Tuesday, August 06, 2013

"Living wage" mentality reflects misunderstanding of business reality

Fast food workers in seven cities were on strike last week demanding a "living wage" of $15 an hour, more than twice the $7.25 they currently make. Empathy aside, this expectation is a fantasy.

Every job has a value, but it is based not on what the person who has the job thinks it should be worth, or what sympathetic observers think it should be worth, but on its role in the business.

How important is the job to the business, compared to other jobs? Are other people who can do the job a scarce commodity, or are there thousands of them? Some jobs require substantial training, while others do not, and individuals with the required training deserve higher pay than those without training. Minimum wage jobs in the fast food industry require no formal training; the worker can learn on the job, and while the worker is learning to do the job satisfactorily, the boss endures lower-than-necessary productivity.

Who exactly works for the minimum wage? These jobs are entry-level work intended for people just getting started in the workaday world, like students trying to earn a little money while pursuing their education, or people with little or no skills or experience looking to get some skill and experience. About half of the 1.6 million minimum wage workers are under 25 years of age. The minimum wage is not intended to be, and cannot be, a “living wage.”

The minimum wage is, indeed, a low wage, but most of those workers get a raise in less than a year, and there are fewer of them today than in the past. The number of people making at or under the minimum wage today is 28 per 1,000 wage and salary workers, while in 1976 there were 79 per 1,000 wage and salary workers.

Most employers want the best workers they can find, so if most workers produce 10 of something an hour and Joe can produce 12 an hour, or if Mary’s work is of higher quality than other employees, the boss is likely to give them a raise to keep them on staff.

For people in minimum wage jobs with few or no skills, demanding their salary be doubled to a "living wage" is somewhat akin to high school students demanding they be given a college diploma. And anyone earning minimum wage that is unhappy with it can go look for a better-paying job. If they can't find one, do their best at the current job, and get some training that will qualify them for something better.

An organization calling itself Socialist Alternative illustrates graphically the failure of a “living wage" minimum wage in an article titled "Profit is The Unpaid Labor of Workers."

"Hypothetically, lets assume that our job pays $7.50 an hour and our boss wants us to work for twenty hours," the article says. "At $7.50 an hour for twenty hours, that’s a total of $150. In that same period of time, however, the work we do will probably make $300, $400, or $1000 worth of pizza."

And here's where it gets good: "What does this mean? Just for arguments sake, lets assume we only create $300 worth of pizza. After our boss gives us $150 for our week’s worth of work – meaning our own labor essentially pays our wage – he is left with an additional $150 that he did not work for."

There’s a brilliant bit of insight hidden in that paragraph: "our own labor essentially pays our wage." To the socialist mentality, the only cost of running the pizza parlor is what the boss pays the pizza maker. Everything else – flour, sauce, pepperoni, cheese, insurance, rent/mortgage, electricity, water, sewage, trash pickup, taxes, fees, etc. – the boss apparently gets for nothing, and the money collected for the pizza that is not paid to the pizza maker is ill-gotten gains.

The "living wage" strikers similarly do not understand business, and what happens when wages go up. Raising the minimum wage requires a commensurate raise in all wages, to avoid causing strife among the other workers, and that means price increases that make the business less competitive. That could lead to staff cutbacks or ultimately closing the business.

The strikers and the socialists fail to understand and appreciate the investments of the owner(s), who may have mortgaged their home to finance the business, and managers of larger businesses, who usually have spent years in training and working to get where they are, perhaps starting as a minimum wage employee themselves.

Owners get whatever is left over after everyone else – employees, venders, lenders, taxes, etc. – have been paid. Often, particularly in the beginning or during hard economic times, that is little or nothing. And, few employees work as hard as the owner of a small business, and particularly a new business, yet the Socialist Alternative begrudges them making a decent return on their investment of capital and time.

It’s easy to criticize the boss from the sidelines. The best course for these critics would be their forced entry into the business owner’s world. At their own expense, of course. They would undoubtedly see things differently in short order.


Findalis said...

These idiots forget that the business has to buy supplies, pay for rent and electricity, has to pay back those who invested in the business. They think that the money after their wages are just profits.

If these idiots want more money, then get the skills to get a better job.

James Shott said...

Thinking people look into situations before they do something that will make them look stupid, like go on strike over an idiotic concept like doubling their minimum wage rate just because they work somewhere.

It is further evidence of the high degree of ignorance that permeates the US these days, and it doesn't look like it will improve any time soon.