AMERICAN MINIMUM

Source

By: Wayne Brown



Apparently the goal of the State of the Union Address for 2013 was to make sure the President appeared to be focused on the problems at hand. As one might expect, the president continued his mantra for continued growth in an already enormously over-grown federal government emphasizing the need for continued federal spending. By the way, that spending either requires more taxation, more money printing, or more federal borrowing…none have any positive effects in terms of economics but they sure sound good when the president stands up there and challenges Congress to act on his suggested measures with great expediency and then threatens to take matters in his own hands if they do not.


One does not have to watch this president and listen to him for very long to realize that he has no head for business or the successful sustainment of a business. It is very easy for him to suggest that the minimum wage be raised from $7.50 an hour to $9.00 an hour with just the wave of his hand. That is all that it really takes and things work just fine. The worker does the same level and amount of work and the employer pays him $1.50 more an hour for that effort. Is that about right? Not really but in Obama’s mind it is that simple. Let us take a closer look at what the president suggests and see how realty simple it is to do in the business world.


First, let us talk about minimum wage a bit. Somewhere back in time, someone thought it might be a good idea to have a minimum wage restriction so that workers could be insulated from those who would demand a hard day’s work yet pay a miserly sum for that effort, thus the minimum wage law. Ultimately the law did more to suppress entry level and part-time job opportunities for many young people as the required wage was set relatively high for the duties and requirements of the job. Once the standard was set, it then became the reference by which other things are measured thus creating the pressure to continually raise it. Unions caught on quickly and tied their contract clauses to the minimum wage rate guaranteeing that everyone got a raise if those on the low end of the scale received one. In the case of Obama’s proposed raise in the minimum wage, the escalation is 20
% so one does not have to think about it too long to realize that union workers up the pay scale spectrum will benefit greatly by such a change.


For the purposes of our discussion, let’s say this is Joe’s Widget Shop. Joe owns the place and employees 15 people to make his widgets. There is some turnover among the employees since all of them are always looking to better themselves so at any given time, Joe has about one-third of his workforce at the entry or training level and receiving minimum wage pay for their efforts. Joe’s widgets are part of a sub-assembly of parts used to make larger machines. Joe has to bid contracts with those he supplies his widgets to annually. The competition is heavy and the margins are thin. On average, Joe is recovering about $10 per widget unit in sales revenue. The Widget Shop turns out and ships 100,000 widgets per year yielding sales revenue of $1 million dollars annually.


From that annual revenue Joe must pay his capital improvement costs, his material/inventory costs, his operating and labor costs, taxes and fees, and a living income for himself with the hope that there is a little left over as retained earnings in the coffer for a rainy day. Joe pays himself $5,000 per month or $60,000 a year….just slightly more than the national average household income. Joe’s business runs 50 weeks per year logging 40 hours per week per employee. All employees are paid on an hourly rate. At present, 5 of the 15 employees are being paid at the current minimum wage of $7.50 per hour. Another 5 are at $10 per hour, and the remaining 5 of the 15, his longer term employees, earn $15 per hour.


Joe just received notification that the Minimum Wage Limit has now changes to $9.00 per hour for each employee effective the 1st day of the next month. This change will not only affect the wages of Joe’s five employees making the minimum wage rate but will cause Joe to have to adjust his pay grade up and down the scale in order to maintain morale in the shop. Obviously all the employees will be aware that those earning the lowest wage in shop just received a $1.50 per hour raise. They too will expect something extra in their pay envelopes.


The increase in costs at the minimum wage level appears to be 20% but Joe realizes that the figure is much greater. With the mandated increases also comes the expected increases of other shop employees paid at the higher levels. In addition, the employer’s share of Social Security and Medicare Withholdings will increase as well. Joe sets about the task of calculating his new labor overhead knowing full well that there is no promise of increased sales revenues or new contracts in this operating year. His projected cash flow of $1 million dollars in revenue is what it is and that is all.


The increase in minimum wage will add an additional $3000 per employee for a total of $15,000 to the hourly payroll plus another $1150 in annual SSI/Medicare Employer payment for a total of $16,150 annually over previous costs. If Joe gives his mid-range employees a .75 cent per hour raise and his top employees a $1.00 per hour raise to sustain morale, the move will cost an additional $18,839 annually. Total cost driven by this shift in minimum wage will be $34,989 annually. In round numbers, Joe’s annual payroll outlay just went from $350,000 per year to $385,000 annually or the equivalent of giving each of his employees a 10% raise in pay. Who gets a 10% pay increase in these times in one year?


The Widget Shop has historical had a net profit bottom line of 3.5% on average in the last five years of operation. This is the money held in the liquidity by the company for a rainy day and the rainy days always come sooner or later. With no increase in annual revenue, and assuming all other expenses remain at historic levels, the change in annual wages will take just about every dime of the reserve leaving no safety net for the company at all in terms of unexpected cash flow requirements. While Joe could operate under those conditions for a short time, eventually there will be problems.


