How to Deal with a Minimum Wage

"how to deal with a minimum wage" johnny_automatic_hotel_service.png

If $10 is so great, why not $20 or $50 an hour? — Matt Palumbo

Not long ago, I sat with friends in the patio of a fast-food restaurant, munching on desserts and enjoying gentle conversation. One of the servers, whom lately we’d befriended, joined us. We discussed his experiences there, and at one point he mentioned a raise he’d just received due to an uptick in the state’s minimum wage. “It’s ten bucks an hour now,” he said. “So when things get slow, the manager sends me home early.” 


Apparently the new minimum wage costs the restaurant money, and the manager sidles around it by reducing work hours. Our friend the server got a raise in name only. In fact, if he loses enough hours, he could end up making less money.

The political Left insists a minimum wage is (1) just, (2) affordable, and (3) not a factor in unemployment rates. Why, then, are businesses trying to wiggle around it? Are they simply greedy and heartless?

Poke a Progressive and you open a deep well of resentment against the affluent. You also find a reservoir of outdated ideas about economics. Left-wingers tend not to be the most financially successful among their fellow citizens, and they often find it hard to imagine how anyone can get rich without stealing it. (Once, as an experiment at a gathering, I recited the old saw, “Behind every great fortune lies a great crime,” and a left-wing acquaintance practically jumped up and cheered.) 

What’s more, most liberals seem to believe the gilded gentry stash their wealth in huge piles of doubloons in their basements … and the rich should jolly-well share it, as they must have hijacked it from the rest of us, who could sure use some of that coin, especially when it isn’t doing any good down in the cellar.

Liberals fail to understand, or ignore, the fact that finance has come a long way since the Middle Ages, and that most wealth today is held in the form of investments — stocks, bonds, etc. — that help firms raise money so they can hire workers. Taxing those resources and handing them out to the poor may give the less fortunate some spending cash, but it extracts that money from businesses, which must then reduce worker hours or lay them off altogether. Society as a whole isn’t exactly coming out ahead.

The other thing the Left fails to grasp is scale, another trait that modernity brings to the marketplace. When someone comes up with a great product or service, and people scramble to buy it, that someone uses the profits to scale up the business so it can sell to larger and larger numbers of patrons. The first sale multiplies into tens, hundreds, thousands, even millions of further sales. That is how most wealthy people get rich, not by holding up banks or pulling a Bernie Madoff. They made money because they earned it by scaling up a successful product. 

And (unless they received special advantages from government regulators) they didn’t get wealthy by forcing patrons to pay a higher figure; they got rich because they offered an attractive product at a competitive price.

Which brings us back to the minimum wage. If you push up the price of anything, customers will go away. This is just as true of labor as it is of autos or TV sets or candy bars. Every worker who benefits from an increase in the minimum wage has gotten a windfall profit at the expense of her company. The cost of doing business went up but there’s no improvement in productivity or product. Companies respond by laying off workers (or, in the case of our friend the server, shortening his hours), or raising prices. This results in fewer customers, which further increases layoffs. And that doesn’t work out well for anyone.

The Left will argue that the stinking-rich business owner has restricted the worker’s natural right to a certain amount of pay, and he ought to shell out from his ill-gotten gains to provide that “just wage”– Say what? Is there a gigantic piece of parchment floating above the Earth with the exact pay rate scratched into it by God? And who’s gonna pay for it? The most garishly overcompensated CEOs receive teensy fractions of the total value of their corporations. Massive wage increases would dig huge holes in company revenues. Layoffs and bankruptcies would ensue.

Meanwhile, most businesses are run, not by fat cats, but by hard-working middle-income owners. Sure, the boss drives a Mercedes, but he bought it seven years ago and it badly needs detailing.

“Fine, but minimum wages don’t hamper employment!” It turns out research shows the opposite: minimum wages do hobble hiring: “ . . . after one or two years, fewer businesses will open, existing businesses will close faster, and fewer jobs will be available.” Worse, minimum wage increases hit minorities harder, thwarting their job search. White supremacists would applaud. 

In fact, the first minimum wage campaigns, a century ago, were explicitly for the purpose of keeping people of color out of the job market. The ideas was that no one would hire them at an artificially inflated wage, leaving the field clear for the more experienced and costly white workers. Back then, Progressives understood enough economics to know that a minimum wage was tantamount to a hiring freeze on the lower classes. And they supported this crusade as a form of eugenics! Liberals hadn’t yet heard the news about racism, and many promoted minimum wages as a form of slow genocide. Amazing, but true. (Woodrow Wilson, get back in line.)

Anyway, how can a business adapt to upward surges in the minimum wage?

  • Hold off on new hires. Instead, increase the hours for your better employees.
  • Send workers home early on slow days. (Sorry, my server friend! But the boss is trying to keep the doors open for everyone.)
  • Hire part-timers instead of full-timers. This sidesteps paying overtime, healthcare, pensions, etc. Your employees will compensate by finding second jobs, which can make work schedules a headache. But it offsets, to some degree, the forced wage increase.
  • Hire robots. Software, 3-D printers, robot vacuums, etc, don’t require healthcare or vacations … or minimum wages.
  • Hire sales and marketing people. Your costs just went up; it’s time to reach out to new customers.
  • Improve your products. You can charge a premium for specialty items. Roll up your sleeves and get creative.
  • Raise prices. Do this gently! You don’t want sticker shock to chase away your customers.

(Before trying any of the above, check to be sure you don’t run afoul of local statutes. Your mileage may vary.)

In case some of you are working for The Man at minimum wage — and think I’m a heartless bastard — I have great ideas for you, too. And they’re much bigger than a one-dollar pay boost. Check them out here and here.

The minimum wage isn’t really helping, but it is costing businesses — and their customers — money. Still, there are workarounds. 

And the next time somebody buttonholes you about supporting a minimum wage increase, simply thank them politely, tip your hat, and run away.


UPDATE: Funny if it weren’t true: DC activists now want minimum wage raised to $35-$50/hr