Why a $15 Minimum Wage Won't Work: What You Need to Know
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, then they are generating a loss to the company. The boss hired them 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. That's how these workers will lose their jobs. Not because they will be fired or laid off, but because the company needs to close its doors before going bankrupt.
Many People Don't Realize Why They're 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 actually feel it's owed to them. I wonder where that idea comes from?
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 the 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 Employment Costs
The reduction of regulations that Trump promised and fulfilled has made it easier for companies to do business and higher more people. That's why unemployment has been reduced to historical lows since Trump was elected.
However, many politicians still favor increasing the minimum wage without concern for the consequences that I discussed above.
Therefore, some companies are outsourcing to foreign countries instead of hiring our own 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 work. But they also have a profit and loss balance sheet to consider.
The other day I called a particular company for support of the product I had purchased. My call was routed to a support rep. I asked the lady where she was located as I detected an accent. She said she is 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.
That may not help much because they still have to make sure they have a profit with their business.
Is Big Business Destroying Our Country?
Big business has the money to lobby for their special interests. They get what they want because the politicians get money from them.
The things they want are not necessarily the best deal for the economy as a whole. The government should not allow being influenced by lobbyists.
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 Self-Worth
I guess I am biased because I've heard too many people tell 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. 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.
How to Improve the Situation
I just argued that corporations need to show a profit, and no one should complain about that.
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 is an investment. If they fail to make a profit, they should not get more than they earned.
In addition, corporations should take responsibility for their potential workers. They should consider the fact that they may need to provide training for newly hired personnel.
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