Joe has two choices to sustain his business and the income producer for his employees. He can cut his own salary by more than one-half but then with two kids in high school and one in college, he will not be able to even keep his head above water. In fact, he would be able to earn a better living by working for the other guy. The other alternative is to lay off two of the minimum wage workers and try to make the production numbers with less people. If everyone in the shop knows what is on the line that just might be possible.


Joe has found a solution but he is not happy because he must to let two good employees go thanks to the new Minimum Wage Law in order to sustain the status quo of the business. Those employees will not be happy either and certainly their families will not be any better off as a result. While lower level wages do not always provide enough, it does provide more than no wages at all which is what these employees will be faced with for the time being. No, Joe is not happy with the solution but these are the decisions that every businessman has to make when the government attempts to run the show. In the end, there are no winners.


This same scenario can take place in Corporate America with the impact of the minimum wage on union contracts as well as employee morale. Like Joe, Corporate America takes a look at its circumstance realizing that those who run the operation must answer to the stockholders’ Board of Directors. Choices will be made. In some cases, the price of goods and services will go up to the consumer, in others, cutbacks in the workforce will offset the impact of the increased expenses across the board. In either case, those on the low end of the pay scale will suffer either in higher prices or loss of jobs. Given that outcome and the potential impact, one can easily see why the president calling for an increase in the minimum wage would be a time for celebration…at least for some.


Whether this president knows it or not, most small business are hurting in the dismal economy of the past four years. The next four years looks like more of the same. These are businesses that struggle to pay much above the minimum wage but they do provide jobs for some who cannot otherwise find work, especially in small town America. When the minimum wage requirement takes a 20% jump, many of these businesses have little recourse but to close their doors as eliminating one or two job positions will not close the gap. Rather than improving the lives of those now struggling to hang on to their self-respect in a anemic economy, the president is calling for someone to drive that final nail in the coffin which will line the union contract employees pockets at the expenses of those on the low end of the spectrum. Of course, that should not come as a surprise to anyone for this president believes that in order for things to improve, someone must suffer.



©Copyright WBrown2013. All Rights Reserved.


13 February 2013.


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Comments 57 comments

Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

WB - It is interesting how many comments I have read praising the President for this bold move on his part. Very few understand this bold move just might have cost them their job.

Some small business's will try to pass this added cost on to the customer. It is a fact of life that most of us have a limit on how much we will pay for any product. So the outcome is the same. Less customers equals less need for employees, and they lose their jobs.

Other business's are locked into contracts requiring them to provide X number of widgets at X cost per widget. The increased costs for producing the widgets will drive them out of business and everyone will lose their job.

We all know that our school system has pretty much quit teaching the basics, reading, writing, and arithmetic. So many young workers would have trouble understanding what this bold move will cause in the business world.

The law of supply and demand also applies to the labor market. At this time we have more available labor than we have available jobs, so the going price for unskilled labor is down. We also have far fewer skilled workers available to employers. Bottom line is the more you know, the more your worth.

A young person who barely made it through high school and has no skills for sale can pretty much count on a lifetime of minimum wage jobs. They depend on someone to force a minimum wage increase on the employers to better their position in life. I guess they don't realize that they could improve their lot in life by learning needed skills?

The oil fields in Texas are so desperate for truck drives, the State is willing to pay for the training required to obtain the necessary CDL license. Yet they have yards full of trucks sitting idle because they can't find drivers. Even some Corporations are paying qualified students to attend private trade schools to learn a job skill that is in demand.

I guess it boils down to either waiting for someone to force employers to give them more money, or doing something themselves to improve their lot in life.

But, I guess many are just happy knowing that our President is going to help them get even with those damn greedy employers.


CMerritt profile image

CMerritt 3 years ago from Pendleton, Indiana

EXCELLENT HUB! Extemely well put. How anyone can not understand the ramifications of increasing the Min Wage is beyond me.

Once again, common sense dictates how our free market is SUPPOSED to work.

Great analogy and the video does a wonderful job at explaining how our free market.

Up and across the board!

Chris


LA Elsen profile image

LA Elsen 3 years ago from Chicago, IL

I second CMerrit. "Extremely well put."

After watching the sotu I fear for the American business owners and all of us who depend on their goods and services.

Nice Hub.


Wayne Brown profile image

Wayne Brown 3 years ago from Texas Author

@Old Poolman...Employees always reach a crossroad where they either have to buy in to the company and realize that their future rides with the company's future or move on to what they perceive to be greener pastures. It is one thing for an employer to lose a skilled employee to another company because the person can better themselves. As much as the employer dislikes the loss, he understands the rationale and likely tries to find ways to tighten the gap. But, when outsiders come in and dictate the business model when they have no understanding of it...that is a totally different circumstance. The fact of the matter is that most small businesses just do not have a large pool of reserve funds to draw upon when things get tough thus the survival of the business is always at the forefront. Thanks, Mike. ~WB

@CMerritt...We all like to make more money but at what price? That is the key. If it is going to cost us our job then the price just might be too high. Thanks much, Chris! ~WB

@LA Elsen....Thank you! It is easy to take other people's assets and promise them to someone else...very easy and it certainly does not require a Harvard Law degree. ~WB


Barefootfae profile image

Barefootfae 3 years ago from Skye

Really good hub Wayne. I have been arguing all this to a bunch on a forum I started about it but of course they have "links".

