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Why a $15 Minimum Wage Can Cause Some Businesses to Close

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Glenn Stok discusses his personal views and opinions of significant social and economic influence to inspire further consideration.

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.

solutions-unemployment-in-america

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.

© 2011 Glenn Stok

Reader Comments

Glenn Stok (author) from Long Island, NY on February 28, 2019:

Eleanore Ferranti Whitaker - I have not confirmed your statistics, but you have made some important points about states raising taxes rather than controlling their spending.

However, that was not the subject of this article. You only referenced this subject of minimum wage in one sentence, and I think you missed the point.

It doesn’t matter if we are taking about $15 an hour or $100 an hour. The fact still remains that the employee needs to earn more than his or her wages for the company. If that can’t be achieved then there is no point hiring that person. As I said, it’s an investment.

When I had my business and paid $80 an hour to my programmers, I had to see more than $80 an hour in receipts from sales. That is the profit expected for hiring programmers. The same applies to any field of service.

It has nothing to do with states that fail to control spending, unless you were trying to point out that government agencies hire people at a specific wage without considering if they are profitable.

Now, that’s a point that makes sense. Most government agencies have always been known to not function as a business. They don’t care to control spending and they don’t focus on profit, because they know they can always just raise taxes and get tax payers to cover the loss.

Eleanore Ferranti Whitaker from Old Bridge, New Jersey on February 28, 2019:

Too late. It works just fine in NY and now NJ has voted to increase the minimum wage to $15.

We know why it won't work in the "Walmartian" plantation states. Wages in the south and midwest are largely dependent on government jobs and therefore federal tax dollars.

37 Moocher states, ALL Republican except Maine. are supported by 13 Dem States according to a 2013 report by the State University of New York's Rockefeller's Institute of Government.

If you check the Government Accountability Office, (GAO.gov) you see the reasons why the Moocher states depend on handouts. These are the states with the largest number of prisons, military and defense industries and fossil fuel industries, all of which get up to 65% of every US tax dollar.

So paying higher wages in these moocher states is as much a matter of the old Confederate sharecropper ideas of keeping wages low and getting as much federal funding as they can grab two fisted.

These are also the states with the greatest numbers on welfare. The only reason they are not on unemployment, they pull the AL Labor Dept. dir told NPR in 2011, "we shift the unemployed to SSDI to keep our state from losing state revenues. We save $2 million a year getting doctors to cover high blood pressure, high cholesterol and Type II diabetes as a disability so these unemployed can collect SSDI instead of unemployment."

The same people who say $15 an hour minimum wage won't work live in states where their teachers are earning what a bus boy in NY City earns.

But then, these moocher states love to say our donor states have high taxes. I can explain why that is too.

Every one of these 13 states gets back 72 CENTS for every $1 we pay in federal taxes. Meanwhile, 37 moocher states get back $1.35 up to Alaska's $2.10 for the $1 they pay in taxes.

So our donor states have to raise state taxes so we can pay for what we don't get from the fed.

This is going to stop. The donor states are now looking at ways to keep most of the federal tax dollars in our states to pay for what the federal government refuses to give back for the ROI on our federal tax dollars.

That will mean moocher states will have to do what we have had to do. Cough up more state taxes to pay for the loss of donor states federal tax revenues.

Glenn Stok (author) from Long Island, NY on November 05, 2011:

Fuller-Life, I agree with you that politicians are focused on being reelected. That's the main reason why they don't do things right. But I am also thinking that if we had a businessman or businesswoman in the white house, they would know how to fix the economy. But who knows, even a business understanding may be put aside if they just want to be reelected. You do have a point. It's sad, Isn't it?

Thanks for reading and adding your insightful comment.

Fuller-Life from Washington, DC on November 05, 2011:

Glenn, I don't think politicians are uneducated and lack the knowledge to do things right- They are. They know what to do, but they wont do it. They care more about being elected. Look at how they are fighting funding towards education and health? It's because they can afford private surgeons and send their children to better schools and international exchange programs, that they don't care about the rest of us. I have never seen any developed country that doesn't invest in infrastructure that is able to stand for long. We are in trouble with this ill founded ideological fight!

