It’s a long way from McDonalds’ kitchen to Wall Street, yet once Congress enacts a higher minimum wage, stock prices are bound to suffer. The process would start in the fast-food industry; it is the major business sector affected by, and paying its employees, the minimum wage. While this higher labor cost will be absorbed at first, it will be passed on in higher prices eventually.
Consider the entire industry right now is in‘equilibrium.’ While every individual outlet would like to post higher prices, the fear is that rival franchisees might not go along, that they will keep prices unchanged. That possible reaction motivates each eatery from trying to increase prices.
Yet once every vendor faces the identical cost increase that results from the higher minimum wage, each franchise can pass on that expense – and perhaps a little more – confident that all other rival establishments will follow.
Naturally, once started, it will continue; every vendor knowing that customers will consider higher prices that result from the higher minimum wage to be a reasonable escalation.
Thus the country has a new business environment – one in which every business can raise prices having found that consumers willingly go along. And that’s when the minimum wage increase affects the stock market.
Price increases now rolling through the economy will compel the Federal Reserve to switch its policy of open market buying to open market selling. Interest rates will shoot up and asset prices will decline.
Of course, that possible scenario does not mean the nation is satisfied with the current ‘inequality of income distribution.’ It does mean however that we must find a better way than raising the minimum wage to effect a more equitable society.
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The DJIA and the S&P500 closed lower for the fifth straight session. Only 18 other days have this profile; further never before has the market experienced such a combination: a single decline for the NASDAQ joining the five losses of the other two indices.
DJIA -.16 percent
NASDAQ .02 percent
S&P500 -.13 percent
