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Minimum wage increase takes economy nowhere

(Feb. 1, 2013) Everyone wants more money and many people truly need more money, but it isn’t as simple as saying, “Here it is, come and get it.”

That’s what some legislators in the Maryland General Assembly are considering, as they advocate an increase in the state’s minimum hourly wage from $7.25 to $10 over the next three years.

An hourly wage of $10 does not make a fat paycheck, but it still should have to coincide with growth in the industries and businesses that would have to pay it.

Right now, that’s not happening. The National Retail Federation this week projected a growth rate of 3.4 percent this year for its sector. That’s down slightly less than a percent from last year’s peak.

Meanwhile, full-service restaurants nationally expect to see a 4 percent increase in sales, as compared to last year’s 4.4 percent rise in total revenues. That might seem acceptable, but the restaurant industry is also anticipating a 3.5 percent climb is food commodity costs. That leaves the food service business just a half-percent wiggle room on the bottom line.

Theoretically, proponents of the pay raise argue, these larger paychecks will put more money into the marketplace and boost the economy overall.

Problem is, they are forgetting that this additional consumer cash would be drawn from business margins that are already thinner than they need to be.

For every dollar taken out of that margin, the retailers, restaurant operators and manufacturers will have to increase their prices to cover the additional expense, thereby reducing, or at best leaving static, consumer purchasing power overall.

In other words, it’s a financial merry-go-round. It sounds good and looks good but doesn’t go anywhere.

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