Thursday, January 30, 2014


First, a little housekeeping. Yes, I'm back. Like a bad penny I have returned from an almost year long battle with a rather persistent, but not life threatening, infection. The main problem was that the combination of the infection, and the antibiotics to fight it, knocked me for an energy loop. As in, I didn't have the energy to sit at this computer and write. But I miss it, so I'm back. Now on to the topic.

As the President said in the State of the Union speech Tuesday night, we need to raise the Federal Minimum Wage to $10.10/hour and we need to do it soon. This, of course, produced the usual screams from Republicans that raising the minimum wage will cost jobs and do great harm to the economy and, I think, cause dandruff to break out across the land. As one law maker lectured a TV reporter this morning, it's just simple Econ 101: The Law of Supply and Demand. If you have a higher cost for something, in this case labor, you will use less of it by either not hiring new workers or by laying off workers that you have now.

I'm guessing from that position that, first, the Congressman never actually took Econ 101 and, second, that he never owned a small business with employees. Here's what the Congressman, and the Republicans, pretty much to a man, fail to understand about what actually happens when the minimum wage goes up. Businesses raise prices! It would seem, if you listen to the GOP that the idea of raising the price of a good or service in our economy is right up there with the Seven Deadly Sins. They don't like and they won't stand for such a thing. Oh, they don't actually hate prices increasing if it throws off more profit for the company and increases the wealth of the stockholders. But thou shall not cause prices to increase to pay for increased cost of labor. I'm sorry, that is just nuts.

Now, here's what actually happens when the minimum wage, either State or Federal is raised. I know these things from first hand experience. My darling wife and I owned and operated two locations of a certain fast food franchise. We employed 120 people between the two restaurants and we had to deal with a minimum wage increase during that time.

The first thing that blows up the logic of the Republican position is that labor follows need. No good small business person employs unneeded staff. But by the same token, your employees have value to the business because they make you money. Maybe not every day. Maybe not every hour. But over all, a business will operate at close to the correct number of employees for the amount of business expected. In fast food we had the ability to add staff for certain parts of the day (you know, meal times) and have fewer people on the clock during slow times. This is because there are many possible part time positions available in the fast food business. Students who work after (or before) school, workers with other full or part time jobs, and older folks who don't wish to work a full time schedule. But remember, labor follows need. When the minimum wage went up the very last thing we thought about doing was laying people off so that our labor costs didn't go up. If we were doing the job right, we had the number of people we needed for the business which we anticipated. If we were over staffed because business was slow we should have laid people off sooner. If we were understaffed because business was growing, we needed to add employees whether or not they would be paid more under an increased minimum wage. The way we dealt with the increased cost of labor was to raise prices a little. Not across the board and not by a huge percentage. What was the result?

Our business increased and we needed to add staff! And that's not an unexpected result. There are scores of studies and surveys which agree. Raising the minimum wage doesn't cost jobs, it helps in the creation of jobs. Why, you ask? Because that Econ 101 idea of supply and demand does work when dealing with actual products or services being sold. More money in the hands of your staff, and in the hands of every other minimum wage businesses' staff, means more demand which leads to more staff. This idea is not new. Henry Ford was soundly criticized by the business community of his day when he took the outrageous step of paying the workers building Model Ts on the assemble line the unheard of wage of $5.00/day. His reasoning was simple. If I pay them that high wage they will be better able to buy the cars that they are building. Which will mean I'll sell even more cars and, of course, make more money. It worked.

The second thing the GOP doesn't seem to get is what I mentioned above: everybody is in the same boat. We could raise prices because every other fast food restaurant also had to pay a higher wage and, thus, also needed to raise prices. If my competitors could gain no advantage, in the long term, they either raised their prices too, or ate the increased cost. In the fast food world, and in fact in most minimum wage businesses, you can only do that for a little while. The profit margins are too tight.

So, as you go about your business, when you hear Congressman so and so or pundit such and such go all Rambo on the very idea of raising the minimum wage, ask yourself if the Congressman or pundit is smarter than Henry Ford. I bet I know the answer.

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