The statutory minimum wage was supposed to raise living standards for the poor, making it worthwhile for people to work. However, it has fuelled inflation as businesses pass on the higher costs to consumers.
This is not a problem for giant supermarkets, where salaries account for less than 2 per cent of running costs. But for smaller, local shops where labour costs can easily reach 25 to 30 per cent of their overheads, passing on the full wage increase to consumers is not easy, as retail prices are determined by the market and not operating costs. Therefore, businesses could find profits dropping or they could go into the red.
If small retailers try to increase prices further, they end up losing business, and this can result in them closing.
This does not help consumers, especially those on the minimum wage, because when the little stores are gone the profit-driven retail chains can simply raise their prices even higher, as they no longer face real competition given that they operate in a cartel with just a few big players. Workers might get a few dollars extra an hour, but then they face higher prices and end up worse off than before.
I accept that the minimum wage is not the only reason small firms fold; rising rents are also a contributing factor.
Although supermarkets pay more in rents than small shops, they can accommodate a lot more customers and products on their premises.