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 since they’ll need to generate more than $15 to stay employed. Find out why...
Here's a simple rule:
If an employee does not bring in more revenue than they are paid, then they are useless to the company. The boss hired them as an investment, and that investment needs to be profitable.
Many People Don't Realize Why They're Hired
When I ask people what is the purpose of their job, 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 think they deserve. When I hear that, I ask them 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. Some people didn't even understand the question. They think I'm crazy for suggesting that they should give more to their employer than they would get in salary. They feel it's owed to them.
I wonder where that idea comes from?
Another experiment I try is asking people to evaluate their own performance on the job. And I ask them if they feel they are compensated well for their performance. I am 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 have hired people in the past, 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 isn't a solution. If the minimum wage is greater than the value the employee can achieve for the company, then they will not be hired.
Understand the Facts About the Minimum Wage
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 that $15 an hour for the company.
Many people don’t understand that they are hired as 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) is 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? The problem is that the minimum wage advocates (this includes politicians) don't understand how finances work.
I'm afraid we will be seeing a lot of layoffs if the minimum wage is increased. The only real solution, other than automating the low wage tasks, is to educate the employees so they learn to earn more money. Then their salary will increase automatically and there would be no need for an artificial minimum wage.
Why We Have Unemployment Issues in America
Many 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 to consider.
The other day I called a particular company for support of their product I had purchased. I was connected 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 inquires. The problem with this is that the jobs are not being given to American Citizens.
I understand that customer service companies are cutting costs by outsourcing these jobs. But they are adding to the unemployment problem and they are negatively affecting our economy.
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 by adding to the unemployment problem.
This may not actually help much because they still have to make sure they have a profit with their business. There is another side to the issue. That is: how much value they get from each employee in return for the salary they pay.
Is Big Business Destroying Our Country?
In a way I agree with the Occupy Wall Street protesters who complain that big business is destroying our country. I agree with a specific part of that argument... Big business has the money to lobby for their own 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 be 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.
One needs to be willing to show what he or she is worth. Occupy Wall Street protesters are not doing that.
The Reason Why Employers Hire People
I feel very strongly that people who are out of work need to understand the predicament they are in. They need to accept the fact that the longer they remain out of work the more they will become unemployable at their previous salary.
The company who hires them still needs to see a profit from the investment in that person.
Let me explain. A company hires a person for one reason and one reason only. It's an investment. And just like any investment, they expect a profitable return on their investment. When they see a profit they will eventually give those raises.
If they can't get more back than what they pay in salary to an individual, then there simply is no reason to hire that person.
An Example of a Great Return on Investment in Employees
When I first started my own business, long before the Internet was available, I contracted the services of a company to fold leaflets and stuff envelops to do my mass mailings of advertising literature.
The cost was amazingly affordable and I found out later the reason why. They hired people with disabilities to do the work.
I was told that the law allows paying below minimum wage for the handicapped. At least these good people who have integrity and intelligence can get work. Their only limitation is what their disability imposes. With whatever capabilities they have, they use it to get employment.
A lot of people have been out of work for a long time. Young graduates trying to find their first job are finding it difficult in this economy. Experienced baby boomers who had been laid off can't get back into the job market.
Employers feel that many unemployed workers are unskilled by now for lack of activity in their line of work. It’s unfortunate but they may just have to start over proving what they are worth to a prospective company.
I am disappointed to see that companies like Citibank are hiring workers in India and other foreign countries when we have perfectly good workers right here in the U.S. There are so many unemployed Americans because companies find cheaper employment out of the country.
I just argued that corporations need to show a profit and no one should complain about that. But how about it if those companies try to find solutions that still leave a profit by hiring Americans.
There has to be some common ground. Maybe a little more cost in paying salaries, and a compromise with personnel understanding that they need to start again somewhere and show that they are worth it.
Starting Over Again
Disabled workers can do telephone support. Other workers, such as the people I have interviewed, who are not disabled, can work for less—just to get back into the workforce.
Once they’re working again they'll have a chance to show their worth and get those promotions and raises. If they truly believe that they are worth it, they should take the opportunity to prove it.
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 just to keep the profitable employee with them.
So there you have it. I know I may get a lot if flack for this. But I feel just having a clear and accurate understanding of why people are hired in the first place can eliminate a big part of the problem.
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 too.
Another thing that I feel has hurt our economy are the fraudulent companies who continue to pay huge salaries to CEOs who have failed to make the company profitable.
If a company can't do business in a profitable manner then they should not continue to exist. That's just putting a strain on the economy.
Investors who bought stock in companies like AIG have lost their money. It was a mistake in my opinion to bail them out. An worse, to bail them out a second time when they gave the initial bailout money to the CEOs who haven't done anything to make a profit to begin with.
Remember what I said that hiring people is an investment? Well that goes for the CEO's 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 made. That has to change and out government should not be rewarding companies who fail to understand this simple rule.
It's not Wall Street that wrong. It's specific companies that reward unsuccessful management and who force politicians to favor their special interests.
How to Fix the Problem
Corporations have to take the responsibility to help fix the problem just as much as the government does. We are all in this together. Corporations 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.
This will motivate companies to hire additional personnel even if they don't start off having a complete knowledge of the work.
I see no reason why any company in their right mind would hesitate to hire more workers if they could see a return on their investment.
© 2011 Glenn Stok