It’s a very honest question, but my guess is nobody – not one person – will dare to ask President Obama when he arrives at my alma mater on Wednesday. When you arbitrarily increase the minimum wage one, two or three dollars per hour, where does the money come from?
On Feb. 4, Gov. D.P. Malloy (D-Conn.) put forward the notion of a $10.10 state minimum wage. He says phasing in the increase over three years will “move as many people as rapidly to the middle class as we can.” Malloy’s lieutenant, Nancy Wyman said the change “will not put any kind of burden on our employers and it will start to really help those people that work the hardest.” Got that?
- You people who make $20 per hour don’t work as hard as those making minimum wage,
- there will be zero burden on employers, and…
- the result will be to move people “rapidly” to the middle class.
Hail the utopia! But the same question must be asked of Malloy and Wyman. Where does the money come from?
I know where the money comes from, and I’ve written about this multiple times. When you raise the minimum wage one quarter from the current $7.25 federal minimum, that’s a payroll increase of at least 3.5 percent, and for a small business with 20 teenagers working 20 hours a week in the summer, that’s “only” $100 per week, or $433 per month.
But where does it come from? Businesses can and will end up doing a combination of the following.
First, they are going to see if they can increase prices for their goods and services. Of course, you can’t blindly increase prices as a result of higher costs, because demand is changed by price. It would be nice if you could tell customers your price is higher because your costs are higher and they buy anyway, but consumers make decisions on price, quality and service. You’re not guaranteed they will buy, and some will go elsewhere.
Of course, higher wage costs for low-wage employees effects those making more than minimum wage. Union pay scales are based on a minimum wage. If the minimum goes up, everyone’s wages go up. When consumers are paying more for goods and services, isn’t a portion of their wage increase flowing right out of their pocket for the higher prices? That’s what we call inflation don’t ya know? Nobody wins.
Second, the business owner can take a look at their own salary. Some will certainly be willing to take a cut in pay and hand some of it over to employees, but business owners have bills to pay and a retirement to plan for too. Remember, the entire sales pitch from Obama, Malloy and other Democrats is people making minimum wage are not being treated fairly by business owners, and the government must step in to solve the issue. That theory ticks me off to no end.
That $433 per month (or whatever) could be money the employer planned to use to expand their business through a variety of means. Maybe now they won’t do that? Maybe they wanted to start increasing the staff from 20 to 22 to 24 to 28 to 40? Maybe they wanted to increase hours and make more employees full time? Maybe that won’t happen now?
Third, they have to look at the value of the employees they currently have on staff. If the minimum wage goes up – let’s say from $7.25 to $10.10 like Obama did with a stroke of a pen for federal employees a couple of weeks ago – can the business owner get a higher quality employee for $10.10 as compared to $7.25? We know they can. You might be worth $7.25 per hour to the business, but you might not be worth $10.10. If you’re not, you get laid off and replaced by someone with more experience.
Fourth, they look at their total payroll. Can a business owner cut the payroll costs of those making minimum wage and get the salaried employees to pick up the slack? Give more hours to the more experienced employees making more than minimum? Would the business owner be willing to step in and work more hours? Would it make sense to open the business at 10 a.m. instead of 9 a.m.? Those are all real-life examples of what small business owners look at!
Finally there is benefits. What benefits are necessary? What benefits are mandated? What benefits can be cut? Those training programs small employers offer employees to improve their value to the workplace costs money, and a small business might just cut the funding for training and development of employees.
That’s where the money comes from, and it’s an honest evaluation. What good comes from those changes? If you claim more money will allow you to contribute more to the economy, get a nicer apartment for your family or maybe buy a home, you totally missed the point of the previous seven paragraphs. Let me make it clear, if you don’t think there is a connection between the rent you pay and the minimum wage, you’re head is buried in the sand. By no means is it a one-to-one connection, but when a landlord or property management company is mandated to pay a higher wage to employees and contractors, your rent goes up.
The left’s argument is specific to “raising people out” of poverty, and that it’s impossible for a family to earn “a living wage” when they only make minimum wage. Pulls on the heart-strings does it not? Yet, they know it’s not that simple, and they refuse to discuss where the money comes from, and you should know why.
Don’t let emotion rule the day. It’s an election year, politicians want to hand out candy for votes. Don’t be a low-information voter. Share this post with someone who thinks the minimum wage will improve the economy for individuals and start a conversation.
Let’s see how this goes during the next two to three years shall we? It’s not a done deal, but SeaTac Proposition 1 looks like it will pass, requiring businesses to pay hospitality and transportation workers a minimum wage of $15 per hour. The previous minimum wage was $9.19, but I’m not sure what the average pay was for an entry-level employee.
Brilliant! I consider myself a relatively smart person, I know a lot of things about a few subjects and I’ve dabbled a little bit when it comes to running a small business, working for Fortune 50s, and even helping out at start-ups … but I never had the idea to raise the minimum wage to wipe-out poverty.
Class warfare. Socialism. You’re watching it develop and take root all around us. In New York City, where some fast food employees are making minimum wage ($7.25 per hour in New York), some of them are demanding wage rates double to $15 per hour.
Hey, it’s an election year … why not. Late last week 100 House Democrats all got together and introduced legislation to increase the minimum wage. We’ve documented the ridiculousness of increasing the minimum wage here at RVO for years, so we’re just going to point out the obvious.
Since the minimum wage discussion is coming up on the big radio show this morning during the first half hour, I thought it would be appropriate to refer back to a few previous posts.
I love Hardball. Where else can you get great material for your blog like this? Read more
Since Jim’s discussing the minimum wage this morning – and looking for callers to argue against his point of view on the topic – I figured I would provide a few links to past posts here on Radio Vice Online concerning the minimum wage.
Last week, Steve did a post on the effects of the federal government’s recent requirement that businesses in American Samoa must pay employees the federal minimum wage. In 2007, Chicken of the Sea closed it’s plant, laying off some 2000 employees, and in May of this year, Starkist announced that it will lay off between 600 and 800 employees. Given the size of American Samoa, that’s a large amount of workers. Read more