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Friday, February 15, 2013

Thoughts on the minimum wage

I learned yesterday that in 1968, when unemployment was 3.6%, the minimum wage was $1.60 - this translates, in today's dollars, to $10.37 per hour. Put differently, if the minimum wage had kept up with inflation since 1968, it would be $10.37 per hour, instead of the $7.25 that it is under current law.

This started me thinking about a whole slew of things, mainly centered around "Obamacare" and "Job Creators".  One thing that really infuriates me, is how businesses are finding ways around having to provide health insurance for their employees.  Normally I'm all for companies trying to be efficient, reduce costs - trying to maximize shareholder's return on investment, but I believe that business owners have at least somewhat of an obligation to provide living compensation for their employees.

This leads me to the term "Job Creators".  We heard this term used ad nauseam during the last election.  I was talking with my wife the other day, and she made a very good point.  She said (paraphrasing her greatly), that if the jobs created keep employees at or below the poverty level and don't provide for health care, then the workers are more like slaves than employees. Link:  Did you know that the average Fortune 500 CEO is paid greater than 380 time more than the average worker?

To be fair (with manufacturing jobs at least), the USA is competing globally, and as a result, many manufacturing jobs are lost to countries where pay is abysmally low. And Lord knows, we flock to Walmart (and others) to buy the lowest priced stuff possible. Not a knock on Walmart, more of an indictment of our culture.

DISCLAIMER: I'm not (obviously) an economist, I'm just sharing my opinion.

It doesn't make sense to me though, when talking about the service industry (specifically the restaurant industry), where we are not competing globally, why a business owner would not want to provide a living wage to his/her employees. The immediate argument, I think, would be that owning a restaurant is difficult and the failure rate is extremely high. However, what I've seen in my 20+ years as a CPA, with experience advising restaurant owners, is that most restaurants fail due to initial undercapitalizaion. This leads to panic when customers don't crowd the restaurant in the first weeks, followed then by the owner changing hours, and ultimately, weeks later, customers go to the restaurant, find it closed, and never come back.

Trying to tie all of this together, we seem to live in a country where it is becoming increasingly more difficult for the average person to succeed.  Healthcare costs are through the roof (I'm struggling to provide decent insurance at an affordable price to my employees, and welcome the advent of "Obamacare", as it should lower my overall costs), unskilled workers are undeniably slipping backwards - read my first paragraph, and the gap between the "have's" and the "have-nots" continues to grow.

I'd love to hear other, non-inflammatory, opinions about this.


  1. Remember, it's just not manufacturing jobs that are disappearing - many "white" and "pink" desk jobs are also being exported or eliminated due to technology efficiencies - at some point those that "do" need to be rewarded for "doing."

    It's too bad that next quarter's earnings figures are more important than satisfied customers, loyal employees, and the long term health of the company. Corporate leadership has reclassified their workers as resources - only to be used and abused - and that is why US has such a large population of working poor.

  2. Good point in your first paragraph, and excellent point in your second! It seems that way too many business decisions are knee jerk reactions to stock price fluctuations!