Raising the Minimum Wage

Do you support raising the federal minimum wage, currently at $7.25 or $2.13 for employees who rely on tips? If so, what do you consider adequate?

Absolutely! Especially the “tipped income” base wage, which is a sham to begin with.

However, you must keep your proposals reasonable for both sides. A blanket wage increase to a specified level from the bottom will in fact have a hidden perceived “negative effect” for employees already receiving in excess of the minimum wage rage.

Example:

A small business owner runs a tool store. This employer has 20 employees, the longest of which has been there for 5 years. In this fictional model, you have 12 employees working at $7.25 per hour, 5 at $10, 2 at $13, and one at $15.00 per hour, in this example, the employee who has been there for 5 years. These wages and relative increases are demonstrated below assuming full employment for all workers (40 hours/week):

 

# of Employees Wage Rate Current At 15/hr Net Raise % of Increase
12 7.25            3,480     7,200   3,720 76%
5 10            2,000     3,000   1,000 20%
2 13            1,040     1,200       160 3%
1 15               600         600          – 0%

Now pay attention to how this increase in wages is proportioned. The most loyal employee receives no increase, in fact, may be denied future increases because of the increased costs to the business owner. What is often ignored when considering the argument against a blanket pay raise is that many feel this reward is not justified; especially considering that they have worked so hard to attain that increased rate of pay. Those who have little to no experience in a field would receive a nearly 100% increase in pay while the hardest working individual, receives nothing.

Now from an employer perspective, you need to account for this increase in wages. The wage increase also incurs a cost hidden from employees, the increase in payroll taxes and hidden costs, for this example I will set the rate at 20% and I will assume that wages were 25% of pre-increase revenue in the employer’s business model.

 

PayRate Wages Payroll Tax Total % Revenue
Pre $15         7,120            1,424     8,544 25%
Post $15      12,000            2,400   14,400 42%

Now before the minimum wage increase, the employer’s average revenue was around $34,000 and costs including wages were kept in proportion. The instantaneous wage increase would push this percentage up to 42%, while other costs would remain static, devastating many of the ratios used in proper accounting techniques. Those metrics are used for information in decision making at executive levels. Under these form of analyses, profits and returns will plummet.

Unfortunately, what is not seen or can be easily measured is the increase in quality of life for workers and the future benefits this may provide in a longer time frame. Increases in income will reduce the amount of time worked required to cover living costs for individuals and families. Assuming that these individuals choose to utilize this time for other activities, such as rest or spending time with families, this will likely reduce anxiety and stress levels of most waged employees. When you reflect on it, you are able to consider anxiety a “contra-happiness”, were a decrease may not necessarily improve life, but will certainly detract less from it.

While this analysis is merely rudimentary and much more detail is required and involved, my end suggestion is a wide net increase in pay for all hourly wage workers. For example, over a 4 year period, raise the pay $2.00 for the first year, $1.50 for the second year, and $1 for the third and fourth years. This staggered approach will help to mitigate business losses and allow them to utilize a variety of accounting tools at their disposal to smooth out the net effects of the wage increase.

11 thoughts on “Raising the Minimum Wage

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