The Forgotten Man of the Minimum Wage Debate
The ongoing debate over whether the federally mandated minimum wage should be raised focuses on low-wage workers. Those who want to see it raised argue this will increase low-wage worker income. Those against a raise argue that a higher minimum wage means greater unemployment. But few focus on the potentially devastating effects that raising the minimum wage can have on the people who make jobs possible: employers.
As I have written before, a federally mandated minimum wage of $9 per hour is a restriction of freedom: it deprives employers of the freedom to hire anyone for less than $9 per hour. To see why this is a serious issue, it helps to know how these laws can undercut an entrepreneur trying to get her business off the ground.
Consider a stay-at-home mom who wants to open a bakery shop. Her vision is to make a business out of her cookie and pastry recipes that have been winning gushing praise at local bake sales for the past ten years. To get started, she would need to hire staff, secure a location, install industrial baking equipment, acquire display cases, purchase ingredients, procure packaging materials, along with hundreds of other things. She must take a huge calculated risk by paying for all of these things up front. Eventually, she can pay for these things with revenue from customer purchases, but only if her business succeeds.
To pay these initial costs, she will have to dip into her own savings, borrow money from a bank, or attract investors who are also willing to take a calculated risk on her venture. Her employees will get paid whether her business soars like the next Mrs. Fields, or flounders into eventual bankruptcy. But she will have to work like a dog, knowing that if her business fails, then she just burned through a lot of her family’s savings, and may even lose her home if that is what it takes to pay back her lenders.
For an entrepreneur like this, the level of wages she pays her employees can make the difference between whether her shop is hemorrhaging cash, barely breaking even, making enough money to grow and expand, or able to grow and expand while also paying back her investors. She will likely find young folks willing to work the cash register, make deliveries, and assist with the baking for less than $9 per hour. Why should entrepreneurs like this be forced to pay wages higher than what employees are willing to accept—and therefore be forced to generate that much more revenue to even stay afloat—simply because others wish the “minimum wage” in this country were higher?
image: Garry Knight at Flickr