Okay, say I’m a small business owner with 20 employees.  5 of them have been with me since the start up and are making, say, $14.00 hourly.  Not a lot of money to be sure, but nothing to sneeze at.  Another 5 have been with me for 3 years are in the $11 range.  The rest are new, less than a year and make either minimum wage or just above it.  The federal minimum wage is $7.25 an hour though many states have minimums higher than that.  Here is where the math starts so if you are not careful, your eyes will glaze over.  But here is also where the liberal mindset of a “living wage” starts to impede on small business–the engine of our country’s economy.

Minimum wage times 40 hours is $290. Times 10 employees is $2900 a week.  That is just the newer, lower half of my labor force.  The long timers earn $560 per week.  Five of them:  $2800.  The middle earners, using $11 as a benchmark earn $440 each per week, or $2200.  So, my business has to earn $7900 weekly just to make payroll.  That is almost $95,000 annually in sales just to make payroll.

I’m not really a business owner so I don’t know all of the intricacies of paying the bills for one.  I have a friend who owned a book store.  His roughly 1200 square foot place ran him perhaps $2000 a month in rent.  Ching!  Another $24,000 in sales just to break even.  Now I’m at $119,000.  Add in utilities, and internet (since all businesses have to be able to go online), estimate $375 a month.  Another $4500 a year, and we’re at $123,500.

I could go on and on.  So let’s just say I need $140,000 in sales just to get to the starting line.  No profits are calculated to reinvest/grow the business and no salary for me, the business owner.

However, if you take out the people who are in the food service industry (they earn tips of which they claim only a portion of) and retail (some of whom make commissions), there are really only 1.5% of the labor force that earns the minimum wage.  Most of these people are below the age of 24 and are usually students or in a trainee position.  People learning a job should not expect $60K a year.

Now, the government wants to raise the minimum wage to $10.10 per hour.  It is required if you have a government contract, but that is their target for everyone.  It presents quite a dilemma for the owner.  I have 5 people who have worked for me for three years and have earned their way up from minimum wage (which was probably lower when they started).  Now, by mandate, I have to pay the newest 10 people almost as much as they make.  The 5 middle earners are going to want a raise too.  The top 5 wage earners are going to take notice too.

My choices:

1. Absorb the added costs.
2. Raise prices to my customers
3. Lay off workers to compensate for the added wage costs from the new minimum
4. Reduce hours for my staff to reduce my labor costs.
5. Close the business and lay off 20 people
6. Sell the business and let someone else deal with this

Absorb the costs.  No serious business owner is going to do this for long.  Let’s examine this realistically.  Once $10.10 is approved, they’ll go for $12.00 an hour, then $14.

Raise prices.  This is the simplest way but also the most dangerous.  I may raise prices beyond the acceptable threshold of my customer base and lose business.

Lay off workers to compensate.  This is one of the ways many business owners are fighting wage battles as well as Obamacare budget crunches.  The raise to $10.10 from the current minimum of $7.25 is $2.85 per hour.  Times 40 per week is $114.  Time 10 employees is $1140.  Times twelve months of the year is $13680 annually more I have to pay in labor costs—the easiest controllable expense to manage.  One minimum wage worker makes $15080 annually.  So, if I layoff one worker I almost break even—except for the added cost I’ll have to endure to give everyone a similar wage increase.

Reduce hours across the board.  In this age of shared sacrifice, reducing everyone’s hours is what many in the government would say is most fair.  It’s a stupid and invalid argument.  Why should my best and longest serving workers have to work less time, make less money so that the lowest earning among them make more?  The government says I’m liberating the worker from having to work a full 40-hour week.  Yes, liberating them to go find another job at 40 hours per week so that I lose their experience and drain the brain pool.

Close the business.  If I’m underwater, this could be a viable option.  Shut it down and liberate my team to go find other work.

Sell the business.  Also a viable option.  The government is so rabidly anti small business, one would be crazy to try to do a start up.

Liberals in Washington just see the first stage when they propose legislation like this.  They only see that they think they are helping the working man by providing them with higher wages.  They do not see the ripple effect in the rest of the pond from the pebble they dropped in.  Or if they do see it, they do not care.

Maybe we should treat them all as a small business.  They have to pay their staff out of their own salary budget.  Every time a federal wage increase happens or they want to hire a new page, they have to figure out how to pay for it from their own salary base.  Ah, but that would be too much like making them live in a world of reality.