And of course there are other countries doing just fine with their min about 16 an hour. I suggested 45.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

Heck, why not make it $50 per hour and we can acheive the target of nearly 100% unemployment much faster.


CHRIS57 profile image

CHRIS57 3 years ago from Northern Germany

As you make an example of widget-maker Joe, may i emphasize that Joe´s business represents only 10% of the American workforce, those 10% that make something and are not in service.

Having said this, i believe Joe does have a choice. Not necessarily a choice to keep the headcount of his workforce, but a choice to stay in business. He can invest into automation, a decision and business case that is made more feasible through higher wages.

Doesn´t low wage labour prevent from getting more productive? Doesn´t low wage labour take away the incentive from automation investment.

From a macroeconomic standpoint it does not matter if Joe´s 15 workers create 1 million in revenues or if 13 workers have to work harder to achieve the same, leaving 2 unemployed and on welfare. But is is a completely different situation, if Joe employs 7 workers and some capital investment to automate and increase productivity, if Joe is more competitive and boosts his revenues to 1.5 million and if 3 of his spare workforce now work for a company who makes the automation equipment that Joe needed. They may be creating another 0.5 million revenues so Joe´s little economic garden creates 2 million revenues and employs only 10 workers. With the extra million there is also some room to feed the 5 people on welfare.

Where is the flaw in this? :-)


Motown2Chitown 3 years ago

Ah, Wayne. Excellent hub. I'm completely torn about raising minimum wage because of all of the issues that surround it. This hub, though, gives me a much greater understanding of how it affects business owners, and for that I thank you. I wish that I was comfortable living in this reality. Sigh. I think Capitalism is an amazing thing, it doesn't always work as well in practice as in theory to care for everyone. Doesn't mean I'm a socialist. Just have to wonder if there's a middle ground somewhere.

Thanks for the food for thought.


Patriot Quest profile image

Patriot Quest 3 years ago from America

When will the libs learn that MARKET dictates wages? Do you believe that McDonalds can hire cooks for 1 dollar an hour, even with high unemployment? Why not? Because they can go to work at Burger King for 10 dollars per hour, Burger king will hire them all day away from Mc Donalds because their product sales! Mc Donalds will have to match or beat to attract workers...........minimum wage never came into play.........except now McDonalds and Burger king fire the clean up crowd and the cooks have to clean the kitchen before going home.


Ericdierker profile image

Ericdierker 3 years ago from Spring Valley, CA. U.S.A.

Wayne this is an excellent hub, thank you. I came back to read the comments and try to reconcile the issues. So there I was, staring and pondering at your opening photo and it all became clear. Look at the beautiful mirrored glass building next door, look closer. That is a US government building. I wish we could move those signs fifty feet over.

But I figure with your keen skills you saw it also.


FitnezzJim profile image

FitnezzJim 3 years ago from Fredericksburg, Virginia

I thought when the President referred to minimum wage he said 'federal minimum wage'. I inferred that he meant the minimum wage for a federal employee would be $9.00/hour. But when I checked, there were only two entries on the federal employee wage chart that were below the $9.00 mark, GS1 step one and GS1 step 2. If the lowest of those was moved to $9.00 mark, then it would represent about a 1% raise. 1% raise every three years ain't too shabby. How does this wage compare to unemployment benefits? What do you gain by working if it costs you more to come off benefits?


Sanxuary 3 years ago

I think we should raise it another 3 dollars to say 11 or 12 dollars an hour. My theory is that paying people more will get people buying and will get this economy moving forward. I think you have to actually have capitalism first in order for it to work. The people at the top need to take a pay decrease and invest in people for a change. They are only killing their selves at the moment and there is no where but down side unless they grease the wheels. The other thing badly needed is small business. It buys there products and employs others to buy more crap. If you have all the money you eventually have no one else to take it from.


breakfastpop profile image

breakfastpop 3 years ago

Obama has targeted small business to be his personal piggy bank. I saw a clip this morning of Obama calling his administration the most transparent in history. I had to take 2 aspirin...


Wayne Brown profile image

Wayne Brown 3 years ago from Texas Author

@Barefootfae...Unfortunately there is far less money in many small businesses than people think thus many business owners end up working very long and hard for less than desireable returns. Thanks much! ~WB

@MotowntoChinatown....I think the best perspective on capitalism is to say that it creates an environment in which we can determine for ourselves at what level we want to participate. If we are ambitious, driven, and willing to take risks, the opportunities are there. If we lean toward working for the other man and staying in a more secure environment, those opportunities are there as well. We do ourselves the greatest injustice when we have (at a young age) opportunities to get the knowledge and training necessary to compete for those jobs that will pay us at a higher and we turn away assigning no importance to it. Later, as we view ourselves as "victims", we look to others to fill that gap that in far too many cases we have created for ourselves. We really cannot blame that on capitalism unless we subscribe to the theory that one person's success must come at the expense of another; if we believe that the employee deserves just as much return from the company's earnings as the person who made the investment and took the risk in the first place. Thanks much for your comments! ~WB

