Higher wages do not usually drive companies out of business. They help them attract talented employees and thrive, unless higher wages are part of a bunch of government mandates that raise business costs without raising productivity.
That was the case for Greece before the crisis, and may end up being the case in California which reached a $15 minimum wage deal today.
Greece’s minimum wage zoomed from slightly below 600 euros in 2000 to close to 900 euros by 2011, according to Eurostat. That’s a 50% hike, exceeding the minimum wage hikes of Greece’s closest peers, Spain and Portugal, according to the same source.
Labor unions demanded these wage hikes, protesting in the streets and on picket lines. And politicians turned them into law.
That’s how labor compensation turned into an entitlement.
Unable to pay the higher wages, some Greek corporations downsized their operations or closed their doors altogether. Others moved to neighboring Balkan countries, where the minimum wage in Bulgaria is one-fourth of those of Greece.
A third group of Greek corporations — those with pricing power– hiked prices, shifting the burden to consumers.
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