Common Sense Isn’t That Common

That is a common phrase when people talk about dumb shit people do. This goes for everyone, regardless of your political association. Watching people on social media can easily prove this. Things get much more intricate when dealing with the economical impact of raising minimum wage compared to riding a skateboard down a steep hill while drunk.

Take that example: California raising their minimum wage to $20/hour. I’m not going to say whether it is a good thing or not, but people often do not look at all the facts and possible/probable implications. Sure, it affects lower-income workers more on an individual perspective; however, we also have to consider the business owners. People assume business owners are rich. Some are, and some are not. A shit ton of small businesses fail. Those owners aren’t rich. I’m a business owner, and I’m not rich. Sometimes, I’m barely surviving. The message being told is that big businesses are not treating their workers fairly, and they should pay more to employees and taxes. “McDonald’s is a huge company, so they should pay their employees more to be more fair.” According to some statistics, 93% of all McDonald’s’s’s’s’s are franchises, owned and operated by individual owners/businesses. McDonald’s doesn’t pay the employees. They might pay for the land and/or building, but they are not the ones running the business or paying employees.

While each individual working for minimum wage in California might be getting a 25% increase in pay, the business owners have to figure out how to make it work. The McDonald’s corporation is still going to expect the same, or better, profit margin. The shareholders are going to expect the same thing. How does a small business owner going to pay the extra wages and still make money? Do they raise their prices? If they do, it affects every customer who eats there. If all small businesses do the same thing, that $5 extra an hour doesn’t go very far.

What if the business owner cuts hours or employees to keep their payroll at the same point? If they cut hours, the total income might not change for the employees, but their cost of living goes up (inflation on a personal level). The last time minimum wage went up like this, McDonald’s replaced a lot of employees with self-service kiosks. We’re going to do simple math. If minimum wages went from $15 to $20 per hour, and the employer has four (4) employees, their payroll go up by $20 / hour, more than enough to hire another person if wages were left at $15.

We can’t just look at the minimum wage by itself. Employers must also pay taxes based on their employee’s wages. These taxes include, worker’s compensation, social security, matching federal income taxes, and maybe other federal, state, and local taxes. That compounds the $5/hour wage increase.

Taxes aren’t the only issue. Any services the business owners pays for will also go up to cover the wage increases the service provider had. Suppliers will probably also increase their prices to cover their wage increases. This means that the business owner will have to increase their prices, not only to cover their payroll increases, but to pass the increase in supplies to their customers. It is a basic of business and economics. This slices into the increased $5/hour increases.

Another side effect of increasing minimum wages to $20/hour is that the people currently making $20/hour will feel cheated if they do not get a $5/hour raise. How likely are they to get $25/hour? I don’t know, and that will have to be figured out be each business owner. All of that trickles up to everyone making more money.

If history is any indicator, raising the minimum wage so significantly and suddenly will cause inflation and increase unemployment. By how much is up for debate and to the pages of history (at some point). This is not an entire list of all of the impacts of this unemployment increase. I know I have missed a lot. My point isn’t to say this should/shouldn’t be done; it is to make people think about more than they currently do. You might know all of this. I know some people know a lot more than me about this topic. This is just my quick thoughts without looking up the numbers and the history of this topic. These thoughts should be common sense if people just think a little more than the increase in pay for the lowest-earning workers.


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