@CHRIS57...The potential flaw in that is that most small businesses do not have the necessary capital (cash flow) to cover a transition to automation. The other flaw is that too often we assume that particular people are interchangeable in the workforce....in other words the unskilled labor became the guy who monitored the computer program which cut the machine dies. Automation and computerization does create opportunities but not for the same people. Remember, the point of raising the minimum wage was to improve the lot of those at the bottom. The point of the model is to say that the effect is just the opposite in many cases. Thanks much! ~WB

@Patriot Quest...You are so correct...the market does and should define the value of our skills as services just as it defines the price point of goods and services sold. Far too many believe that companies can make as much money as they want simply by raising their prices yet they would be amazed to sit in the boardroom meetings of these companies and see how many times those attempted increases did not stick in the market because of competition...the most beautiful aspect of capitalism. We are raising generations today who get all their answers from electronic devices in a magical sort of fashion. There is no priority placed on understanding that functionality. They are taught to step through the process and the answer comes out on the other side. Eventually the lesson becomes: run the process, get the result, apply the result...problem solved! Duh! When we embrace such an approach we are saying that there is no longer any reason to teach math because we now have a calculator in hand which will do the math for us....very dangerous mindset. Thanks much! ~WB


Wayne Brown profile image

Wayne Brown 3 years ago from Texas Author

@Ericdierker....It is really a symbolic photo....small business going under in the shadow of big government. That is a hard truth of the day and a reality. If the minimum wage rises to Obama's desires, that reality will be far more broad spread. Thank much! ~WB

@FitnezzJim...You make a good point. Even back in Clinton's early days, he was pointing out that government assistance is a "temporary status" or should be. Even then, the benefits were close enough to what the person was enjoying working that they saw no reason other than pride to get off the wagon. Today, it is not looked upon in terms of pride or self-esteem....it is about ripping off the taxpayer and feeling good about what you have so intelligently accomplished getting most of your rent paid, a free cell phone, and an unemployment benefit check for 99+ weeks along with a debit card to buy some food....estimated cost to the government....about $60,000 per head. Now who is getting ripped off? Thanks much, Jim! ~WB

@Sanxuary....You have understand that as an economy grows expotentially so does the potential for wealth as the pie grows larger thus in order to become wealthy, one does not have to rob it from someone else but simply provide a particular good or service which has value. There is no guarantee that it will make you anything more than a living in the end but occasionally, if the product or service has a unique value, then the potential for wealth increases. Also understand that if we took all the money currently out there in the U.S. economy and divided it absolutely evenly among the people, within a few years, some folks would be rich and some folks would be broke, and some folks would be neither...just as we are today. Putting a few more dollars in peoples' hand does not necessarily change their life or the quality of it and once it is spent...the value to that person is gone as is the power of it. Even at the lowest level of subsistence, the ability to improve one's lot lies more in self-discipline, restraint, and initiative than any other factor. Those who have rose up in our society did not do so because someone found them, took them by the hand and led them to that place...they worked their way there through self-discipline, determination, focus, and maybe some level of risk taking. If we place no value on improving ourselves and our capabilities then why should the marketplace be willing to pay us more to show up for work? Thanks much! ~WB

@breakfastpop...The only transparency is the apparent stupidity of the American public to believe anything this man is hawking as being "good for America". He does not give a tinker's damn about America and that fact will become more and more apparent over the next four years. Thanks much, Poppy! ~WB


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

Also keep in mind that a small raise for minimum wage workers brings in more tax dollars to the Feds. They will withhold more from each paycheck if this goes into effect. Doesn't sound like much, but multiply this by millions of paychecks and it will be a tidy sum of money.


WillStarr profile image

WillStarr 3 years ago from Phoenix, Arizona

Government decides that the current minimum wage has not kept up with inflation.

Government orders a minimum wage increase of 20%.

Business responds by raising prices to offset the higher cost.

Prices rise accordingly.

Government decides that the current minimum wage has not kept up with inflation.

Government orders a minimum wage increase of 20%.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

And the cycle continues until.....?


WillStarr profile image

WillStarr 3 years ago from Phoenix, Arizona

Exactly.

It's a fool's game, and Washington is full of fools.

And they are all liberals who can't figure out why the minimum wage never works.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

Just more of the band-aide fixes for our serious financial situation. Kind of like putting air in a tire every morning that is flat again by that night. You can either air it up every morning, or have it repaired and not need to worry about it again.


Sanxuary 3 years ago

Its not about dividing wealth, its about getting above the cost of living. Everyone is in survival mode and we are only purchasing what we need to make it another pay check. Its even less about being unemployed, most have a job but can not get enough hours or a wage that moves us forward. Small businesses have vanished long before the recession.


