Friday, February 14, 2014

How Does Raising the Minimum Wage Cost Jobs?

Raising the Minimum Wage can only be a good thing right? Only a heartless bastard would want to prevent people from getting a "Living Wage."

Not really. Let's put this all into perspective.

Mr. Jones owns a small grocery store. He employs 10 people, 6 full time and four part time. He has a three check out people, two sackers, two stockers, one team lead and two managers. The two of the sackers and both stockers are teenagers. The team lead is full time and acts as a senior member and assistant manager for the sackers and stockers. He also is in charge of making sure the produce is fresh.

Mr. Jones has to make a certain amount of profit to keep his store running. Most of his profit is reinvested into the store the next year. This upkeep and the wages he pays his workers, along with the cost of materials regulates the price he charges for his wares. This cost is a little higher than the larger store 10 miles away, but the neighborhood comes to the Jones store because the extra cost is outweighed by the convenience of the Jones store, not to mention the social and community aspects of seeing your neighbors at their place of work.

Mr. Jones makes a modest living, but is known around the neighborhood as a good employer. The teens in the area know that if they get a job at the Jones' store, they will be well treated, and they will make a little money.

Mr. Jones pays his workers what they are worth to the business. The sackers make $3 an hour, the stockers $5. The team lead makes $10. The checkers make $8. The managers make a yearly salary, with a bonus based on the profitability of the business. Mr. Jones always gives a little extra at the holidays.

Each worker has incentives to work hard, and contribute to the business. The sackers and stockers could make more money if they work up to stocker or checker. The team lead wants to be a manager, and the managers want the business to be profitable to increase their bonus.

One year, the Government added a minimum wage of $5 an hour.

This forced Mr. Jones to pay his sackers the same as if they were a stocker. The problem was that the sacker position is more of a "helper" position, and not worth $5 an hour to the company. In order to maintain his profit, Mr. Jones is forced to fire one of his sackers. The other sacker, now making as much as a stocker, really doesn't want to work at the grocery forever, so he starts to coast in his job. He has no incentive to show off what he can do to become a stocker. Mr. Jones now notices that his saker is much less inclined to help out, hurting his customer's overall experience. In addition to that, with only one sacker, working part time, he now has long periods in the day where his checkers must sack their own lanes, adding to their overall workload, hurting the moral of the check out team.

The next year, the Government raises the minimum wage to $8 an hour.

Mr. Jones can not afford to pay his sacker and stockers and maintain his profit margins. He fires all of his part time staff. The checkers now must sack their own lanes. The Team Leader must now do all of the stocking himself.
The checkers, now making "minimum" wage, and being forced to do MORE work than before, have their moral completely disappear. They do only exactly what is required of them.
Mr. Jones notices that without his sackers and the demoralized checkers, his customer's end experience is now vastly degraded. In addition, the produce is no longer as fresh as his team leader is now spending all of his time stocking shelves. He now has very little time to do the time consuming job of maintaining the produce.
In Mr. Jones' customer's minds, it is now no longer worth the extra money it costs to go to the Jones store. The friendly experience they used to get there has been replaced by a general worker's malaise. No one greets them when they walk in the door. No one helps them get their purchases to their cars. Their sons and daughters are no longer given employment, and the once always fresh and appealing produce has been replaced by rotten and expired goods.
The customers, simply stop coming to the store except to buy only forgotten goods.

Mr. Jones can no longer afford to pay his managers a bonus. The holiday extras are a thing of the past. Mr. Jones is forced to eliminate one of his Manager positions.
Mr. Jones has to make compromises on the upkeep of his store.
The paint peels. The refrigerated aisles fall in to disrepair. The store begins to stink.

After much yelling and wringing of hands about a "Living Wage" the Government raises the minimum wage to $10 an hour.

Mr. Jones now has no choice but to get a loan and install an automated check out line. He can only afford to pay a single full time checker. The cost of the automation is so much that he must eliminate his manager position. He can not afford to pay another stocker at $10 an hour, therefore the produce issue is never addressed.

A man who was once a proud owner an community pillar is now seen as a disgusting miser who allowed a great community business fall in to squalor. A man who once employed 10 people now employs only two.

Raising the minimum wage costs jobs and destroys small businesses. Only the big box companies can survive. You want to promote business? You want to create jobs? Stay away from the minimum wage.

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