The Democrats meddling with the economy when they increased minimum wage last year, that’s what. Unsurprisingly, the largest portion of the unemployment rate increase was due to the increase of 16 – 24 year olds entering the work force looking for work but not finding it. And what do these 16 – 24 year olds make? Get ready for it – minimum wage.
Patterico has a brilliant case study of his parents’ ice cream shop to illustrate exactly how increasing the minimum wage brought us to this point. Democrats and liberals, pay close attention, please:
Raising the minimum wage by .70 increased their straight wage expense by $240 a week, or about $1000 a month. But it had collateral consequences as well, as their worker’s comp. and unemployment insurance costs rose in relation to their payroll, as did their payroll tax contributions. The combination of wage increase and the various increases that spin off that wage increase was about $1500 a month. This is against a total wage expense for the part-timers of about $8000 a month.
Now, the ice cream parlor business is somewhat inelastic from a price stand point — people won’t continue to pay higher and higher prices for an ice cream cone when the alternative is simply to do without. So, that increase in operating expense could not, in total, be passed on to the customers. Instead, my parents worked a few more hours themselves and trimmed back on the hours they had the part-timers working. When one of the part-timers quit, they didn’t hire a replacement for her.
Now, the same thing is going to happen next month — another increase of .70 per hour, totaling about $1500 a month in additional operating expenses is going to kick in. This will come on top of significant increases over the past year in product costs — multiply the increased cost of milk you are paying at the supermarket several times over and you get a feel for the increased cost of buying ice cream on a large scale for a business establishment.
They will raise the prices a little, but not enough to cover the total increase. They will cutback on the hours the part-timers work, and work a few more hours themselves. And if they lose another worker, they probably won’t hire a replacement.
So what’s the bottom line for Patterico’s parents?
When Congress increased the minimum wage, for many many small business operators such as my parents, Congress took the profit from the business right out of their pocket. I’d be surprised if my parents’ shop made more than $3,000 or $4,000 month in profit — with them taking nothing in terms of a wage for themselves. If they had not cut-back their part-time work force payroll, the minimum wage hike would have taken every bit of that profit away.
Now they are working more than they want, and for a very modest annual return on their labor and investment.
And two fewer teenagers will be employed by them this summer than was the case last year.
The other six should have their resumes up to date.
This is not what the Democrats promised us would happen when they forced a minimum wage hike on our economy. But nothing they promise ever comes to fruition since they don’t have a clue about how the economy works and many of them have never run a business before or have ever had to meet a budget.
Keep that in mind as Democrats make all kinds of promises about how a nationalized health care plan will improve medical services, save lives, and save money.
Of course, they will deny that they had anything to do with the largest unemployment rate increase in 22 years; instead, they will shift the blame to President Bush because nothing is ever their fault. Their intentions were good and, according to them, it’s one’s intentions that matter, not the real results of their intentions, no matter how disastrous.
Ed Morrissey at Hot Air has analysis as well and has come to the same conclusion after analyzing the numbers the labor department issued yesterday.