Wayne Brown profile image

Wayne Brown 3 years ago from Texas Author

@Sanxuary...Small businesses have a way of dieing off even in the best of times for a lot of reasons other than just the economy. That is the unstable aspect of working in a mom and pop operation...many times the business does not survive them. As government involvement increases in our lives and the operation/regulation of business, hours will become increasingly harder to come by for lots of folks. This is the reason that two people out of fifteen getting laid off due to an increase in the minimum wage is significant because that scenario multiplies itself millions of times over across the nation for much the same reason making those who are already struggling to capture a living the victims. It is not an "evil business owner" wanting to torture those in need but a government making business decisions about something of which they know nothing thus leaving the business owner no choice if the business is to survive. Whether you look upon it as dividing the wealth matters little...that is how the government looks at it and that becomes their intent. In the end, they destroy the whole goose and leave nothing but the victims (both the business owner and the employees) wondering what happened? For the government to decide that a business can pay more in wages is no more an educated conclusion than having your next door neighbor decide it. Ultimately, at least in Obama's cases, it comes with double advantages...it creates even more class division and envy...friction in the masses and it plays positive to the unions that will mop up by getting their members higher pay on union contracts baselined on the minimum wage. In the end, the money goes to the wrong people...but don't blame the businessman for it. ~WB


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

I wonder if there was a law that everyone had to attempt to run a small business, if their views on minimum wage would change?

For instance, McDonalds employees see all that money coming across the counter as they stuff it into the cash registers. Some actually believe the owner of that McDonalds Franchise gets to put all of that money in his pocket and keep it. Thus, the employer is labeled as "greedy" because he only pays them minimum wage.

The average employee has no idea what a small percentage of this money flowing over the counter the owner gets to keep. How would they know this? Unless they took business classes in school or held a management position, they would have no way of knowing. Nor do they consider that the owner takes 100% of the risk. If expenses exceed revenue, he has lost his entire investment and is most likely bankrupt.

Attitudes would change if employees were required to "buy" their jobs by making a cash investment in the business. In this case, I doubt many would be so quick to propose a minimum wage increase.


Wayne Brown profile image

Wayne Brown 3 years ago from Texas Author

@Old Poolman....If you look at financial bottomlines, McDonalds certainly has a more impressive double digit net profit than the singular one earned by WalMart. The same goes for Coca-Cola. Still, WalMart gets the heat as a lousy employer. Looking at WalMart's bottom and and history of earnings, it becomes apparent that they have to increase sales by more than 1% annually to improve their bottom line by a tenth of a percentage point...in other words, if they want another 1% profit, then sales have to go up by 10%....that's tough, real tough. The company that I retired from associated a cost of $12 million dollars to every percentage point that wages increased in a given year. So, if the company gave an across the board 3% raise, the cost was projected at about $36 million dollars....right off the bottom line or sales have to increase as such to accomodate the bottomline just to hold the status quo before the raise. That is a big pill to swallow but one that is expected by the employee far too often with no thought as to the cost. Thanks, Mike. ~WB


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

WB - With McDonalds like with most any retail business, it comes down to location, location, location. Some of the Franchises are profitable, others are barely holding on. An increase in minimum wage will most certainly tip some over the edge into bankruptcy.

When we finish checking out and paying the bill at the local super market, most of us need a few moments to recover from the shock of what we just paid for a weeks groceries. We tend to blame the owners of the markets for those prices. Yet most large markets net around 1% of total sales. They depend on volume to keep the doors open.

It is the suppliers of the products the market sells who are raising the costs. This is due to increased operating costs for the suppliers to make that product available to we consumers at the super markets.

If they are forced to pay higher wages, these increased costs will quickly show up in the way of price increases at the retail outlets.

So, that wage increase many saw in their paychecks will just be handed over to the super market when they buy their groceries.

So who wins? Nobody..........


CHRIS57 profile image

CHRIS57 3 years ago from Northern Germany

@Wayne: .... The potential flaw in that is that most small businesses do not have the necessary capital (cash flow) to cover a transition to automation...

Not necessarily so. Aren´t there inventions like lease contracts to get a hold of automation equipment. Monthly rates are probably lower than the wages of those poor workers set free. Actually that is what makes up a business case.

My point is that low wages prevent from looking into mechanization alternatives. If you pay little money to the workers, the RC/NRC ratio (recurring cost (wages)/ non recurring cost(investment)) doesn´t get you a feasible business case. Potential argument pro minimum wage.

You are right that people are not interchangeable. Skill, experience and education make the difference. Of course you can´t delegate excess workforce from widget maker Joe to design high tech automation equipment. But what is not possible in the economic garden of Joe is well possible in a national economy. The key to success is education, training, raising the average of vocational skills of the workforce. And if that is achieved, increase skills, all discussion on minimum wage regulations is void.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

Perhaps when our education system gets back on track, they will start graduating students that can actually read, write, and do basic math problems. Then perhaps industry and school systems may begin working together to prepare students to fill the needed skilled jobs.

