Tag Archive for 'minimum wage'

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.

SBA Poll Results: Minimum Wage Increase

The Question:
If the federal minimum wage is increased, how will it affect your business?

70% - It won’t impact my business at all.

11% - The increased payroll expense could put my business in jeopardy.

5% - It will prevent me from expanding.

14% - I will start replacing employees with technology.

My Question:
The response to last week’s poll reflects a sea-change in the workplace on Main Street. Not that long ago, more small businesses would have been significantly impacted by an increase in the minimum wage. Indeed, in the 1970s, a minimum wage increase was inflationary. But today things are different: responses to our poll indicates that only 16% think a minimum wage increase will affect them negatively. Two major reasons are:

• Fewer small businesses pay their employees minimum wage.

• More small businesses accomplish growth by buying technology rather than hiring workers.

But just because the impact isn’t as negative as it once was doesn’t mean raising minimum wage is a good thing. Past experience shows that only a tiny percentage of American workers will actually benefit from this increase, but many more will be harmed because businesses now have other options. Raising minimum wage has never been about income equality. Since the 1930s, when it first went into effect, the national minimum wage has been nothing but a political device used to appeal to low wage earners to get their votes, and to unions members, whose contract wages are calculated as a percentage of the federal minimum wage.

Raising minimum wage is no longer a big negative for most small businesses, but it is for economic growth and the ability of businesses to manage their expenses based on marketplace factors, instead of by government fiat.

Any politician who proposes an increase in any minimum wage-federal, state or local-is misguided at best, and disingenuous at worst.

SBA Poll Results: Should minimum wage be increased?

The Question:
People around the U.S. are protesting for the government to increase federal minimum wage. What do you think?

18% - Agree: minimum wage should be increased.

82% - Disagree: the market should set labor prices, not government.

My Comments:
Before any commercial product or service can be offered to customers, the price must be determined. The foundational element of the price calculus is the cost, which includes payroll. 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 the government sticks its nose into the equation with mandates and subsidies, one of which is the federal minimum wage. When the government is involved, politics, not reason, is the motivation, which is fine when the issue is politics. But when the issue is the price businesses pay for one of its cost factors, especially what is often the largest cost factor, politics has no place. At least, as you can see from the results of our recent poll, that’s what 82% of small business owners believe.

I’ll have more to say about this son in our Feature Article. Stay tuned and thanks for participating.

Check out more of Jim’s great content HERE!

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The lion of the Senate and small business

The lion is dead.

The senior Senator from Massachusetts, Edward Moore Kennedy, has lost his battle with brain cancer, which, like the rain, falls on the just and the unjust, the rich and the poor, the powerful and the weak.

The only thing the name Kennedy is more synonymous with than wealth, public service, power and privilege is unspeakable tragedy. It has been said that to whom much is given much is required. In the case of clan Kennedy, much has indeed been given, but surely too much has been taken away. Now the youngest child of Joe and Rose has been taken by a tragic disease.

In the hours since his death, many have reflected on his life and work, including those who agreed with his politics and those who didn’t. I am in the latter camp.

I didn’t know the Senator, but we have mutual friends and they loved him. Apparently, you were fortunate if he called you friend. And it’s admirable that, for someone to the manor born, he could have lived a life of leisure but chose rather to dedicate his energy to public service. That service, however, too often was at cross-purposes with two things that I love and have dedicated my own life’s work and energy to: the marketplace and small businesses.

For years I have been an ardent and public critic of Senator Kennedy for championing issues that I believe are harmful to small businesses. For example: minimum wage increases, laws that promote unionism, carbon emission laws that threaten the competitiveness of U.S. businesses, innumerable tax increases and the one about which he was the most passionate, his Big Kahuna, universal health care.

He was known as the “liberal lion of the Senate.” For the same reasons that he earned that moniker, I gave him another one: the arch-enemy of small business. I think I know enough about the Senator to believe that he wouldn’t want me to be a hypocrite today, so I still stand by that appraisal of his record.

There is at least on thing that Kennedy and I had in common: a sometimes ill-advised courage of our convictions. I much prefer those who feel strong enough about their ideas to declare them. Unfortunately, in my opinion, most of the public policy convictions Kennedy declared I consider the work of someone out of touch with what has made America great, our free market system.

But Ted Kennedy was an icon for something else that is great about America, individualism. God help us if America ever stops producing individuals like Ted Kennedy and if it ever prevents such an individual from declaring his convictions – even when I disagree with them.

Rest in peace, Senator Kennedy; I won’t miss your work but I will miss your spirit.

Recently, on my small business radio program I talked about Senator Kennedy with two members of my Brain Trust. Rich Galen, publisher of Mullings.com, a Republican who worked on the other side of Kennedy’s policies, and Bill Brandt, President of DSI, Inc., a Democrat, who was a friend of Ted Kennedy for over 30 years. Take a few minutes to listen to these conversations, and be sure to leave your thoughts.

For Rich Galen:
For Bill Brandt:




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