Why Wage Increases Make Companies Worry About Their Profits

Several countries in the world are advocating for a wage increase, and whereas this is a good thing for the individual employees, companies and businesses don’t share the same joy every time there is an increase in wages. In the United States for instance, the minimum wage was increased to $15/hour, while in Toronto, the minimum wage stands at $14/hour.

The immediate objective of an increase in wages, is to enable many workers to earn a decent income. Though this sounds simple, the ripple effect throughout the industry, is far-reaching, and are often disadvantageous to employers, hence their indignation when it comes to an increase in wages.

With an increase in wages, a lot of employees in various establishments will demand a pay raise to reflect the increase. But this isn’t always convenient or even possible for many employers. Increasing wages will increase their production costs, and unless profit margins are increased, their net profits will be lower.

Secondly, wage increases will compel companies to increase the costs of their goods and services to make up for the additional money they will have to part with due to the increase. This excessive cost will be passed onto the consumers in the form of increased product costs, and as is always the case in most economies, higher prices will discourage people from buying. When that happens, the sales numbers will go down, but since the employer now has to pay increased wages, their margins will take a hit.

Thirdly, other than the increased cost of doing business, the prices of goods and services, especially in areas significantly affected by the increase, will also go up. But will an increase in the cost of goods and services for consumers translate into better overall standards of living?