If you look at the trending tweets on twitter about #minwage, you can actually see minimum wage inflation just by reading the tweets. One Washington policy wonk is promoting the $10.10 every few minutes.
Another twitter enthusiast promotes a $13 #minwage. Another touts there’s going to be a rally around a $15 #minwage in an effort to even the score for hourly workers. They’re fighting for the common man they say; the forgotten worker. The powerless are getting crushed by the powerful through wage suppression.
These are very compelling memes if they were true, but there’s more to the story.
Squinting through the haze we see two primary themes around the minimum wage debate. The first assumes the minimum wage is too low because $7.25 per hour does not cover living expenses. The other suggests a higher minimum wage would somehow close the gap between the haves and the have-nots. That raising minimum wage to $10.10 per hour is more “fair.”
Using this reasoning, then why wouldn’t raising the minimum wage to $100 be even fairer? Why stop at a measly $10.10 per hour? What’s your benchmark? How about what a job is worth.
My colleague, Dr. Jared Pincin, a professor of Economics at The King’s College cuts through the passion and politics by saying; “If you raise the minimum wage without raising the skill and experience someone brings to the business at the same time, you’re destroying the ability of a business to serve customers cost effectively and survive.”
If you overpay inexperienced people, the business will eventually fail.
A worker’s wage can’t be determined in a policy vacuum or else businesses will close their doors in droves and the double digit unemployment problem we have now will feel like a holiday.
By arbitrarily setting the minimum wage to $10, $13, or $15 that’s exactly what we’re doing. There is no correlation between wages and contribution to the business that pays those wages.
Human life might have equal value before our Creator, but not all people are equal contributors in a work place, something small business owners know well.
For any operation to succeed, compensation must be tied to skills employed and effectiveness on the job.
- Did that employee help find new customers?
- Did they delight existing customers so they’ll return?
- Did they find ways to do the job more efficiently?
Profits can never be assumed and I fear all this bluster about raising minimum wage ignores this at our peril.
Minimum wage and the ability to cover living expenses are really two separate issues and we need to tread with caution before throwing them both into the boiling cauldron of the discussion about #minimum wage.
Using minimum wage as a way to compensate employees to cover living expenses in an increasingly costly world never addresses the root of the inflation issue, which is a depreciating currency. It takes more dollars to buy the same dozen eggs.
Raising minimum wage might play well when buying votes, but it is and always will be a lagging indicator.
Raising Minimum Wage is a Trojan Horse.
Even if the law to raise minimum wage is passed, it won’t solve the problem so why pass the law on a false premise? It’s an inadequate solution to the inflation problem we all feel.
If you debate this, then why stop at $15 dollars per hour, why not $100?
Strengthen the purchasing power of the US Dollar so minimum wage goes further is the answer, not raising the wage rate.
The currency’s purchasing power and the cost of living are directly related. Can we have a debate about this please?
Then there is this idea of “fairness” which also needs closer examination. Fair is a relative term; fair from whose perspective?
Not from a high performing existing employee’s perspective and not from a business owner’s perspective.
The situation at Kitty Hawk Kites on the Outer Banks of North Carolina illustrates the problem.
These are the folks who taught me how to hang glide the weekend my nephew Christopher got married to Bethany. The whole wedding party and I trudged through the sand dunes made famous by The Wright Brothers to engage in this pretty risky business.
It took two experienced staff members to keep track of the changing weather, coach the terrified, control the large and unruly kites and frankly, keep us from killing ourselves on those hills.
Afterwards the owner of the business asked me if I thought the $10.10 per hour minimum wage law was going to pass. My response was it was an election year and chances are it would. He said, “It takes me two years to train my staff. They need to learn a lot before I can send them out on a team with new pilots (that’s what we flyers were called).
If I hire someone at $7.25 per hour and they work their way up to $9.50 after gaining all that experience, how can I rationalize hiring someone with who actually is a liability for the first year at a higher rate?
And then what about all those additional payroll expenses no one in Washington ever acknowledges? Raising minimum wage makes no sense.”
Raising Minimum Wage Doesn’t Make Sense No Matter How Compassionate It Sounds.
The owner continued, “In the first year for a new staff member, I’m paying them to learn. They add very little value because they know nothing. The business is subsidizing their training off the backs of the experienced staff members.
By raising minimum wage so high, it completely destroys my compensation scheme with experienced staff. It also drains the business of so much cash, I cannot afford to hire a new staff member to grow the business even if demand increases. I can’t pass on all these additional costs to customers. They won’t pay it.
The additional costs of unemployment insurance, payroll taxes and social security taxes are just crushing. These additional expenses are in addition to liability insurance premiums that have doubled in the last several years.”
(The fact that he can still find an insurance company to underwrite a hang gliding business was nothing short of miraculous. No doubt those premiums were very high and trending higher.)
What’s the owner saying? The argument that raising the minimum wage is “fairer” depends on whose perspective you take. It’s not fair to existing staff who worked their way up to a wage that reflects their contribution to the business.
It’s not fair to the business owner who bears the cost of training new staff for many months who, because they have no experience, actually represent a liability to the business at first.
It’s not even fair to the new worker who is given the false message than their presence is worth more than it actually is. An hourly wage of $7.25 is a really good wage for someone who is clueless.
Raising the minimum wage is not fairer, nor does it adequately address covering the rising cost of living. At its core, it’s a shiny new tax on the engine of innovation and job creation; small businesses. But if we’re going to ignore reality, why stop at $15 per hour? Why not $100? Anyone? Anyone?
This article was originally published by Best Small Biz Help
Published: June 4, 2014
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