The minimum wage debate and why it's ridiculous

I have so little time to write these days and in fact I'm writing this on my only break of the week. I writing because apparently, according to the numbers, most of you reading the article think the minimum wage should be at $15 instead of whatever it is in your area. Supposedly because you don't think there is any harm in increasing the minimum wage. Well follow me down this rabbit hole for just a few minutes and if you still think the minimum wage should be set by the government and imposed on all employers then you will probably always make the minimum wage. Here are a few things to consider:

1) The minimum wage doesn't just affect the people making minimum wage. If you're currently making $15/hour, you're likely not in an entry-level position at your company. The problem is, if the new minimum wage is $15, then your wage will have to increase to at least $20 to keep you at your current job. So the wage increases affect your employer's entire payroll, not just the people they're paying minimum wage to. 

2) The reason minimum wage jobs exist is to allow for entry level jobs from which you can pull yourself up with your own bootstraps. They are not meant for you to stay in for life. If you're making minimum wage right now and you don't have a solid plan for how to work your way out of that position and into a higher paying position then what is lacking is ambition, not regulatory policy. If we were to increase the minimum wage to meet living standards of a city like Los Angeles then there would literally be no reason for anyone at the minimum wage to ever excel in life. All the people with no drive in their life would basically stay put in their position and make a living. 

3) I don't pay people minimum wage, because I know that as a business owner, if I want quality people to work for me, I'll have to pay them what they're worth. Most of the consultants who work for me make over $100/hour. That's how the free market economy works. So why do I care about the minimum wage? Here's why: Let's talk about Costco. Costco is known for limiting markups on items to 14%. In the quarter ending 8/31/14 Costco had $35B in revenue with $34B in operating expenses. They don't really report what percentage of that is labor but they do report that $3.4B is from "Selling/General/Admin. Expenses". Which includes labor. The rest is likely just the cost of product. So that $3.4B comes right out of that $14% mark up. Now if we increase minimum wage $9 to $15, that's a 66% increase in the minimum wage which is likely to eat right into that 14%. Costco doesn't pay anyone the minimum wage, in fact their average is $19 per hour, but remember, raising the minimum wage increases all wages (see #1). So now what? Well, no problem, Costco will just increase their markup from 14% to say 20% to make up the difference because if they report any less they will lose all their investors. So that increase is going to come directly out of the pockets of all the people who buy from Costco, including those who make the new $15/hour minimum wage. And their landlords, and the people who provide them services. Everyone's costs will go up tremendously which will inevitably increase all prices of all goods and services. Much like the increase in the price of gasoline (another basic business expense) has raised prices over the years across the board. At this point you might say, well who cares? Everyone gets paid more and everything costs a little more, so who are we hurting by increasing the minimum wage? We're hurtin the dollar. Because as you noticed from above, it lost value almost instantly. The other problem is that the wages don't increase by the same amount in China, India, Europe, Brazil and the rest of the world and the dollar loses a lot of ground in the world market. 
Don't believe me? Check out this graph that the pro-minimum-wage-hike side has put together to demonstrate the plight of the lower working class. To me though this represents the fact that the value of the dollar is directly affected by changes in the minimum wage.

4) The small business owner will have to find new ways to eliminate labor as the cost of labor begins to match the cost of technology that will replace those workers. (See local grocery store check out line robots.) Business who can't cut labor costs have two options: 1) Go out of business 2) Increase prices and risk losing customers. And many times those lost customers are not just going to the competitor, they're going away for ever. When the price of a pizza goes from $19.99 to $26.99, the consumer doesn't just go to a different pizza place, he stops ordering pizza and makes a sandwich at home. The pizza place dies and so do the dozens of jobs it was creating. Including the jobs it was creating indirectly, like jobs at suppliers and service providers to whom the pizza place was a customer.

5) You might say that a rising tide lifts all boats. True that! The minimum wage goes up, so all wages go up, so prices go up, so rents go up, so the living expenses will not be met by the minimum wage, so the minimum wage goes up, so all wages go up and on and on and on. 

In short, increasing the minimum wage is like saying that there are people drowning in the pool. But instead of teaching them how to swim and get out of the pool, you move the pool to the 2nd floor of the building. Guess what?! The same people will still drown. 

So to those of you who now hate me because you make minimum wage, or close to it. I will leave you with this. I worked at a restaurant while I put myself through college. I got paid minimum wage at $4.25/hour while the average rent in the city I lived in was $1200/mo for a two bedroom. The average rent is now $2400 while the minimum wage is $9. Same same. But the only thing different is the dollar is now worth half as much. I worked hard at that restaurant and the wages were a joke. But I knew that I had to find a way to change my station in life. It never even occurred to me that the fix would be to bitch about the minimum wage. I knew that if I worked harder, and pushed my way through life I would eventually do better. 

Low paying jobs are an incredibly important part of the economy. They are absolutely vital because to employ the very beginner work-force, a very low wage is required. The investment a business has to make in a entry-level employee who is not generating revenue is tremendously high and it must be offset by a very low wage. Once you have gotten that training and experience it's up to you to move to another job. The employers know this and it's figured into the low wage. That's why the wage is low. So you get yourself out of it and make room for the next guy who is going to work his way up. Instead, we raise the minimum wage, which keeps people in those jobs and doesn't allow for the entry-level work force to enter the market because the minimum-wagers are hogging all the jobs.

The minimum wage is NOT meant to be a living wage and it should NOT be! It should instead inspire you to learn new skills, make new connections, and lift yourself out of poverty. A low wage job is what makes America a land of opportunity, because anyone who wants to work, can find a legal job to do. It might be at a low wage, but that's how you start, it doesn't have to be how you always live.

Put all your love or hate in the comments below.