Of course that will take an overhaul of our education system, and eliminating programs such as "No child left behind," and graduating students who don't even meet the basic requirements.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

Certainly there are going to be some businesses that will be adversely affected by the new minimum wage, but you have to look at these things at the macro level. On the whole, American business is doing very well. The economy continues to grow, productivity continues to rise, and companies recently made record profits. Our per capita income is still very high. Our problem is therefore not one of production, but one of distribution. Over the past 30 or so years, ownership has captured the overwhelming majority of our productivity gains - meaning, our workers are more productive than ever, yet they have not benefitted much financially, while ownership has made a mint from labor's efforts. Due to a number of factors (cheap overseas labor, mechanization, etc.), demand for American labor is low. Labor therefore has very little leverage with which to demand higher wages - even though the money is there. When there is an excess of labor, the free market has no mechanism to correct this problem, so in times like these, government has to step in.

Most companies aren't going to be hurt by this, but a lot of workers will be better off.


WillStarr profile image

WillStarr 3 years ago from Phoenix, Arizona

The free market should be setting wages, based on supply and demand, rather than have government set an artificial wage.

Government should stay the hell out of it, because they always muck it up.


caltex profile image

caltex 3 years ago

Great hub, Wayne! Sad how some still do not get it. Of course, not only the minimum wage earner gets a raise. Sure, a lot of workers will be better off - if their company does got bankrupt as a result.

To some businesses, this could mean goodbye to their profits. In this economy, forcing businesses to raise wages will only mean businesses will find ways to keep some profit or simply survive. Either to cutback on manpower just like Joe did, outsource, or just close up shop.

This is so much like the unions demanding higher compensation from struggling companies. In many cases, this only led to the demise of the companies - more people out of work - more people on government unemployment benefits.

Business owners will definitely be investing elsewhere. There goes the job opportunites!

I agree with Will - the government should stay the hell out of it. Put the focus elsewhere. It can't even come up with a budget!

If one is not happy with their minimum wage salary - it should encourage them to better themselves (through training and hard work) or find another job where they'll get better pay. When people are skilled and work hard, it's good for the business and it goes around.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

@caltex - "Sure, a lot of workers will be better off - if their company does got (sic) bankrupt as a result."

Got any numbers on how many businesses are forced into bankruptcy just because of a bump in the minimum wage?


caltex profile image

caltex 3 years ago

@JohnfrmCleveland - numbers? No, I don't. I simply based my statement on what we both know and happen to agree on: "Certainly there are going to be some businesses that will be adversely affected by the new minimum wage..."


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

Common sense would tell us that those business's on the verge of bankruptcy will not be able to absorb these added costs. No different than a struggling family receiving a huge medical bill.

Unlike the government, small business and families are not allowed to just print more money when they need it.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

@OldPoolman - of course, some businesses on the verge of bankruptcy will not be able to handle the added costs. But how many business are we talking about here? And if they are already that close to bankruptcy, what are we really losing here? On the other hand, how many working poor will be helped by the bump in income? It's a balance. But over the past 30 years, businesses (and their owners) have been the overwhelming winners in the battle with labor. This is really a 1% vs. 99% question, and we all (should) know that the top 1% has been killing it for decades, while income has barely increased for the rest of us.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

JohnfrmCleveland - Just the increase in the price of gasoline seriously hurt many small business that use vehicles in their operation. I'm not sure what you mean by not needing those business's that are close to bankruptcy. That business may employee many others who depend on that business for their living.

I would guess from your comments that you have never owned or run a business. If that is incorrect, please let me know.

You also have to keep in mind that whatever any business pays its employees, it costs them half again that amount in payroll taxes and SS matching. Workers Compensation insurance costs are based on gross payroll. The more they pay out in wages, the higher the insurance premiums.

I guess what I am saying is it is not just the couple bucks per hour difference in pay that matters, as many other costs increase because of the higher wage.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

O.P. - I understand the extra costs. But that does not change the fact that most businesses will absorb these costs and survive, while many workers will be greatly helped. As I said before, it's a balance between the presumably few businesses that will fail and the large number of employees that will benefit. You seem to be saying that ANY costs to business are too much, without any consideration of the benefits.

I don't know what you want me to say about the price of gas. Should we lower the minimum wage if the price of gas goes up? There are just some things that business have to adjust to, and there is no guarantee of success.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

John, My guess is that you and I will never see this the same way. Anyone who has never lost a few nights sleep worrying about how they were going to make payroll would not understand. The fact is the employer is taking 100% of the risk, and all cost increases come directly out of his or her pay check. In many cases, the business owner takes home less pay than their highest paid employee.

What I'm saying is the cost of doing business is steadily increasing. Only a small portion of this cost can be passed on to the consumer if the business wants to stay competitive. I used the cost for gasoline as an example. I could have used increased taxes, insurance rates, license fees, and many other examples.

When these costs reach the point where there is no paycheck left for the business owner, why should they work for free?


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

They shouldn't work for free. At that point, you do something else.

Look, I feel for business owners on the edge. I also feel for the working poor, who have even less control over their own destiny. I feel for anybody on the edge of making it. But that does not encompass all businesses.

