The NYC Minimum Wage Hike That Will Help No One in the Aggregate

An older article wrote years ago that I published here since I believe the concept is still relevant.
Recently Mayor DeBlasio signed an executive order that called for the immediate increase in wage from the NYS minimum to $13.13/hour.  Fortunately this increase only applies to roughly 18,000 New Yorkers.
I argue that this is a move to generate more revenue for the government.  When governments need more money to operate they can raise fees, issue more fines, or collect more taxes.  Tax increases on the masses never win popularity contests.  Businesses on the other hand have substantially more money than individuals, but if the government raised taxes on businesses outright, there would be backlash from both the business community and consumers who now have to pay higher prices.  By raising the minimum wage, government gets the increased revenue that it wants.   Individuals will be paying more taxes since their income has gone up; also as salaries paid increase, so do the payroll taxes that businesses have to pay.  It is clear that a veiled transfer of wealth from business to government is taking place.
An increase in the minimum wage also increases an individual’s (minimum wage earner) demand for goods and services.  However in the short and medium run, the market for goods and services is finite.  This leads to an increase in prices for non luxury goods that these people (those with a wage increase) will demand.  So in addition to paying more in taxes, those who received the increase now get to pay higher prices.
This increase affects 18,000 people; this is ONLY .00225% of New Yorkers.  I argue that this is exactly why it is being done.  Making the increase, even a low impact increase, allows the mayor to say he raised the wages and gives him something to run on for the next election while pleasing the people who voted for him.  His party and supporters are happy, and the government makes more money; it’s all about the politics not low-income earners.
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s