Why raising minimum wage hurts independent small business.

Earlier today, I was asked to add something to a conversation on Facebook, where the premise was this article about Why Raising Minimum Wage Is Good For The Economy. My comments are not in quotes. There were others posting, and to save face, because some would not want their comments shared, here… I didn’t name their quotes, or them, and commentators. The original poster was commenting on a post supplied by a click bait site, discussing the cost of McDonald’s purchasing automation systems, and why that wasn’t or shouldn’t be a viable option.

Continue with the discussion below:

To believe this, you have to not be able to do math, and you have to have NO understanding of how a business operates, or what happens when the minimum wage is actually raised. In other words, you have to ignore reality.

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I can do calculus because I’m on my way to becoming an engineer**, the minimum wage is higher in other countries to little to no effect on small business, and in reality people will not continue to be paid on 7 an hour. The minimum wage is no longer a living wage, it’s been upped before and it needs to be upped again. That’s a part of economics.

NOTE: **person posting about becoming an engineer is not currently working, and hasn’t held a job of any real value. Her efforts to this point have been gaining an education, and she’s focused on a career in a high paying field, but hasn’t done the research, because engineers in her field are taking minimum wage jobs to be able to find work.

Being able to do calculus and becoming an engineer don’t have anything to do with having enough intelligence to know when you’ve been slapped down for being a stupid pawn to the government. Small business owners will NOT pay increased minimum wages without raising the cost of product and services. They cannot do it. It is financially impossible to pick up the slack of that kind of wage increase and maintain the same number of employees. It isn’t about taking a wage cut at the top. Many small business owners don’t even make minimum wage for the hours they work, but they work them because they are the cheapest labor available for the job. Until you’ve actually studied economics and figured out the details of drawing a payroll, making payroll at the bank, and owned a business – you don’t have a clue. Even BIG businesses, such as McDonalds are smart enough to know they can buy a machine to do the job of 2 or 3 workers, and benefit from the savings.

“…many businesses cannot afford to pay their workers more, and will be forced to close, lay off workers, or reduce hiring; (or increase automation, as McDonald’s proposes to do), as that increases have been shown to make it more difficult for low-skilled workers with little or no work experience to find jobs or become upwardly mobile; and that raising the minimum wage at the federal level does not take into account regional cost-of-living variations where raising the minimum wage could hurt low-income communities in particular.”

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The most prosperous time in the U.S was also during Eisenhower’s presidency when taxes were at their highest in our History.

The US was not prosperous due to the taxes paid. The US was prosperous because the GNP was up, and everyone – 85% of the population – was working. You can’t support 50% entitlements, with 50% of the country working, and no GNP. Tax levels being high with the expenditures going out, won’t make this country wealthy.

One of the biggest problems with the minimum wage hike is the lack of consideration for the GNP. If the GNP isn’t increasing, small businesses are receiving no income, and nothing is moving in cash flow, which results in an outlay of capital for wages. Once you start laying out capital instead of income for wages, your business begins to lose ground, and you’ll soon be bankrupt.

In a basic economic equation, wages paid to employees should be no more than 50% of income from the business, and this should include any additional benefits, taxes, or costs of wage earnings that you must pay out as a business. Overhead should presumably be less than 20% and 30% of income /profits should be distributed between investments, growth of business, and expansion, new product and service development. The owner of the business should be making a portion of the 50%, Each employee is responsible for bringing in at least 2X whatever his wage and benefits are worth, to pay for additional growth, overhead, and business development.

Another consideration is shifting tax brackets; my sister, ***, worked hard at a small restaurant in downtown Oshkosh, and was rewarded with a substantial raise, but she was dismayed to find most or all of the excess vanished because she was now in a higher tax bracket.

A good economics course, will break these costs down further, and explain the processes by which every business grows or fails, including the abuse of capital funds provided by investors, or other business dealings. The cost of a business should never exceed the income from that business, and any business owner should be able to predict at least a modicum of annual projected income. Expenses in most businesses are somewhat predictable and can be managed as you go, when the owner has complete control of overhead.

A vast problem with current business programs is the lack of control a business owner has, and the overreach of government regulations and design limitations determined by government ‘alphabet’ agencies. When licensing and costs, or fees, and taxes increase on a business, the overall value of the business decreases by more than 300% of regulation costs, because there must be business transactions that take the time and effort out of the business owners day to maintain these costs and fees, plus manage the regulations.

Note from Jan: I’m hoping President Elect Trump has enough understanding of small business to cut the overhead, demands, regulations, costs, and fees on small business owners at the government level. Without deregulation along with the tax decreases, and other changes, there won’t be enough difference to pull our smaller businesses out of the economic slump. I’ll be sending him messages, because I believe it’s necessary to keep business doors open, to cut regulation.


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