Yes, business owners take the risks. And quite often, it pays off, sometimes handsomely. When that happens, does the business owner pay his employees a lot, or does he pay them as little as the market will bear and keep the profits for himself?


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

John, business owners are people. Some are generous, some are selfish and greedy. Your implying that all business owners automatically fall into the selfish and greedy category.

Having been in business for many years, I can tell you that owning a business is both rewarding and frustrating. I ran my business on a profit sharing basis, and many of my employees were with me for over 15 years. Every one of my employees earned far above minimum wage, and received very healthy bonus's for Christmas. I sold the business and made an agreement with the buyer that he would retain all of my employees which he did.

I guess until you actually walk in the shoes of a business owner it is difficult to see the issues from the other side.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

I'm glad to hear that you treated your employees well, but that doesn't change my point (since I never called business owners greedy or selfish anyway). What I said was absolutely true - owners take the risks, and they also reap the rewards. That does not make them selfish or greedy, that's just the way it is. You earlier pointed out that owners take all the risks, so the added costs come out of their pocket. My reply was that business owners also get to keep the profit when they do well. That's the deal, and all business owners know that going in. It's not anyone else's responsibility to help business owners cover their costs.

The more relevant point is that the demand for labor is way down in this country, which means workers don't have the leverage they used to with which to demand decent wages. American workers are not only competing against laborers from China, India, and Mexico, they are fighting against automation, too. It's a problem that America hasn't had to deal with before. I personally don't think that we are ever going to reach 5% unemployment again - there just aren't enough jobs on the horizon. But business as a whole is still making tons of money, and ownership is keeping more of it than ever. While that may not apply to you or some other struggling small business owners, it is true in general. And that point shouldn't be lost in this side discussion about how a few small business owners are going to be hurt.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

Unskilled labor is not worth a great deal today because of the law of supply and demand. Skilled workers still make a decent wage and are in high demand.

Would it not be better to use money to teach workers a needed skill so they will not be in the large pool of unskilled labor for the remainder of their lives?

It appears that the government has become the Labor Union for unskilled labor demanding higher wages for exactly the same tasks at exactly the same productivity level.

We need to take a hard look at our education system and find out why we don't produce more graduates to fill skilled jobs.

A bump in minimum wage to $9 is just another temporary fix that will not solve the employment problem. Most employees would not even see much increase in take home pay after taxes.

The government would benefit the most from this increase due to higher withholding on every employee.

I have enjoyed our debate but we will never agree that a minimum wage increase is anything but a temporary patch, like another form of welfare. If we fix the economy this issue would take care of itself.

That old saying about "Give a man a fish and feed him for one day, teach a man to fish and feed him for the rest of his life" still applies.

We need to "teach" more and "give" less.


Wayne Brown profile image

Wayne Brown 3 years ago from Texas Author

@JohnfrmCleveland...There are very few, if any businesses, that can sustain a 20% increase in payroll costs and survive without some change in the status quo (i.e. increased sales and revenue). Look at a monster company like WalMart with a net profit annually under 4%. Based on their historical earnings, WalMart must increase sales by more than 1 percentage point to change their net bottom line by even one-tenth of a percent. All other revenues transactioned are already consumed. It is not like they can just reach in the pot and come up with another 20% of their payroll. In union operations like GM, it means the entire pay scale will elevate since most union contracts have clauses which baseline wages on the minimum wage rate. Smaller business have even less hope of finding effective means to deal with increase in overhead. ~WB


WillStarr profile image

WillStarr 3 years ago from Phoenix, Arizona

Wages are also a function of supply and demand. We are in a recession, and unemployment is high because there's no demand for workers. This is exactly the wrong time for a government demand to raise wages! In fact, many companies would like to lower wages so they can stay in business.

Barack Obama has no head for business at all and should stay out of it.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

Keep in mind that the IRS will derive the greatest benefit from this proposed wage increase. Higher wages equals more tax dollars flowing into the bottomless pit of government. Don't think for a minute this proposal was due to concern for the welfare of the employees. If your working at even a minimum wage job you no longer affect their unemployment numbers. It is truly just a hidden way to collect more tax at the expense of business and the employees. I would be curious to know just how much additional take home pay most employees would see as a result of this increase.


CHRIS57 profile image

CHRIS57 3 years ago from Northern Germany

Old Poolman, is taxation of individuals in the minimum wage range really an issue? Someone working 2000 hours per year for 9 bucks per hour has a gross income of 18,000 USD. Standard deduction leaves some 8,500 USD of taxable income. And that belongs to the first (10%) bracket. So any income increase is taxed 10%, leaving 90% in the pockets, at least concerning the taxation debate.

According to generous wikipedia figures some 4 Million workers fit into the minimum wage category. If all work 2000 hours per year (i doubt that) and have to pay 300 USD more in taxes due to a 20% wage increase, then this adds 1.2 Billion USD to the US tax revenues. If federal deficit is 1 Trillion per year, then this gives an 11 hours or 0.4 day break, it stops the debt clock for 11 hours from running.

