Minimum Wage Increases: Good For Employees, But Detrimental To Employers

By

The current movement to raise the Federal Minimum Wage from $7.25 an hour to $10.10 an hour over three years, as well as raise minimum wage for tipped employees, has many small business owners in dire straights. The current order only affects those with contracts with the Federal Government, but Obama has announced a Democratic plan to increase minimum wage as a whole as described above. This leaves employers who don’t have a lot of financial wiggle room with a few options, but none of them are very good.

Raise Prices

In order to pay employees an entire $2.85 an hour more, many employers will have to either cut costs or increase income. This will lead many business owners to raise the prices of their product. In an already struggling economy, this is a disaster waiting to happen. Depending on the product, raising prices can cause customers to either give up your product, or seek it elsewhere, leaving the business either in the same financial state it was in (fewer customers, but with more incomer per customer) or worse off, if more customers leave than is made up for by the price increase. While there is not guarantee that raising prices will financially damage a business, there is no guarantee it won’t, either, and that is a risk many businesses may not be willing to take in these hard times.

Cut Employees

If businesses are unable to or decide against raising prices, their next option to cover rising labor costs is to cut hours or positions from their workforce. Obviously, this is counterproductive in a proposal that is supposed to be aiding the economy by providing workers with a better income, but it is the only option for many employers in a situation such as this.

Discontent Among Employees

A minimum wage increase this drastic threatens the internal structure of a business as well. If an employer has 10 employees, who all perform at different skill levels, and get paid accordingly, there is a structure to the employment system. Employees know that the longer they are there and the better they perform, the more they will get paid. If an employer’s best employee makes $10.10 currently, but he has to give all 50 other employees raises to pay them the new minimum wage of $10.10, he may not have the money to give his best employee a corresponding raise. Therefore, this company’s best and longest-standing employee is now making minimum wage, and is now on equal financial footing with those that he has stood above in seniority and productivity since the beginning. This could cause serious discontent within the workforce, as well as take away incentive for employees to do their best work.

A More Plausible Solution?

Personally, I am a believer that minimum wage should be incredibly low, or even nonexistent. What a business pays an employee should be subject to the laws of supply and demand and, far more importantly, should be reliant on how well the employee performs for the business. This leaves businesses with more money to pay their best employees more, and their worse employees will quickly learn to dedicate more effort to their jobs, or to seek work elsewhere.

Since the former is not an option that can be widely agreed upon, a more plausible solution to consider could be to meet in the middle. Rather than crippling small business with a huge hourly increase, why not raise minimum wage an amount that businesses could afford to implement, such as 50 cents. At a full time job, that gives an employee an extra $20.00 a week to work with, which is enough to cover a month’s phone bill, or a month’s utility bill, or any number of expenses that would make a minimum wage more manageable for an employee, while not causing detrimental problems for the employer. This would also allow the employer to give all employees equal hourly raises, so that not every employee in the establishment has to drop down to minimum wage, leaving the business with its internal structure intact. Don’t save the employees at the expense of their employers, or they won’t have employers for long.

Similar Posts: