Raising Minimum Wage is a Failure of Government

It is hard not to be sympathetic to parents who are trying to raise their families while working a minimum wage job as the Reuter’s article
U.S. fast-food workers protest over pay, hundreds arrested demonstrates, especially those who do that as an alternative to going on welfare. Not that there’s something wrong with using welfare – so long as its of very limited duration to help people back on their feet.

Minimum wage, especially federal minimum wage, is not a lot of money when you look at it as a way to support yourself.  It isn’t enough because it never was intended to be enough.  Minimum wage is perfect at exactly what it is for: providing a minimum recompense for the lowest paid entry level workers.  That’s people who have almost no applicable skills to the job, just learning the job or the needs of the job are just so minimal that anyone can do it.

Minimum wage is not a living wage.  It is the beginning of a journey towards a living wage for some kinds of work. Fast food service has always been a provider of minimum wage work. Corporations like McDonald’s have evolved their business systems to make certain tasks automated or as simple as possible so that it doesn’t take much training to get a worker up and working at a counter.

In a retail business (and these are retail businesses), employment costs factor in towards profitability.  If a business isn’t profitable enough, it closes. Just getting by isn’t enough reason to go into business. A corporate chain store is never opened or a franchise sold if there is any doubt of targeted profitability.

This is especially problematic when you have a lot of low cost items you have to move over a specific amount of time. When you take into account all the real costs plus required administrative costs, that one $10 customer order isn’t paying for the hour of the employee that handed you your food.  Fast food companies also service many people for whom price sensitivity is critical.  If that previous $10 order becomes a $15 or $20 order a week later, chances are good a customer is lost. Lose a lot of customers and you can no longer support your workforce.

There are pathways up in fast food companies.  Seasoned workers do get raises, and local store management and certain positions also pay more.  These corporations also have regional administrative and corporate offices.  The bottom though is the bottom. The 40 year old with no fast food experience and three kids isn’t that much different than the 16 year old earning some extra money. Going from the bottom up takes a lot of perseverance and a desire to get ahead.

The answer is not to raise minimum wage.  Raising minimum wage is a cop out by government which is admitting to the fact that they have failed to create a sustainable economy – at whatever level – city, county, state or country. If the costs to start a new business are too high or cumbersome, they won’t be created – or they will be created elsewhere. If the region has nothing to offer an existing company, they have no reason to move there. Those reasons do not always have to be directly financial either.

  • Closer to the customer base; being where your buyers are
  • Closer to your suppliers to reduce production costs
  • Closer to the money if that’s of paramount importance
  • Tax incentives, especially those that benefit hiring more employees
  • Policies that work better with whatever form of production is applicable
  • Cheaper overall costs of production

Many states incentivize new companies to move in-state by giving them deep credits and tax incentives because those things are the easiest for bureaucrats to grant. Credits and tax incentives are not themselves dependent on anything else. It is easier to give a tax break than it is to improve the education level of the local workforce, for example.

Raising minimum wage is a nicotine patch for someone who isn’t serious about quitting smoking. Don’t do it. Make your local government work at bringing in higher paying jobs instead.

 

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