Venn diagram of the day on the minimum wage: Are firms sensitive to labor costs or not?

1. From a news report today (emphasis added):

Foxconn Technology is in talks to manufacture Apple’s iPhone in India, government officials said, in a move that could lower prices in the world’s No.3 smartphone market where the US firm trails Samsung Electronics and local players.India could help Foxconn mitigate accelerating wage inflation in China, where it makes the majority of iPhones, and base production sites closer to markets where its key clients want to grow.

2. From another news report today (emphasis added):

Officials have given final approval to an ordinance that makes Los Angeles the largest city in the U.S. to gradually raise the minimum wage to $15 an hour. The City Council voted 12-1 in favour of the increase Wednesday and forwarded it to Mayor Eric Garcetti. His office says he plans to sign it Saturday.

The wage hike received lopsided majority votes from the council last week and in May despite complaints from the business community.

Those reports inspired the new Venn diagram above.

Bottom Line: Most people understand generally that businesses are extremely cost-conscious, operate on thin profit margins, and have to operate as efficiently as possible to survive stay in business, and will shift their factories and production facilities from high-wage to low-wage countries. But then many of those same people seem to think that small businesses and restaurants in cities like LA who operate on razor-thin margins and who employ minimum wage workers can somehow easily absorb a 66% increase in their labor costs? The eventual $6 per hour increase in LA’s minimum wage increase will increase the annual cost of employing a full-time minimum wage worker by more than $13,000 (including employers’ share of payroll taxes). No wonder the LA business community objected. In comments I featured before on CD, raising the minimum wage to $15 per hour is not a political problem, it’s a “math problem.” And the “new math” of a $15 minimum wage will break the system for many restaurants and small businesses.

Here a few other related news items from today:

1. Minimum Wage Increases Likely to Hit Restaurant Profits, Moody’s Says

2. How a Higher Minimum Wage Could Negatively Affect Restaurants

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