many on here have expressed concern that the higher minimum wage will be inflationary. It will, but probably to a lesser degree than many fear. On average restaurants spend 30 percent of sales on payroll. Profit margins are 5 percent. Figure payroll costs will increase about 50 percent when this is fully phased in. (Some employees probably already make more than the new minimum) So, you can expect to see about a 15 percent increase in prices over five years if the owners pass all the costs on to their customers or about three percent per year.
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3 percent a year and inflation right now is 1.6%, and social security increase for next year is 1.3%, so you have a small loss of purchasing power at a restaurant. However, a healthy economy has at minimum a 2% inflation rate, or higher, as stated by the goals of the federal reserve.
What is not measured very well, is the economics of price stability. If prices are to remain flat, and corporations want to grow income, there are only two answers, more customers, or cutting costs. Cutting costs involve eliminating jobs, and substitution of cheaper ingredients. . both of those do not have unlimited opportunities to growth.
So, in the end, from behavioral economics, is to have inflation run between 2 and 3% with salaries increase about the same, so that citizens see a wage increase, they feel good, and they can still afford the same items. . . not bad feelings. . . and companies can grow revenue a small amount, still good.
If you want more, you have to work harder or smarter, but inflation and price increases at the current level are not a significant business killer, as some wildly generalized predictions have been posted.
finance guy