Minimum wage wrap up

There are a lot of factors to consider when you want to increase the minimum wage to $15 an hour.  Most who want this increase have no idea the consequences involved in such an increase in pay.  In this post, I hope to provide some numbers that show why its not good to demand a wage higher than an employer can offer.  Before I do so, let me stress my personal beliefs on the economy.  I am 100% for everyone to make a fair wage, enjoy living comfortably, and having more than you need.  That being said, it should not come at the cost of requiring businesses to provide a higher wage than what it costs the company to make a profit.  If companies can’t profit, due to wages, they will start cutting custs, and that begins with employees.  Demanding an increase just may cost you, your job, and millions of others who are happy with their current wage.


Have you asked others that are not making $15 an hour if they think businesses should be obligated to provide a higher wage than the skill level of an entry level position?  Think about this for a moment.  Lets use a fast food burger chain as an example. You are not only receiving a wage, but you are learning skills that you take for granted.  You are learning food handling, food cooking, cleanliness guidelines, safety training, customer service skills, computer ordering skills, logistic skills, cash handling skills, other ethical training skills, and employer provided benefits such as health insurance, 401k matching and life insurance. On top of that, they are paying you a wage!  The only cost you pay, is your time.


Now to you, these skills may be negligible for your use in the long run.  You don’t plan on flipping burgers for the rest of your life, and I don’t blame you. It is an entry level position for a reason.  What you are doing though is building a resume of the skills you learned and letting your next employer how dependable of a worker you are, or are not.  


Imagine this is your job, flipping burgers, and you do the best you can, but you prefer more of a restaurant type atmosphere rather than in fast food. So you apply for a job at a restaurant as a cook, and they are going to teach you to not just cook burgers, but even make specialty sandwiches, prepare salads, and even some baking tricks.  You put in your resume and you see another person hand in their resume for the same position.  You both get interviewed, but they only have one spot for the job. You end up with the job because of your previous burger flipping skills and your competition only had cash register and ordering skills. Now see how much more valuable you are that you started as an entry level flipper?

So back to the basics.  When you go through the drive through, how much do you currently pay for a burger combo meal?  How much are you willing to pay for that same meal should the price increase?  At what point does the price of the hamburger turn you away from the drive through or ordering line?  Supply and demand will tell us there is a certain point that the customers will start looking at other alternatives to drive through food.

Currently a hamburger, fries and drink is about 6.99 plus tax depending on where you go and where you are in the country.  Do you know what percentage of the hamburger actually goes to profit?  Do you think its more or less than 33%  You’re wrong if you think more than 33% is actual profit from the sale.  How about 25%? Nope. 20%? Lower.  A company typically averages about 5-10% of profit from the sale of a hamburger.


Lets look at what other costs come from the burger. Cost of food is about 22% and highest portion of the costs.  Hourly labor 17% Salaried Labor 10%  Supplies 5% Utilities 6% Marketing 4% Fees and Licensing 3% Maintenance 4% Other 3% Fixed costs 21%.  So lets add all this up 22+17+10+5+6+4+3+4+3+21= 95% which would leave 5% to go to profit.  Now some of the above expenses can vary, but you get the idea.


Now take into consideration that the hourly labor is already 17% of the costs at 7.25 an hour.  Imagine what percentage it would be if we raised all the wages to $15 an hour for the hourly staff. So if it is currently 17% and we are pretty much doubling hourly wage, its fair to assume the percentage cost would be about 34% now.  With this calculation, we are not making profit and taking a loss.  So how do you get back in the profit column?


Option 1: Raise the price of the hamburgers.  This is not a feasable solution as the supply/demand ratio starts to come into factor.  People will start cooking meals at home or finding alternatives to fast food if a burger and fries cost over 14 dollars for just one person.  When that happens, sales go down, and the demand for employees goes down with that.  You can’t keep the burger the same price and hope to sell twice as much as the demand model tells us it doesn’t quite work that way.  This is just economics 101 talk now.  Demand ALWAYS goes down as supply and the price go up.


Option 2: Cut workers. That could be you! Since you want the $15 an hour wage, are you prepared to put yourself up against your fellow employees as to who gets cut?  Do you think if it was either you or the next guy, that they would be in favor of the wage increase?  Well in either scenario it doesnt work, as then you have to do twice the work you were doing before.  Can you flip burgers, take orders and handle cash at the same time?  Fast food chains typically train you to be fast and efficient at your 7.25 an hour job or else they will find someone that can do what the company needs to. It it’s not feasible for the employer to expect you to do twice as much work when you’re already trained to be quick.


Option 3: Company pays employees from the bottom line.  Well thats the catch 22. Most companies already pay the highest wage that they can to reasonably make a profit to handle things like expanding, bookkeeping, shipping and other logistics, employer paid benefits, training material, licensing, taxes, shareholder dividends, and numerous other expenses.  When you hear that a company makes 2.4 billion in revenue, that doesnt mean they have that cash just sitting around. It goes to all of the above items to make sure the business is still running.  Want to take it from the CEO?  They probably don’t make enough to afford everyones increase.  Even if they did, do you think that is a way to run a good business? 


Put yourself in the shoes of a CEO for a moment. Lets say you spent the last 20 years building up a great business from scratch.  You started working 80 hours a week, often times not bringing enough money home to do anything but pouring it all into the business, then after a few years of hard work, the busness starts to become profitable enough for you to hire a manager to manage people and allow you to finally take a vacation somewhere.  Now the business is growing in leaps and bounds, that you are expanding to new cities and states!  You are pouring money into marketing, licenses, permits, or whatever it is thats an expense on your part.  Then you hire some trusted financial gurus to help make the company more efficient.  Then the brake slamming reality hits, that you now have to pay all your employees double, and they aren’t doing anything different to deserve it.  You were about to expand to another state in just a couple of months, but now what?  You are cutting back and pouring all your saved out-of-state project money into more wages.


Is it hard to imagine because you aren’t a CEO?  Well that is the dream you are destroying.  It’s not just about you making $15 an hour, its a financial crisis for the CEO that has to pay your sorry butt, and for what?  What more are you doing to earn this much when there are already hundreds of thousands that accept the 7.25 rate?  Sure they would be happy with the increase, but is it warranted?  What does it cost the company?  The answer is it’s costing the company from creating more jobs for the unemployed and possibly the company’s future.

To those who dared to look at the perspective of the conservative who is opposed to minimum wage increase, I applaud your objectives to at least get through the blogs. I do see and understand the argument that is in favor of an increase, but my logic and common sense flags went crazy and felt compelled to write and hopefully enlighten some to join my side of the argument. This is a very important topic, one that could dramatically cause a collapse of the American economy.  My blog is a message to those who don’t quite understand what may cause the collapse. Please comment and discuss with me and see if you can prove me wrong.

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