McDonalds and the $15 minimum wage

$15 Minimum Wage – The Cost of Going Out of Business

The $15 minimum wage is all the new buzz in the political realm today. Given the income rate versus the cost of living I understand the argument so I wanted to dig a little deeper to find out where we really are and what I found scares me. First of all, the raise to $15 an hour as a new minimum wage is like the Dutch Boy putting his fingers in a dyke to stop the leaks from pouring through.

This is a typical government response to fixing problems – put a bandaid on a severed limb and kick the can down the road. CA Governor Jerry Brown was hailed as a hero in the eyes of minimum wage earning adults while being viewed as the devil by all business owners and those who understand the true impact of a $15 minimum wage. First of all, with the exception of a few cities who have already adopted a $15 per hour minimum wage, the wage goes up on a gradual scale until it reaches $15 per hour in 2023.

I understand the argument from both sides, I have been a business owner and have written the payroll checks from my own pocket. I also understand the income increase over the years vs the cost of living increase. A new minimum wage however, is just another nail in the coffin for small biz owners, but it is only one nail. Between the state and feds (especially in CA), honestly the nails no longer matter because they put the coffin in the ground a long time ago.

While Entrepreneur Magazine shows that small business failure rate has actually declined since 1977, if you look at the numbers closely, you will notice that, hidden in the details, so has the ratio of small business creation. Entrepreneurs understand that it is harder to start a small business and survive in today’s economic environment so fewer people start their own company. On the opposite side of this factor is the micro-business explosion. These one to two person operations are the result of the economy and people trying to survive. Participants in this market have driven down the small business failure rate because many of these float in and out of business with little or no tracking. So how do we get an accurate picture? We look historically and according to the SBA, about 33% of small businesses will survive 10 years and only about 25% will survive past the 15 year mark. Not the best odds, but guess what, we just made them worse.

Here is where the primary disconnect between proponents and opponents of the $15 minimum wage exists. When you step in and ‘subsidize’ the minimum wage, what the population may or may not realize is that for every dollar the wage goes up, people receiving that dollar are affecting the supply / demand curve of labor. So if an employee costs $15 plus SS and FICA, I have raised the COGS by that labor cost and rule of free market says that I will naturally find a way to lower that cost, whether it is by replacing humans with automation (today’s technology makes it pretty easy to do) or by determining that my costs outweigh my minimum acceptable profit margin so then it makes no sense for me to be in business.

We are looking at two diametrically opposed forces moving against each other – the cost of living vs the survivability of businesses in the USA. From the viewpoint of the wage earner here is the part that is truly scary, we have to feed our families and, although the unemployment rate shows that it is low (currently hovering around 5%), everyone knows that this is a fictitious number that has little meaning. Under-employed and non-reporting far exceed the rate whose only objective is to make the administration look good. Because we allow it, government is once again stepping into our lives and regulating how we should live – on $15 minimum wage. That is, if we can get a job.

Will $15 Minimum Wage Even Help?

Okay, here is the really scary part and it is already happening in parts of our country. $15 minimum wage does nothing because adults still cannot survive or feed their families on minimum wage, but the government keeps trying to impose their means of making minimum wage survivable. It will never happen and until we attack the true problem we will continue in the opposite direction of where we should be headed. The only thing that will increase is the propensity to poverty and you can see the numbers that are already moving in that direction below.

Small business and enterprise is the backbone of our economy and, until we quit penalizing capitalism and entrepreneurial activity, our gap will continue to grow. Wage earners – If you are working class America (the forgotten middle class), ask yourself, “Is my life better or worse than it was five years ago? Ten years?” The answer is obvious, but the choice not so much so. Without going into depth on growing class inequalities and the disappearance of the middle class, we can safely surmise that manufacturing, mid-level and management jobs (the backbone of the middle class) are disappearing at an alarming rate while lower class and upper class continue to grow.

$15 Minimum Wage - PEW Research - Middle Class Losing Ground

Still a proponent of the $15 minimum wage? Talk about shooting yourself in the foot. What happens when there are no more jobs?

Still an opponent of the $15 minimum wage? Don’t worry, you won’t be for long because those will be the only jobs that exist as the socialization of our country continues. Unless we shed the burden of imposed expense on our small and medium-sized businesses, until we actively and aggressively promote entrepreneurship and unless we become business friendly and entice our companies to come back home from overseas, we are on a doomsday path to a socialized destiny. Why do we think the Bernie Sanders movement has become so popular? Same for Trump. Americans are fed up and have nowhere to turn.

It is time for us as citizens and as leaders to take responsibility, to become accountable once again for our destiny and that of our children. We are in the middle of a peaceful, but serious revolution. It is time to listen and time to take decisive action to recapture our greatness as a country.

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