Glenn Stok (author) from Long Island, NY on October 26, 2011:

homesteadbound, Thanks for adding that additional info. That is indeed another problem we can add to the list of issues... That people are considered over-qualified based on their previous position. I respect you for willing to take a lower paying job. I have spoken with so many who refuse to take offers because they feel they deserve more. I'm not doubting that they do. But I feel it's better to take a job at less pay if it will help pay the bills. And it will hopefully lead to a raise when things improve.

Well, good luck to you. I hope you find something soon. And thanks for reading and commenting.

Cindy Murdoch from Texas on October 25, 2011:

This is a great hub. And you are so correct, and Ktrapp also, education is a big problem. I have looked for a job, and they are hard to come by. Sometimes it's hard because I'm not given a chance (I think) because I am over-qualified. I hate when they ask how much I have made, because I have been willing to take so much less, but fel I have not gotten the chance. Just my two cents!

Glenn Stok (author) from Long Island, NY on October 25, 2011:

ktrapp, Education and Healthcare are both broken and need to be fixed. It's sad that these things are left to deteriorate in a country as great as America. It won't be great for long if these problems aren't fixed soon. You're so right that these two things also affect unemployment.

Kristin Trapp from Illinois on October 25, 2011:

Like most problems in this country, when you start to peel away the layers to get at the root cause of the problem, in this case outsourcing, you realize there are multiple failures that have resulted in the problem. And some of these causes may have started years before the problem, making it difficult to unravel.

I for one, just wish it would all get fixed. I think our education system is lagging, but the cost of a college education is absurd; our healthcare costs have skyrocketed, yet we seem sicker than ever; as a nation and world we embraced the internet and technology, yet as unemployed Americans we lament that people a world away can take our jobs. I think outsourcing is a big conglomeration of unanticipated problems from years past, and fixing it is going to be difficult.

Glenn Stok (author) from Long Island, NY on October 25, 2011:

Ktrapp - Thank you for expressing these additional issues. I have to totally agree with you. The entire picture is more complicated than any single item. The issues you mentioned are definitely part of the problem too.

Kristin Trapp from Illinois on October 24, 2011:

I think an additional issue is the cost of benefits which is a huge cost to businesses, making it more affordable to outsource. And because the cost of living for Americans is so much higher than in places where outsourced workers live, it makes it difficult for Americans to accept jobs that just aren't enough to pay the bills.

I also know several people in the IT field and they have told me that they try to hire locally for their American firms, but they hardly even get any applicants. So, in many instances they have no choice but to outsource. I think the blame for this may be with the education system in the U.S.

Glenn Stok (author) from Long Island, NY on October 24, 2011:

@Fuller-Life - Very good points you made. That may very well be part of the problem... Americans don't take those jobs so they get outsourced to other countries. As for lower pay to the disabled, I think the reasoning is that their disability slows them down. So the payment still needs to be in line with the quantity produced. At least they appreciate the dilemma and accept it.

Fuller-Life from Washington, DC on October 24, 2011:

Excellent layout of the argument Glenn. I agree with you on the need to try to employ Americans. But if Americans can't accept lower but reasonable pay, I don't see any justification why a company can't outsource. Also, I think it's wrong to underpay disabled people when they can do administrative work just as well as the able bodied. I'm convinced that profit is as much a moral issue as it is political.

Glenn Stok (author) from Long Island, NY on October 24, 2011:

@gmwilliams - Thanks for being the first to read and comment. I appreciate the high standing you gave it.

@Erin Boggs - Yes, I think everyone who writes hopes that their efforts will catch the attention of those who can make changes. Thanks for reading and for your kind comments.

Erin Boggs1 from Western Maryland on October 24, 2011:

You have made so great points in this hub, now if only we could congress and so big business to read your hub...and the people that feel they are too good for certain jobs too.

Grace Marguerite Williams from the Greatest City In The World-New York City, New York on October 23, 2011:

This is an excellent hub. You have elucidated many excellent and insightful points.

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