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Archive for the 'Economy: National and Global' Category

It’s Time to Tell The Truth About Minimum Wage

Before any product or service is offered to customers, the price must be determined. The foundational element of this calculus are costs, which includes labor. In a true free-market economy, all elements of cost are determined by the marketplace. But in the U.S., we don’t have a true free-market economy because of mandates and subsidies imposed by the federal government, one of which is the minimum wage.

Alas, raising the minimum wage is being proposed again.

When the government is involved, politics, not reason, is the motivation, which isn’t so bad when the issue is politics. But politics has no place in what businesses pay for their cost factors, especially labor, often the largest cost factor.

When proposed, the national minimum wage was never some great egalitarian blow for the working man. It became law in 1938 as a cynical, protectionist move by the Congressional delegations of the northern textile industry – primarily Massachusetts –against their southern counterparts, whose lower, market-based labor costs made them more competitive.

Today the minimum wage has become a political wedge issue of the cruelest type, because research shows each increase actually hurts the segment it purports to help, especially younger, entry-level workers, like teenagers and minorities. The primary reason is that for decades employers have controlled the impact of an increase by reducing entry-level positions using various organizational steps. But today, technological advances have given all employers an increased ability to forgo entry-level hires in favor of low-maintenance, non-taxed innovative devices and/or software.

The results of two recent online polls reveal how these options manifest on Main Street. When we asked about their attitude toward the minimum wage, 82% of small businesses said the government should not be setting wage rates. But when asked how a minimum wage increase would impact their business, 76% said “Not at all.” The reason for the lack of concern by the sector that doesn’t like the minimum wage is likely because: a) they’re already paying more than minimum wage; b) they have legal ways around it to the disadvantage of the unskilled, increasingly unemployed worker.

An important goal of most businesses is growth, but adding payroll expense to achieve it is no longer a given. And so far, business owners are in charge of the decision to add workers or use other means to achieve growth. Nevertheless, increasing minimum wage does cause problems: an arbitrary increase distorts all wages as it becomes the new base from which other workers measure wage progress. If a small business adjusts all wages up in response, expenses rise. But if it doesn’t, morale declines. Furthermore, unions use minimum wage as a contract lever to exact from employers automatic, across the board increases for all organized workers.

In the marketplace, any increase in price must be justified by value delivered. But this logic is lost when labor costs rise by government fiat without adding one extra unit of productivity.

Write this on a rock … Let’s call the minimum wage what it is: A political lie that actually hurts poor and unskilled workers.

Jim Blasingame is author of the award-winning book, The Age of the Customer: Prepare for the Moment of Relevance.

RESULTS: What is the greatest challenge to your business success?

The Question:

Which of these is the greatest challenge to your business’ success over the next 3-5 years?

23% - National and/or local economy
43% - National/state/local politics/policies, like taxes, regs, dysfunction
21% - Organizational deficiencies, like capital, talent, size, technology
5% - Big competitors and globalization
8%-  Internet competition

Jim’s Comments:

As you can see, when it comes to future challenges, only one-fifth of small business owners think their own internal issues might be holding them back. All the rest believe their greatest challenges lie outside their four walls

Two concerns representing two-thirds of our respondents, the economy and the government, are outside of the control of a small business, with the exception of their political involvement and their marketplace efforts. But the other three, including internal issues, are within the realm of a small business owner’s influence.

  • You can improve their own capital, systems and people;
  • You can realize the Big Boxes are more of a problem between your ears than on Main Street; and
  • You can accept the fact that the Internet isn’t going away and add that component to your traditional strategies.

I’m going to have more to say about this in an upcoming Feature Article. So stay tuned.


RESULTS: What do the signs read for your business in 2015?

The Question: Looking into 2015, what do the signs look like for your business?

28% - All signs point toward 2015 being a great growth year for us.
55% - We’re cautiously optimistic 2015 will be better than last year.
15% - We’re expecting no more business than last year.
2% - Right now, 2015 looks like a tough year for us.
Jim’s Comments:
As you may know, we’ve been polling small business owners about many topics for several years. At least four times a year we ask about the economy, either how it has been or what it’s looking like. Since the end of the Great Recession in July 2009, it’s been interesting that our responses have consistently shown about a fourth to a third doing well, about half doing just okay, and the rest doing poorly.

Many sources are reporting how the economy seems to be finally gaining some momentum. We wanted to know what you thought about these reports, so last week we asked how the New Year was looking. As you can see, the ratio of responses hasn’t changed much from past polls. This tells me after six years of a moribund economy most small business owners aren’t going to get excited until they can confirm that economic momentum has reached all the way down to the last mile of Main Street.

RESULTS:Have the midterms impacted your attitude about the 2015 economy?

