A relatively short article on the U.S. Minimum wage in Monday’s Wall Street Journal caught my attention. http://online.wsj.com/article/SB124684183990798403.html. As you may have heard the minimum wage is raised July 24th this month to $ 7.25 per hour (from $ 6.55). The article went on to note that 2.8 million workers will be affected by the change. Given a 35 hour work week, that works out to $ 24.50 per week. These are the people who you should never see in Starbucks.
There can be no doubt that $ 100 per month is a substantial amount of money to a number of people. At the same time it is difficult for me to fathom how people can make a living on less than $ 300/week. To live in an expensive city like New York, Chicago, or Los Angeles or even suburbs of those areas is seemingly impossible.
So how does the minimum wage serve people in more expensive areas? It doesn’t. How can the minimum wage be the same for expensive cities as it is in less expensive areas (of which there are many!)? And how does the minimum wage serve entrepreneurial people looking to start a business right now?
A big thing missing here is risk evaluation. Anyone who starts a business and hires even one employee is taking on risk to a much greater degree than a salaried employee. I had business partners years ago who were essentially bankrolling our company. When we finally parted ways they told me that things would be different when I was risking my own money. Boy, were they right.
Business owners take all the risks and apparently the government regularly forgets this fact. Employees must be paid their wages. I get this (and we have no minimum wage employees – not even close). Even if the company does not get paid by a customer (due to a myriad of reasons like oh say – Chapter 7, 11 etc.), the employees still have to be paid. And I agree that is the way it should be.
And without a minimum wage there would be business owners that take advantage of their employees. There always have been and always will be. But the notion of a one –size fits all minimum wage simply does not make sense to me anymore. I don’t see how it really helps worker overall as the increase this month will hardly act as an incentive to start a business. If you think that $ 100 per month is significant to a worker – how about trying to start a new business requiring 6 employees (like the car wash in the article) at $ 100 each per month? That could be just the disincentive needed for an entrepreneur to say – no thanks.
Do you agree?
Very interesting topic. The minimum wage should be abolished immediately. It hurts those it is supposed to help. Maybe the lucky few get $7.25 per hour instead of something less. But many others get zero per hour, because they don’t get hired in the first place. Have you see the teen unemployment rate lately? It’s 24%, according to Forbes (http://bit.ly/eoB4t). At $7.25 per hour (or more in many states), employers are finding alternatives or doing without. (And by the way, the majority of minimum wage earners are teens.)
You are correct to point out some of the flaws of the minimum wage. The biggest flaw, though, is that it arbitrarily prevents employers from paying their employees what they are really worth. Therefore, the employers end up not hiring the employee at all.
Here’s a real-world example. As you may remember, I worked at Pepsi for many years. Pepsi has factories around the world. In the countries with high labor costs, such as Western Europe, Pepsi installs more expensive highly automated equipment, reducing the need for costly labor. In the low labor cost markets, such as many third world countries, Pepsi uses inexpensive low-technology equipment because it can afford to hire people to handle the otherwise automated tasks. The cost of labor matters.
If I want to hire someone for $5 per hour, or even less, and that person is willing to accept, why shouldn’t that be permitted?
Sure, it would be great if everyone could make $50,000 or $100,000 a year. It would be great if I could buy a new Mercedes for $10,000, too. That’s not how prices are set.
There are many reasons why I agree with you Doug that a minimum wage does not work and I think your example is emblematic of the difficulties in maintaining a minimum wage model. My daughter is working this summer – not getting a minimum wage since she is not yet 16 – her situation is not untypical but she still goes off to work every day not thinking about that/