Minimum Wage

Raising the minimum wage is a common political issue, but is potentially perilous to the local economy and those affected by it.

One of the main considerations before considering any bill is the potential for unintended consequences. Raising the minimum wage has many, many unintended consequences that other political parties don't like to disclose.

First, let me explain my perspective. For about 5 years I was a General Manager of a Domino's Pizza in Massachusetts and Delaware, and I interviewed, hired, and trained my employees. There was a moment when the minimum wage was increased in MA and my management decided to switch my pizza delivery drivers from the minimum wage to tipped hourly employees. Basically, they changed their classification to the same as waiters and waitresses, allowing them to be paid below minimum wage because they received tips on their deliveries. All new hires were to be paid $6.15/hour, and later on after the ACA was implemented, that dropped to $4.25/hour. (Seriously, tip your pizza drivers!)

Now because a business cost was forcibly increased, management above me made decisions to counter-balance that increased cost. That is what happens in business. The money has to come from somewhere, and in the restaurant industry the margins are tight. Franchises charge a straight percentage off the top of sales, they're not taking a cut because you passed a minimum wage law, so "McDonald's makes billions, they can afford it" is false logic. The franchisees, usually local business owners, are the ones who take the hit, and therefore make decisions to balance the books.

Sometimes they raise prices, so you end up paying it. Other times, they look to trim labor costs elsewhere. For example, once the ACA was passed, many businesses cut hours to avoid paying for healthcare costs. One of the reason unemployment dropped and many people are considered underemployed is because many businesses won't give out full time hours and hired more part time employees.

Another way businesses trim labor costs is to increase efficiency. They either do this by making their employees work harder by delaying the hiring of open positions, or by automating some of the process. In the fast food realm, that means your workers are working harder, or being replaced by online ordering.

The largest unintended consequence of a raised minimum wage is one that nobody talks about, and that's the applicants on the fringe of society that wants to reenter the workforce. These are people who have been out of the workforce for personal issues, were injured for a while, or frankly, were just released from drug rehab. The minimum wage job is the reentry for these folks into the job market. It is the way they build up a resume so they can eventually apply for a better job and get references. If the minimum wage is raised, managers are less likely to hire these people. They are risky hires, and if the cost of turnover is higher, the risk doesn't outweigh the potential reward, and managers instead look to hire employees who have a better chance of staying longer, like retirees or folks working a second job to pay down debt.

Should people be working for $7.25 an hour? Not forever, no. It is, though, a way to get people back into the job market that wouldn't otherwise be there. The alternative is these folks end up working under the table or get stuck on state aid, and that's definitely no way to live long term.

 

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  • published this page in Home 2017-07-22 13:21:35 -0400