The Question:

Photo credit to DonkeyHotey on Flickr.comHow have the results of the midterm election impacted your attitude about the economy in 2015?

18% - I’m optimistic about next year but not because of politics
44% - I’m more optimistic about 2015 because the GOP control Congress
0% - I’m less optimistic because the Democrats lost control of Congress
38% - I’m pessimistic about the economy because of all the politicians
Jim’s Comments:
As you can see, over half of our respondents are either indifferent toward, or negative about the impact of the Political Class on their business.  The rest are hopeful about their business because of the upcoming Republican-controlled Congress. Alas, the Dems got no love in this poll.
I’m going to have more to say about these results in a longer piece in the next week or so. Stay tuned. Thanks for participating and be sure to take our new poll this week.

**Photo credit to Donkey Hotey on Flickr.com. Image links to page. (CC).

Results of my 2014 Crystal Ball Predictions

Here are the results of my 2014 predictions, what happened and my score.

Prediction: Five years after the Great Recession ended, the economy will average less than 3% growth. Actual: Although surging, 2014 GDP will be about 2.3%. Plus 1.

Prediction: Even with a slightly improved economy, small business (SB) optimism levels will still be below the NFIB Index’s 41-year average of 100 points. Actual: NFIB Index 2014 SB optimism is below 95 points. Unfortunately, plus 1.

Prediction: Continued uncertainty for the sixth straight year will make SBs reluctant to invest and borrow money. ActualNFIB Index shows small businesses loan demand and investing at record low levels. Plus 1.

Prediction: Uncertainty about Obamacare’s impact will cause SBs to continue hiring reluctance. Actual: NFIB and other surveys shows SB hiring still negligible. Plus 1.

Prediction: Obamacare will continue to be an economic headwind in 2014. Actual: Owners and managers continue to identify Obamacare as a significant negative factor in business decisions. Plus 1.

Prediction: More significant than the media favorite U3 unemployment rate, the employment participation rate, currently 63%, will remain at a 38-year (Carter) record low. Actual: Current labor participation is 62.8%. Plus 1.

Photo by Garry Knight on Flickr.com

Photo by Garry Knight on Flickr.com


Prediction: The Fed will discontinue unprecedented quantitative easing (QE) that infused trillions of dollars into Wall Street since 2008 without benefiting Main Street. Actual: Fed ended QE in October. Plus 1.

Prediction: A combination of disruptions will produce a challenging year for Wall StreetActual: Nothing seems to impede the madness of Wall Street crowds. Can you say bubble? Minus 1.

Prediction: Obamacare’s constitutionality will be challenged by many lawsuits. Actual: Currently 104 lawsuits have been filed against Obamacare, including one before the Supreme Court. Plus 1.

Prediction: Democrats running for re-election in 2014 will run from the president. Actual: No Democrat wanted Mr. Obama anywhere near their campaign, but it still didn’t help. Plus 1.

Prediction: The GOP will regain control of the Senate and maintain a majority in the House in November. Actual: Republicans swept almost everything, from the Senator down to dog catcher at the local level. Plus 1.

Prediction: President Obama will prevail on immigration but will lose on minimum wage. Actual: Immigration win by Obama’s executive order but no minimum wage increase. Plus 1.

Prediction: Hillary Clinton will not announce her 2016 presidential intentions before the mid-term elections. Actual: Everyone knows she’s running; she just hasn’t announced yet. Plus 1.

Prediction: Auburn will defeat Florida State in the BCS Championship Game. Actual: Great game, but the Noles won 34-31. Minus 1.

Write this on a rock …

This year I’m 12 for 14, or 86%, taking my 14-year record to 73% (’08 was a rough year).

Jim Blasingame is author of the award-winning book, The Age of the Customer: Prepare for the Moment of Relevance.

RESULTS: How is your business tracking in the 4th quarter?

The Question:

With one month to go, how is your business tracking in the 4th quarter?

15% - Way ahead of last year’s sales or budget
46% - A little bit better that last year
18% - About the same as last year
21% - Worse that last year
Jim’s Comments:
When we asked a similar question in early September, 65% of you said things were trending well for the end of the year. As you can see, our new poll question on the economy prompted just short of that response, at 61%.  And just as we’ve seen for almost six years, about one-fifth of small businesses are still struggling.
There are two things that might be making the economy trend upward:

1. Republicans will be in control of both houses of Congress for the next two years. Most people who make payroll consider a GOP-led Congress to be an improvement if for no other reason than they’re not anti-business.

2. Gas prices are down almost a dollar from a year ago. That’s like a huge tax cut for the folks on both sides of the cash register.

Here’s hoping the winter isn’t too bad and we can carry some momentum into next year.