Last week there were protests to raise the minimum wage to $15. The SJW (Social Justice Warriors) were out in force trying to press lawmakers to make this reality.
Is this a good idea or a bad idea?
If you’re making $7 an hour and you prove to your employer that you’re worth $15, or, you find a better job paying $15 then this is a good thing for you. You make more money in exchange for your time and talents. You have more take-home pay to spend on whatever you want or need to spend it on. In this scenario it’s a good thing.
If however, we, across the board, raise minimum wage to $15 an hour, something entirely different happens: this is a very different scenario.
Before I get into what exactly happens, I’d like to use an analogy of tuning a banjo. Unlike a guitar which is made of wood, a banjo is made of a metal ring or hoop with a skin (either natural or synthetic) drawn over the top, very much like a drum. On top of this skin you place a wooden bridge for the strings go across – the strings are anchored at one end of the hoop, go across the bridge, and up the neck to the tuners at the end of the neck. Banjos can have either 4 or 5 strings. You tune the banjo by tightening or loosening the strings to get the tension just right for the desired note of a particular string. With a guitar, where the top is stiff wood, this is pretty straight forward, however on a banjo, as you tighten the strings, the top, being a skin stretched across hoop like a drum, moves slightly up or down with the increase or decrease in pressure from the strings. So you get the strings close and keep re-tuning and re-tuning until you finally reach equilibrium between the downward pressure of the strings pressing on the bridge, and the top pressing up. It can take a lot of patience; it’s quite a balancing act as the tension of each string effects the tension of all the strings.
Keep that image in mind as you think about businesses and wages. A business is in operation to make money. If a business does not make money, or have the potential to make money, it cannot stay open. A business with potential may run off of investor funds for years before it turns a profit: sometimes it turns out good and the investors make money on their investment, other times, it fails and the investors loose. The only other way for a business to stay open that’s losing money is to cannibalize itself until the end, or, have government subsidies such as some industries. Government subsidies are not generally warranted or good for the economy: that’s Marxism not Capitalism, and as the world has shown, socialism and Marxism are dead end streets for the exact reasons I’m outlining here.
Just like that banjo, if you raise the minimum wage, something has to change to balance that new value or pressure. Businesses do not have unlimited bags of cash sitting around that they’re withholding from paying their employees – they can’t just pay people more across the board and not go out of business: what good would that do for anyone? Huge businesses have the potential to make huge amounts of money, but the other side of that coin is that they have the potential to lose huge amounts of money too: both due to their size.
There’s nothing wrong with making a lot of money – it’s a good thing.
So what happens when a state raises the minimum wage a significant amount, such as to $15? Since this has been done in some areas, there are real life examples. Some employees will lose their jobs, others will have their hours cut, and the business will invest in non-human solutions to get the job done. For example, Panera Bread is already experimenting with automated ordering systems to eliminate cashiers, so is McDonalds and other chains (see links below). They frame this with the narrative of a faster and more accurate customer experience but it’s in direct response to $15 minimum wages. All other businesses are doing, or will do, the same.
In the short term, if you support $15 minimum wages then you just caused some of those you were trying to help to lose their job. They’re now unemployed. This is what’s called Unintended Consequences.
Longer term let’s suppose that a business keeps all the same employees and raises their prices to cover the higher cost of employees… what happens then? Not as many people will pay the higher prices: $15 for a fast food burger for example. Eventually the business will fail completely or have to downsize and lay off employees. The people you were trying to help are now either all or mostly unemployed.
Your good intentions have had disastrous unintended consequences.
If you think I’m making this stuff up, I’ll give you another example of this balancing act and how it plays out when laws are changed that try to force companies to spend more on employees than they can fiscally handle. Obamacare forced insurance on full time employees for businesses over a certain size. So what happened? Either business stopped hiring new employees so that they would stay under the minimum, or, they cut employees hours back to 30 hours a week so that they’re not considered full time employees. Your first reaction to this strategy, if you’re a progressive or liberal, is to point the finger at these “evil business practices”, but remember the banjo, it’s a balancing act: either the business goes out of business, or, it balances the resources to stay in business.
There are always unintended consequences when meddling in a free market.
Let’s talk about minimum wage jobs. They’re entry level positions. They’re not supposed to support a family. I’m not even sure they should support an individual. If your head just exploded bear with me and keep reading – please. You get your first job, work hard, learn how to be an employee, and increase your value to your employer. If you feel you’re worth more than you’re being paid, ask for a raise, look for another job, get more training, etc. If after a year you’re still making minimum wage, that should be a clue that you’re not doing a great job, or, you’re working for the wrong business, or you’re in the wrong line of work for your skill set.
There are no participation trophies in life – you show up and get what you earn. My economics professor in college said: “there’s no such thing as a free lunch“.
There’s one other side effect of a high minimum wage: you hurt those hurting the most. I find it sickening that the NAACP is out there in the middle of these protests calling for a $15 minimum wage. The unemployment rate among young black Americans is extremely high, if not the highest of all. By passing a high minimum wage, you’ve just insured that no one will hire inexperienced workers. Therefore they’ll never get any experience. Therefore they’ll stay on government handouts and never get ahead. This fact alone should be enough evidence that organizations like the NAACP is no friend to the black American and is in place as an arm of the Democratic Party to keep them controlled and bamboozled.
What can be done to lift people out of poverty and make more money? Take the chains off the economy.
The current economy is hamstringed by some of the highest taxes on the planet, dangerous government debt levels, interest rate manipulation by the Fed, regulations that make it almost impossible to start or run a business, Obamacare, stifling energy policies… a government that is extremely anti-business.
To those of you out there pushing for a $15 minimum wage, you would serve your fellow man much better by replacing your signs with signs that say: “Lower Taxes, Less Government”.
In a growing, thriving economy business are hungry for employees and will pay more for them, it’s that simple… remember that banjo… the pressures have to remain balanced. That’s how supply and demand works: when something is in demand, it demands a higher price – you want to have people make more money: get the economy booming. You get the economy booming by getting the government out of businesses.
http://www.usatoday.com/story/money/business/2014/05/13/panera-bread-fast-food-restaurants/9036545
http://www.businessinsider.com/mcdonalds-to-start-customizing-burgers-2014-3
http://www.businessinsider.com/panera-bread-is-cutting-back-on-cashiers-2014-5
Until Next Time,
Fred
