The Problem With Raising the Minimum Wage

Posted by David Chism | Wed, Oct 21, 2015

This post was inspired by the most recent debates about rais­ing the min­i­mum wage in our coun­try to $15 an hour. I think both lib­er­als and con­ser­v­a­tives, who are not as famil­iar with small busi­ness, might just be in favor of rais­ing the wage. I think I know why! This is just my the­o­ry, they have (in many cas­es) not had the oppor­tu­ni­ty to run a small busi­ness, espe­cial­ly a con­tract­ing busi­ness. They also show com­pas­sion for those mak­ing very lit­tle mon­ey, and I applaud them for want­i­ng to see peo­ple make more mon­ey and have a future! It is good for cit­i­zens to care for those who are less for­tu­nate. Yet, it is my per­son­al belief that by man­dat­ing a min­i­mum wage increase into law would only do more harm than good in the long run both for the econ­o­my and for many of the peo­ple get­ting the increase in pay. So this post is to my left or right lean­ing friends who might think rais­ing the min­i­mum wage is a good thing for the coun­try. In the­o­ry, I like the idea of every­one mak­ing more mon­ey! I like the idea of start­ing at $15 an hour. I am no fan of employ­ers who take advan­tage of their employ­ees and under­pay them. It hap­pens all the time. These are the hor­ri­ble busi­ness own­ers that are mak­ing the min­i­mum wage an issue today. These peo­ple give cap­i­tal­ism a bad rap and push Amer­i­cans to think about intro­duc­ing more social­ism into our sys­tem. Div­ing right in here, the prob­lem with increas­ing the min­i­mum wage is that this sys­tem real­ly does not work in a free mar­ket. In an ide­al free mar­ket world, with both a moti­vat­ed employ­ee and a decent employ­er, the employ­ee should be paid a start­ing wage that fits his/​her skill lev­el. The employ­er wants an employ­ee who will com­mit him­self to work­ing hard and being part of the team. The employ­ee, after show­ing progress, should begin to receive reg­u­lar reviews and rais­es based on his lev­el of exper­tise in that line of work. If the employ­er real­ly wants great employ­ees, he/​she needs to pro­vide a great place to work and care for his employ­ees. And in a free mar­ket, the employ­ee is free to leave and seek anoth­er place of employ­ment if his employ­er is not treat­ing him fair or he wants to earn more mon­ey. I under­stand that in some indus­tries and cities around the U.S., this is not so easy for some work­ers to do: leave and find anoth­er place of employ­ment. Yet, a per­son still has that right.

The Effect on Con­sumers Who Seek Home Improvement

If we raise the min­i­mum wage, it could dras­ti­cal­ly hurt many indus­tries, espe­cial­ly the small ser­vice busi­ness­es. It will also affect the con­sumer! Think about it this way: if a painter is mak­ing $10 an hour (a typ­i­cal start­ing wage for an appren­tice), he will now be mak­ing $15 an hour. So far so good, right? Nor­mal­ly a painter mak­ing $15 an hour has worked his way up the ranks to get $15 an hour. This can hap­pen in as lit­tle as 2 – 3 years in most cas­es. This employ­ee will see the appren­tice start­ing at $15 and he will want $20 an hour. Seems fair to me! You see where I am going with this. The fore­man run­ning the paint­ing project mak­ing $22 – 25 prob­a­bly spent 8 – 10 years to get up to that hourly wage. Now he/​she will want $27 – 30 an hour. Rais­ing the min­i­mum wage sounds fine if every­one gets a raise. Yet in order to do this, the busi­ness own­er will have to raise the rates to his cus­tomers. So let’s say, to paint the exte­ri­or of a house costs $4,200 with an appren­tice and one fore­man (crew leader). If every­one got a $5 an hour raise, the cost could be around $5,400 includ­ing the extra over­head. The real prob­lem is, I do not think cus­tomers will like such an increase in get­ting ser­vices com­plet­ed at their home or place of work. There­fore, it will hurt the small busi­ness­es because they will just have to charge the same price to a client and take a loss. Tak­ing that big of a hit in sell­ing ser­vices could just back­fire all togeth­er and cause busi­ness­es to lack the prof­its to stay in busi­ness and begin lay­ing peo­ple off.

What Can Work­ers Do?

A Nan­ny Job Example

My wife’s youngest sis­ter recent­ly approached me about a nan­ny job she was doing. She want­ed my opin­ion on what to do. She had asked for $15 an hour to start. Long sto­ry short, the cou­ple would not pay her more than $10 an hour. If you knew my sis­ter-in-law, she is worth $15 an hour, yet she took the job because it was steady employ­ment, and she was just being nice. I think she felt that at some point in time, she’d quick­ly show them she was worth $12 or even bet­ter, $15 an hour. That day has still not hap­pened. On top of that, the cou­ple thought they recent­ly over­paid her by $10 and want­ed the $10 back. When I heard every­thing that was going on between my sis­ter-in-law and this cheap” cou­ple, my advice was to begin look­ing for a bet­ter place to work. I think she can afford to do this because the econ­o­my is strong enough that she will find a bet­ter posi­tion. She should not let peo­ple like this lord over her.” Again, this is why we are hav­ing the debate about rais­ing the min­i­mum wage! I also believe by leav­ing this nan­ny posi­tion, she will send a mes­sage to this fam­i­ly who hired her that they can­not under­pay peo­ple and get away with it.

What Should Employ­ers Do?

An Exam­ple From My Dad

Those who fol­low my blog know I like to brag about my father, Mike Chism. He is one of my heroes! He runs a small paint­ing com­pa­ny (Chism Broth­ers Paint­ing) in San Diego and pro­vides a great place to work. He cares about his employ­ees more than mak­ing large prof­its. If he ever finds out that one of his employ­ees is strug­gling finan­cial­ly or needs help, he will quick­ly come to the res­cue. Some­times, he will give the employ­ee a raise or just help finan­cial­ly. He does this because he is nei­ther embrac­ing cap­i­tal­ism or social­ism. His Chris­t­ian belief is to show kind­ness and respect to his fel­low man. So this post is my ran­dom thoughts on the issue of min­i­mum wage. I do not mean to offend any­one or take polit­i­cal sides. I just hope that small busi­ness own­ers will begin to take care of their employ­ees because it is the right thing to do and not because the gov­ern­ment dic­tates how to run a business.

About David Chism

David Chism started his business out of a passion for helping small contracting businesses grow, be more profitable and become better known to their target clients. One lifelong hobby of David is using techie gadgets. So this blog is a place where he writes about technology, marketing ideas, just for fun (humor), personal thoughts on small business and more.


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