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The Minimum Wage Debate

Sigma Investment Counselors

December 9, 2013

Investors should be aware that this is a complicated issue and far from resolution. There are significant arguments, for and against, political and economic and, emotional. Any meaningful dialogue is complicated by media reports that tend to frame the debate in terms of cents per hour for low end workers versus aggregate corporate profits. Actually, total payroll costs, including benefits, are generally much higher, in aggregate, than total company profit. This suggests that any meaningful percentage increase in wages and/or benefits can, at best, only come in part from corporate earnings. More likely, the customer will have to foot the bill through higher prices.
At this writing, it is much too early to assess the probable outcome or the impact on corporate earnings. However, investors should be aware of the debate and make appropriate adjustment to earnings expectations as more information becomes available.

It is also important to note that SEIU and other labor unions have been providing financial and organizational support to advocates of higher minimum wages. What do they expect to get out of this, and how might corporate operating results be affected?

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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