Planr is dead on. One effect he forgot though is that it doesn't suffer from diminishing returns, it gets worse.
Take three companies, for example:
- Company A produces a consumer product. Say, plastic containers. Their most basic, lowest paid workers put these containers in boxes to be shipped. Company A buys plastic from company B.
- Company B creates plastic from oils purchased from company C. Company B's most basic, lowest paid workers operate the machinery, the entire process is automated from there.
- Company C drills oil from the earth. Their lowest paid employees drill for oil.
Say all 3 lowest paid employee groups make minimum wage. Company C sells 1 drum of oil for $50. Company B processes that into some amount of plastic, which they sell for $120. Company A melts that drum down into containers, which produces $250 of product.
Now, minimum wage doubles. Company C can no longer pay their oil drillers. They up the price of their product to $100 a barrel. Company B can't afford to produce plastic, so their price doubles to $240. But wait, oil price went up too. So now, to make the same amount of profit, the price must increase to $290, to compensate for the extra $50 charged for oil. Company A certainly can't sell $290 worth of plastic for $250 in product, especially not when they're paying their workers double. Double the wage of the workers to get $500 for the containers, then tack on the extra $170 it costs for plastic now. That's $670 for what was previously $250 in product. The product has become almost 3x more expensive now, with no extra profit margin! Now that worker who's income you doubled is making twice as much money, but the stuff they have to buy costs 3x as much. You've made life
even harder for them, by 33%.
