Why a $15 Minimum Wage Can Cause Some Businesses to Close
Raising the minimum wage to $15 isn't the solution for low-income workers. Unless they are worth it, they will lose their jobs. I'll explain why.
If the work of an employee doesn't result in more revenue than their company pays them, that would be a loss to the company, and the business would go bankrupt. The boss hires people as an investment, and that investment needs to be profitable.
If a company is forced by law to pay employees more than the work generates, they will eventually go out of business, and the workers will lose their jobs.
Why Are People Hired?
When I ask people what the purpose of their job is, they usually answer, "To support my family."
They either misunderstand the question, or they don't know why companies hire people.
It should be no surprise that it's to benefit the employer. Their emphasis is always on increasing their revenues.
I have spoken to a few people who are out of work and who have received job offers. They turn the offers down, and I ask why.
They tell me the pay is too low and they deserve more. They say they won't work for less than what they deserve.
When I hear that, I ask what the value of their work is, on a per-hour or per-day basis. I never get a straight answer. They simply don't know.
Then I ask them if they feel they can make more money for their company than they are asking for in salary. Most people don't understand that question. They think I'm crazy for suggesting that they should give more to their employer than they would get in salary.
Think about that for a moment. These people feel it's owed to them. I wonder where they get that idea?
Another experiment I try is asking people to evaluate their performance on the job. I ask if they feel they are compensated well for their performance.
I'm shocked to hear some people tell me that they don't want to work harder until they get paid more.
It doesn't work that way!
I hired people in the past for my business, and I consider it an investment in the company. When an employee's job performance brings in more than their compensation, I give them a raise.
Raising the minimum wage without considering one's performance capability isn't a solution. If the minimum wage is higher than the value the employee can achieve for the company, then they would not be hired in the first place.
Understand the Facts About Minimum Wage
A company hires a person for one reason and one reason only. It's an investment. And just like any investment, they require a profitable return on their investment. When they see a profit, they will eventually give a raise.
If they can't get more back than what they pay in salary to an individual, then there is no reason to hire or keep that person.
People who demand a $15 minimum wage are clueless. They don’t understand the only way to be paid $15 is to do a job that earns more than $15 an hour for the company.
Many people don’t understand that they are an investment for the firm. If the investment does not produce more return than the cost of the employee, then the investment (i.e., the employee) needs to be eliminated.
Simply asking for more pay without being able to give the employer more results is a losing battle for everyone. What are they thinking? They don't understand how it works.
That's why we have this issue in political discussions. The minimum wage advocates don't understand how finances work.
I'm afraid we will see a lot of layoffs wherever lawmakers increase the minimum wage.
The only real solution, other than automating the low wage tasks, is to educate the employees, so they learn how to earn more money. Then their salary will naturally increase without the need for an artificial minimum wage.
Companies Outsource to Lower Their Costs
The reduction of regulations that President Trump promised and fulfilled has made it easier for companies to do business and higher more people in the United States, rather than outsourcing labor.
Unfortunately, some politicians still favor increasing the minimum wage without concern for the consequences that I just explained. Therefore, some companies outsourcing their jobs to foreign countries instead of hiring our citizens.
They could keep the money in the U.S. by using the resources we have right here. They do want to hire. They do have jobs to fill. But they also have a profit and loss balance sheet to consider.
The other day I called a particular company for support of a product I had purchased. My call was routed to a support rep. I asked the lady where she was located since I detected an accent. She said she was in India.
The technology we have today allows overseas hiring of business support personnel to handle customer's phone inquiries. The problem with this is that companies do not hire American citizens for these jobs.
The next time you are helped by customer support on the phone by a rep of any company you do business with, ask the attendant where they are located.
If they're not in America, write a letter to the CEO of the firm expressing your concern that they are doing an injustice to America due to their outsourcing practice. Include a copy of that letter to your local congressman or congresswoman with a note about the issue discussed here.
How Big Business Lobbyists Hurt Our Country
Big business has the money to lobby for their special interests. The things they want are not necessarily the best deal for the economy as a whole.
Politicians should not be influenced by lobbyists, but they are. They don't care for the general public. It's crucial to understand the reasoning for that problem. Big business gets what they want because they support their local politicians.
I think that lobbying for anything should be made illegal without giving the same level of support to everyone else who wants to be heard.
Employees Need to Show Their Self-Worth
I guess I am biased because so many people have told me they won't work hard until their boss gives them a raise. It just doesn't work that way!
They have to show they are earning more money for the company first—more than they get paid. The management needs to see a return on their investment. Then they will want to give a raise to keep the profitable employee with them.
Employees need to show his or her worth to get promotions and raises. If they genuinely believe that they are worth it, they should prove it.
But there are indeed legitimate problems with corporations too. It's not just capable workers who want more than they deliver. Big corporations need to straighten out their act also.
CEOs Need To Deliver More Than They Earn
Remember what I said—that hiring people is an investment? Well, that goes for the CEO too.
The salary the company pays these top managers should also be considered an investment. If top management personnel fail to make a profit, they should not get more than they earned for the business.
My Final Thoughts
I argued that corporations need to show a profit, and no one should complain about that because that's where jobs are created. But corporations should take responsibility for their workers too. They should consider the fact that they may need to provide training for newly hired personnel.
Here's a solution. Companies should be rewarded for training employees on the job. The government needs to motivate them to do that by offering a waiver on the employer's half of Social Security (FICA) payments when they hire an American Citizen and start them off with paid training. Presently the employee pays 4.2% through FICA withholding, and the employer pays 6.2% FICA tax.
That will motivate companies to hire personnel even if they don't start off having complete knowledge of the work. With proper training provided by the employer, workers can be taught to offer more value.
I see no reason why any company in their right mind would hesitate to increase wages once they see a return on their investment.
Questions & Answers
© 2011 Glenn Stok