Quote:
Originally Posted by Elephant Walk
Yes.
There are essentially three options for a firm when wage floors are above market equilibrium.
1.) Raise prices on goods, thus negating most gains by minimum wage workers.
2.) Cut employees which may further marginalize the poor.
3.) Take a cut in profits.
While many will say that these corporations should simply cut profits (no matter how illogical it may be) this may be absolutely dangerous for small firms who operate on razor thin profits.
If they're small enough, it may be impossible to cut employees. If the marketplace is competitive enough, raising the prices will mean a lack of buyers for products thus destroying the business. And if profits are razor-thin, well it won't be too long till they're under.
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Just to add on before we pile onto corporate profits, CEO pay or whatever other irrelevant stuff comes out . . . cutting profits has other massive problems, including less incentive (or ability) to reinvest in the corporation or new/more efficient products, considerably less incentive to innovate or invent (since you won't make money), reduced market fluidity for employees (which restricts their power in the marketplace), and a markedly increased incentive to move operations overseas.
Profit drives the train - it's important to have restrictions on market-warping forces like monopoly, but other types of profit restrictions are generally very bad for everyone.
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