Tuesday, October 1, 2013

Of Minimum Wage Laws

I'm a small business owner.  Now, since I have no employees, I'm the smallest of small business owners.  In the past I have owned a business with employees.  I've also gone through periods where I was an employee.

Increases in the minimum wage are touted as ensuring that workers are paid a "living wage."  They are presented as insurance against the tendency of employers (especially "big corporations") to pay workers a pittance for back breaking labor.  We are told they will raise the standard of living of the poor, increase spending and employment and be good for the economic health of the country.  I submit that all of these are lies.  Here's why:

  • I've yet to hear a really good definition of "living wage."  Merriam-Webster defines it as "a subsistence wage" and as "a wage sufficient to provide the necessities and comforts essential to an acceptable standard of living."  These and similar definitions don't take into account that the average person living below the poverty line in this country has a standard of living higher than that of the average person (not the average poor person) on every continent in the world (with the possible exception of Australia).  Specifically, the average poor person (using the government's definition) in this country has
    • enough to eat
    • at least one car that runs
    • heating and air conditioning
    • at least one TV
    • a computer
    • a cell phone
    • a place to live
    • clothes to wear
    • a washer/dryer
  • "How can this be if they are poor?' is a reasonable question.  The answer is that our government's definition of poverty does not define a poor person as one who lacks the necessities of life.  Rather, it uses a rather arbitrary income as its definition.
  • The people who push hardest for an increase in minimum wage laws demonstrate a dramatic misunderstanding of the nature of business and business owners.  Contrary to what some people suggest, most workers are not employed by large corporations.  The most recent year for which I have data is 2008.  According to the Department of Labor, in that year there were 27,281,452 businesses in the US.  That's a lot!  So, if we increase the minimum wage, it might seem reasonable to say that a lot of people would be making more money.  Let's look a little deeper.
    • Of those 27 million plus businesses, 21,351,320 (about 78%) had no employees.  Like me, the business owner was the only person working in the business.  This leaves 5,930,132 businesses that had employees.
      • Of those, just over 3.6 million of them had 1-4 employees.
      • Just over 1 million had 5-9 employees
      • 633,000+ had 10-19 employees
      • 526,000+ had 20-99 employees.
      • From this we learn that of those businesses with employees, approximately 98.16% of them employee fewer than 100 people. 61% of them have 1-4 employees.
      • In virtually any given town, the vast majority of the businesses will be
        • small and locally owned
        • have few if any employees
        • Those that do have employees are, statistically, likely to have not only fewer than 100, but fewer than 20 or 10 or even 5.
        • Therefore, in terms of business owners, the greatest impact of an increased minimum wage will be on the small, locally owned independent business which is often barely making payroll as it is.
    • As items become more expensive, individuals tend to buy less of them and to be more focused on the value they get for what they spend.  The same is true of business owners.  As the cost of anything goes up, business owners become increasingly focused on getting the maximum possible value for each dollar spent, including that spent on labor.  If forced to increase pay from $7.25/hr to $10.00/hr as some have suggested, history teaches us the following will happen:
      • Teenage and minority unemployment will increase as will poverty among these groups.
      • Those with fewer or no skills will be passed over for hire into entry level jobs in favor of those with more skills.
None of this is to suggest that there are not people in this country living in abject poverty.  There are and they need help.  
  • That help, if the cycle of generational poverty is to be broken, must not focus on "feel good" measures that have no basis in reality but on permanent, long-term solutions. 
  • Short term help may well be needed, but the real focus must be on education and skills so that individuals can not only earn more but see the very real possibility of significantly altering their circumstances and those of their families.  
  • We must change our definition of poverty to include only those who lack the necessities of life (food, clothing and shelter) rather than those who live below a certain income level.
  • We must stop incentivizing dependence.  If the possibility of increasing income by $10,000.00 per year comes at the cost of losing $15,000.00 per year in benefits, is it reasonable to believe many are going to take advantage of that?
  • We must find a way to distinguish between those who can't work for whatever reason and those who won't work.  A long time ago, there was a man named Paul who said "If a man won't work, don't feed him."  The obvious point?  If he gets hungry enough, he'll work.
  • We need to leave our kids with a legacy of a strong work ethic.  My dad used to say "hard work won't kill you."  Included in this work ethic must be a real sense of gratitude that they have the opportunity to work and earn an income.
  • We must extinguish in our kids this sense of entitlement so many of them seem to have.  Contrary to what many would suggest, the world does not owe them or anyone else a living.
Note: Some have criticized me in other places for what I've said here by suggesting "that's easy for a person to say who has never been unemployed or had to go on public assistance."  Let me be clear.  I have been both unemployed and on public assistance.  I hated it.  I didn't like the way I felt when I was in those circumstances or the amount of control it gave others over my life.  As a result, my goals were really simple; to get a job and get off public assistance as quickly as I could.