Friday, January 05, 2007

The Minimum Wage

Meet Jack. Jack is a regular guy. He's married, with two kids. Jack likes to work for himself, so like a few million other Americans, Jack opened up a small business. For Jack, it was a local pizza parlor in his small town.

Jack hired 7 people to work at his pizza parlor. Two college guys to make deliveries, three high school kids to make pizza's, a local retiree to answer the phone and take orders, and a waitress going to night school. For the most part, these folks work hard and keep Jack's business humming while Jack is able to meet with suppliers, do paperwork, oversee the quality of his product, serve his customers, and deal with the 10,000 other things business owners perpetually have on their minds. Jack's workers work hard for him, despite only making minimum wage, but no one puts in more hours than Jack. 60-70 a week at least!

Jack is upset because the Democrat's, the supposed party of the little guy (like our friend Jack here), wants to mandate to Jack how much he must pay his workers. And the president (of the party supposedly for the business guy, like our friend Jack here) thinks this is a great idea. This is a problem for Jack.

You see, Jack runs a good business. The townsfolk like his pizza's, they like the level of service they get, they like that Jack keeps his restaurant clean and tidy. But despite his best efforts, the market Jack sells too is still limited. Every town has a pizza place, some have two or three, and no one wants to drive into Jack's small town just to eat Jack's pizza when they have a local businessman to support on their own.

So Jack is able to make, after his other costs, about $50 an hour. His 7 employees each make $5 an hour (the minimum wage) which leaves Jack with $15 an hour to pay himself. (7 people x $5 = $35. . . . $50 - $35 = $15 left over)

Now with the minimum wage being raised to $7 an hour, Jack is forced to make some tough choices. Let's look at those choices:

1. Jack could absorb the costs. However, that leaves Jack with exactly $1 per hour to take home to his wife and kids. Heck! Jack's employees are making more than that. Plus, what if that Gas station across the street starts selling Pizza? Certainly Jack will lose some profits from that, especially at lunch time. What if Jack only makes $48 an hour after that? Now Jack isn't being paid, and he can't make payroll for his employees.

2. Jack could raise prices. True, Jack could raise his prices so he absorbs the extra $14 an hour, but seeing as how people are not made of money, Jack will most certainly lose some business, and anger a portion of his remaining customer base. What if his remaining customer base is so angry they start driving to the next town to buy Pizza, or decide Tacos are a better meal for the price? What if he loses such a big portion of his customer base that Jack breaks even, or even loses money?

3. Jack could lower costs. Now on the surface this seems like a great idea! All Jack has to do is buy cheaper pizza dough, cheaper pepperoni, cheaper cheese, cheaper tomato sauce, etc.! Oh heck, while he's at it, he'll start buying cheaper mops, cheaper pizza boxes, cheaper bathroom soap. . . Now, of course, Jack is always looking for a bargain, and minimum wage hike or not, if he can find a good product cheaper, he's going to go for it. But, to save Jack $14 a hour, he's going to have to do more than find a bargain. He's going to have to make his product, over all, cheaper, but still charge the same amount. It dawns on Jack that making cheaper pizzas would probably result in lower quality. Perhaps some of his customers won't notice, but chances are, that some will notice, and those people are usually the people who buy Jack's Pizza because it is of good quality. Will they continue to buy it if it's of bad quality? Probably not. So in the end, Jack won't save as much money as he thought anyway.

4. Jack could lay off a worker or two. Sadly, this seems to be the only conclusion left for Jack. But now, instead of doing his books the hour before he opens, he has to make dough, something one of the workers he laid off used to do. Now Jack has to work a longer day and get the same work done. And that former dough maker? Well she is out of a job, it probably doesn't make much of a difference since she was kid in high school still living at home, but Jack still feels awful about it. She was good kid who worked hard. She deserved better than a pink slip as a thank you from Jack. If they raise the minimum wage again, the person fired next will probably be the waitress. But Jack really doesn't want to do that. She's just a nice girl trying to put herself through school, trying to do the right thing. But it's either that or go out of business. What's Jack to do?

But this option isn't just an option of hard choices of who to fire, it also effects Jacks business. Suddenly the phone is ringing more because there's one less person to answer. The customers are a bit more restless wondering where Jack's smiling face is to greet them. . . he's in the back, doing a job he used to pay someone else to do. The portions are a bit out of control, and are driving up his costs, but Jack can't manage that as closely these days, there are orders to be filled, and less people to fill them.

Sadly, many American business owners are soon to be faced with these choices. Tell me, all you who support minimum wage increases, and minimum wage in general, what choice would you make? What choice do you think helps the economy in general? What choice is fair to Jack and gives him a real chance to succeed?