Let me preface the following by stating that I am in favor of all workers being paid a fair salary for an honest day’s work. And that every employer has a responsibility to ensure that their employees are paid a wage that is commensurate to the job at hand, that safe working conditions are provided and that all are given equal opportunities for employment and advancement.
As wages increase up the ladder, it will be quickly discovered that it is mathematically impossible for every business in America to increase prices and sales sufficiently to cover the dramatic increase in the cost of labor.
Furthermore, I am writing this from a working class perspective, having been raised in a lower-middle-income family. Starting out, some 40 years ago, I worked for the minimum wage in several jobs. From dishwasher in the hot kitchen of a busy seafood restaurant to loading used tires into tractor trailers in the freezing cold of the New Jersey Meadowlands – I despised those jobs. But it was the hard work and low pay, combined with the work-ethic instilled by my parents that motivated me to get an education and move up the ladder.
Along the way, I also owned several successful businesses. I know first-hand what it’s like to be responsible for everything from sales and marketing to loading trucks and making deliveries – and for making payroll every week.
Often, I would calculate that with the 70-80 hours a week I was working, there were times when, ironically, I was still earning the minimum wage.
As business owners, we know that the cost of labor is often 25%-40% of our total overhead. Any increase has a tremendous ripple effect as it impacts every facet of the business model – and ultimately, the economy at large.
So, when the political elite – most of whom have never worked for the minimum wage, have never had their own money at risk and have no idea what it’s like to be personally responsible for keeping people employed – flagrantly toss around numbers such as a $15 per hour minimum wage (more than double the current rate), it should send shock waves throughout the business community.
We should be demanding their removal from office for gross incompetence and call for an unbiased examination of the actual effects of what they are preaching! Instead, the mainstream media laps up this dangerous rhetoric and creatively packages it (complete with Hollywood theatrics) to instill in its proponents a form of hero-worship.
Then, with the help of out-of-context soundbites, they twist opposing viewpoints to make anyone questioning them to sound like a selfish Marie Antoinette (“Let them eat cake!”) on her way to the guillotine.
No Boom, All Bust
This is how I believe a $15 minimum wage will actually impact the American worker and the economy as a whole:
Initially, the new law will be met with a frenzy of media fanfare. There will be countless, uncoordinated high-fives throughout the halls of Congress. The talking-heads will fill the airwaves with endless quips about how “the little guy stuck it to the man.” We will see obligatory video clips of fast-food workers cheering the decision combined with well-crafted, tear-filled outtakes of reporters who are just too overcome with emotion to utter a complete sentence.
However, when Johnny and the rest of the minimum wage workers at the local Mickey D’s get their raises, the assistant manager, Johnny’s boss, will immediately inform the restaurant’s manager that with her experience and responsibility, it’s unfair that she work for the minimum wage. So, she will demand (rightfully so) a raise from $15 to $20 per hour. The restaurant’s manager, in-turn, will inform the owner that she too needs a raise (rightfully so) from $20 per hour to $25.
Assuming the restaurant employs 12 people full-time, and the average raise equals $5 per hour, the initial impact on the business will be an increase in annual labor expense of $124,800 (12 people x 2,080 hours per year x $5 per hour).
This represents about a 30% increase – and it does not include the additional costs for FICA, etc.
Even if the mandated increase is introduced in graduated increments (1-5 years), it will eventually result in the same net effect.
Trickle Up: Defying Gravity
This chain of events will be played out in every business across the country. And as wages increase up the ladder, it will be quickly discovered that it is mathematically impossible for every business in America to increase prices and sales sufficiently to cover the dramatic increase in the cost of labor.
The burger that cost $1 may now cost $2. A gallon of milk will rise from $3 to $4. Johnny’s monthly rent from $800 a month to $1,040.
The higher prices will result in a slowdown in consumer spending. Many businesses will be forced to lay-off workers and others will close altogether. And, hundreds of small businesses will never even get started.
Businesses will also search for innovative methods to reduce labor costs, such as self-service kiosks, banking apps and drones for package delivery. (Oh, wait: those are already here.)
And as prices and wages rise, so will sales taxes, income taxes, etc. No one will be spared. At the end of the day, the minimum wage worker will be no better off – and may actually lose ground!
The Solution
There are countless ways in which our self-serving government and elected officials could address the issue of low wages and actually help families that are struggling. It starts with government moving aside and taking the hand-cuffs off business. Yes, we need laws to ensure public safety, etc. However, the costs associated with government red-tape and regulations, nonsensical government welfare programs (including corporate welfare) and high taxes all add huge costs to our products and services.
It is estimated that it costs U.S. businesses almost $2,000,000,000,000 (two-trillion dollars) each year just to comply with federal and state regulations. That equals about 9% of our total GDP and is greater than all corporate profits combined (pre-tax). It also represents about $6,000 a year for every man, woman and child living in America. Here’s a wild idea: Create a simplified tax system and reduce the size and cost of the IRS. We could then use the talents of these “gifted” people to identify and eliminate government waste and corruption.
One more? Eliminate the Wall Street ritual of rewarding CEOs with multi-million dollar bonuses for slashing American jobs and then moving those jobs to another country. (My hypocrisy only goes so far.)
In 1976, the Federal Minimum Wage was $2.30 per hour. Forty years later, it is $7.25 per hour (most small businesses already pay more than this amount to attract workers). Raising the wage to more than double that amount – $15 – within a short window of 1-5 years will ultimately have devastating effects on our entire economy.
I welcome your thoughts and comments on this issue, or any others affecting our industry. Please email jerry@istmagazine.online.
