Almost everyone who supports an increase in the minimum wage has ulterior motives.
Twenty-one states saw a minimum wage increase on January 1. For all the politicians’ boasts that they are helping raise Americans’ standard of living—only about 3.3 percent of hourly workers, most very young and part time, earn the minimum wage or less—we know why elected officials pass such legislation. They want to claim they are being compassionate—albeit with other people’s money.
But why would the CEO of Starbucks, Howard Schultz, support raising the minimum wage? All of his employees make more than the minimum wage, according to news reports, and the company provides health benefits. Could there be another, anti-competitive reason?
A start-up coffee shop hoping to compete against Starbucks might try to offer a better product. But it also might try to provide a lower-cost product—a reasonable business strategy since no one accuses Starbucks of being cheap.
Of course, one way to provide that lower-cost product is to control labor costs, which could mean lower wages and fewer benefits, or no benefits at all. If that strategy were successful, Starbucks could lose market share, at least where the competitor sets up shop nearby.
An increase in the minimum wage might eliminate that option and leave Starbucks free to charge its higher prices. In other words, Starbucks could benefit from a minimum wage increase, but only if it weren’t too high.
CNN reports that Schultz warned of unintended consequences if the minimum wage were raised to $10.10 an hour—which is the Democrats’ target increase, at least for now.
And he said he didn’t think Starbucks would have to raise prices at that level, though he apparently declined to say whether he’d have to cut jobs. So he understands that a minimum wage increase comes with a cost that could affect his company and his employees.
But he’s more than happy for the government to increase the minimum wage. And if that happens to kill some of his competition, so much the better. Without that increased competition, Starbucks might be able to raise its prices even higher, padding its bottom line.
And then liberal economists, politicians and the media could say, see, raising the minimum wage actually helps company profits—at least those companies that are still in business.
January 6, 2015