Please - taxation is no argument pro or contra minimum wage regulations.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

I'm saying they will have more withheld from their check at the higher payrate. That is all, but the government will bring in more in taxes because of this. I never said the government could eliminate all the other taxes because of a raise in minimum wage. I'm not sure how you do it in Germany, but that is how it works here.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

Chris57 - usually, if you make minimum wage, you won't be paying any federal income taxes. But you will still pay state income taxes (maybe), local income taxes (probably), and Social Security (FICA) and Medicare taxes, which come out right off the top. FICA and Medicare are the big concerns, because together they again take out, I believe, 7.5% from the employee and 7.5% from the employer (a double whammy if you are self-employed, as I am). This is our most regressive tax, and probably our most controversial tax as well, because many people wrongly believe that our social security system is actually separate from the rest of the federal tax pool. So many conservatives, who normally call for lower taxes, are loathe to reduce or eliminate this payroll tax for some reason.


WillStarr profile image

WillStarr 3 years ago from Phoenix, Arizona

"FICA and Medicare are the big concerns, because together they again take out, I believe, 7.5% from the employee and 7.5% from the employer (a double whammy if you are self-employed, as I am). This is our most regressive tax, and probably our most controversial tax as well, because many people wrongly believe that our social security system is actually separate from the rest of the federal tax pool."

And who created all that? The liberal Democrats.

The Federal Government needs to be drastically reduced, and all social programs should be relegated to the states. But that will not happen until it's too late, and we go belly up. Then the social programs will finally vanish, but we will all be looking for a way out.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

I'm sure the Democrats would be happy to take full credit for those programs, as they are tremendous successes. Beats the heck out of leaving a bunch of senior citizens out on the street with no means of support and no health care.

States, BTW, are not nearly as able as the federal government to pay for these kinds of programs. States are like you and I - users of the dollar. States and local government need to balance their budgets. This is not true of the federal government, since they can create dollars from scratch and pay for any dollar-denominated bills that arise. If states administered SS and Medicaid without federal help, we would all be getting taxed out the wazoo.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

John, have you even considered what all this printing of money is doing to the value of our dollar? Have you been to the grocery store or the gas pump lately?


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

I have considered this at great length, actually. (That's what my hubs are all about.) While it's too much to go into here, the amount of new money we print is not enough cause inflation. It's not even close.

The small bit of inflation we are dealing with now can be almost completely pinned on the cost of oil, which we have no control over. But we are getting off the subject...


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

John, you would have one heck of a time selling me that theory. My limited math skills would indicate just the opposite.

If it rained gold, and we could just walk around a pick up nuggets anytime we wanted to, gold would have little or no value. Printing money is like a rain storm of dollar bills, and they too will have little or no value.

We could reduce the price of oil if we opened drilling in this country and quit buying so much oil from other countries.

Perhaps in your mind you are really on to something here, but math says you just might be wrong. I actually wish you were correct, but am afraid it just isn't so.


WillStarr profile image

WillStarr 3 years ago from Phoenix, Arizona

"States, BTW, are not nearly as able as the federal government to pay for these kinds of programs."

That's because the states can't print money out of thin air, and fool people like you into believing entitlements are 'paid for'. We are $16,000,000,000,000+ in debt due to the entitlements you claim we can afford, and our dollar is quickly losing its status as the world's reserve currency.

Maybe you should look up the term 'mathematical certainty', because it is a mathematical certainty that the US is heading for bankruptcy due to entitlements we cannot afford.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

@WillStarr - not that this is the correct venue, but do you even understand what our "national debt" really is? Do you understand bonds and dollar creation? If you want to really talk economics, I think you are going to be in way over your head. Do you realize that the dollar is the world's reserve currency in about 75% of transactions? There are no viable alternative currencies on the horizon to take its place anyway, but nobody is looking to switch except the Chinese. Further, do you realize that it is impossible to force the United States, which holds no foreign-denominated debt, into bankruptcy? Do you understand why?

I'm really not interested in teaching remedial economics here in the comments section.


Old Poolman profile image

Old Poolman 3 years ago from Rural Arizona

This is going to be way over my head so I am out of here.


WillStarr profile image

WillStarr 3 years ago from Phoenix, Arizona

"...but do you even understand what our "national debt" really is?"

I realize John, that you are now going to claim expertise, and that I'm a simple-minded hick, but I rely on people who are far smarter than a divorce lawyer, and I know that our dollar, which was on par with an ounce of silver when I was in high school, is now worth just four cents, because it now takes twenty five of those dollars to buy that same ounce of silver.

Don't even try to tell me that being $16,000,000,000,000 in debt is not serious, because our dollar is based on the full faith and credit of the United States, and that credit has been downgraded once and is headed for another, and that is based on jitters about our enormous debt.

I read your site, and I am not impressed.


JohnfrmCleveland profile image

JohnfrmCleveland 3 years ago from Cleveland, OH

"I rely on people who are far smarter than a divorce lawyer,"

That's certainly easier than learning about something and understanding it.

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