As minimum wage increases, costs for businesses and consumers will continue to add up

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Over the last decade, Las Vegas has grown exponentially in both size and quantity, with a majority of people coming from neighboring states like California, Arizona and Utah. 

However, an increase in people in a concentrated region creates the stunning reality of financial imbalance, something many are now experiencing.

In recent years, the Las Vegas consumer market has ballooned to higher rates than ever before. The number of people demanding certain goods and services has increased the marginal product of labor and has thereby forced the state legislature to pass a higher minimum wage to offset this imbalance.

With minimum wage going up in 2022, what exactly does this mean for retailers? How will this affect consumers, and will prices of goods go up as a result?

“The minimum wage goes up because of the increased cost of living,” said Jalen Valdecantos, a sophomore accounting major at UNLV.

“The cost of living goes up because of inflation,” Valdecantos continued. “Everything will get more expensive. I believe that prices go up because of inflation and cost of living increases but not due to a minimum wage increase.”

Valdecantos further elaborated that minimum wage is not the sole determinant in the increase of prices on consumer goods, but rather rising inflation rates. The conglomeration of rising prices & proportional demand has created a nightmare for both consumers and suppliers.

According to FOX5 Las Vegas, the Office of Labor Commissioner announced that a two-tier minimum wage would increase to $9.50 for those with provided health benefits and $10.50 for those without health benefits. Likewise, those who fall into certain overtime stratas are eligible for $14.25-$15.00 minimum wages. So with these wage increases, what does this mean for retailers? How will they be affected?

Considering most businesses located in Nevada are typically small businesses, raising the minimum wage could spell trouble for these particular business entities. According to a survey conducted by the NFIB Research Center, 74% of employers report that a federally mandated wage would negatively impact their business. 

Think about it in a larger scenario. If a cookie store with 10 employees, with a minimum wage of $9.50 and annual work hours of 1,500, produces 200 cookies a day and sells them for $3 each, the business would gross approximately $219,000 and a labor cost of $142,500. 

In this scenario, minimum wage is now bumped up to upwards of $15, meaning now the labor cost is $225,000 and generated revenue would still be $219,000. Given the margin between revenue and labor cost is considerably lower, the store owner is now faced with two options: lay off employees to cut back on labor costs, or increase price per cookie. 

Since the previous revenue was 1.5 times more than labor costs, to maintain this margin, the cookie store owner will need to increase the price of cookies to approximately $4.64 to make up for the wage increase.

Although the example is a pure hypothetical, the likelihood of it happening is quite real. By increasing minimum wage, suppliers will have to upsell the price of their goods to offset a reduction in available employees to produce goods. 

Think of it like a scale, if one side is too weighted, the other side rises. To combat rising wages, business owners will need to cut back on staffing, and/or increase prices of their goods to make up for the lost revenue.

With such a predicament, retailers should consider reorganizing their cost structure and consider how big or small their staff needs to be. The more staff, the more labor costs suffered by the owner. 

Overall, rising minimum wage could potentially lift certain individuals above the poverty line, however, the costs suffered by retailers and business owners will only continue to expedite the staffing crisis experienced by the business world and inflation, driving prices through the roof.

With minimum wage induced economic issues, pivotal steps must be taken in the right direction to ensure that retailers have enough headway to navigate through rising costs and provide optimal service to their customers.

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