Minimum Wage Debate

As most of you have heard there is a debate in this country as to whether or not the minimum wage should be raised (I think $10.10 is the proposed amount, but some people are demanding $15.00 per hour).  I decided that I should probably weigh in with my opinion on the topic.  I know how much all of you were dying to know what I thought…

I am a fairly liberal person.  When first presented with this topic, my immediate reaction is to say “well yeah, who could survive on $7.25/hour?  You have to raise it!”  Prices have gone up for goods and services, gas costs almost $4 per gallon, so it only makes sense that the minimum wage would increase alongside everything else.

Think about it, if people make more money, they will spend more money, right?  This will help all businesses and the economy!  The last major increase was in 2007 (it started the three part process of incremental increases with it finally hitting $7.25 in 2009) and as you can see the economy took off after that, right?  Oh, it didn’t?  Well there were other factors, correct?  Okay, I am being a bit of an ass with that comment.  The economy is a massive beast and you cannot look at just one factor and say “well that caused a recession.”

So yes, personally I feel like a minimum wage increase would be a good thing for the country.  However, as a person who runs a restaurant, I look at the increase as a problem.  If it goes up to $10.10, that would mean that I would have to increase all of my employees to that rate.  Prices would either have to go up or less staff would need to be on, which means service would decrease.

Allow me to explain.  If you add up all the dollars that employees make in an hour, that is called the Average Hourly Rate.  Taking a small example, when you factor servers (who make $2.83/hour) the AHR comes out to about $6.06 (in my made-up example).  In a day, let us say you have 40 total hours scheduled.  You multiply the AHR with the Hours and that gives you how much you spent on your employees, if you divide that by the sales for the day, you get the percentage of labor.  To make it easy, let us say we did $1000 in sales.  This means our labor percentage is 24.24%.

In the post-wage increase world, the AHR increases to $7.37 (trust me, I figured this out).  If nothing else changes with the hours and the sales, then the labor percentage goes up to 29.48%.  I know what you are thinking, what does labor percentage even mean?  Think about it this way, for every dollar bill of sale we receive, we spend $.2948 to pay the employees.  On average, we spend about $.31 for the food.

Stay with me for a second, after you take those out you are left with $.45, but you have to pay taxes, buy supplies, benefits, technology, marketing, repairs, etc…Usually after all that is paid for, we are left with about $.04 from each dollar that is considered profit.  However, if you increase the minimum wage, that $.04 is gone and it is now a negative.  How does one combat losing money?  You make cuts or you raise prices.

If we make cuts, then people lose their jobs and again, you see a decrease in service.  That does not sound like a good thing.  Okay, what if we raise prices?  In order to get us back to that 24.24% we would need to get our sales up to $1216.  Assuming we have the same amount of business that means our prices would need to increase 21.60%, so that favorite $5 sandwich would now cost $6.08.

That does not seem so bad, right?  But, the increase in wages would effect a bunch of other things as well.  Does the meat packing plant where we get our bacon have to start paying people more money?  What if they normally start people out at $10 per hour?  Those folks would probably feel a bit slighted if they learned they were now making less than minimum wage.  What would you raise them to?  Do you give them a raise that equals the percentage of change the minimum wage just saw?  A 39.31% increase would mean a guy making $10 now makes $13.93, so guess what that means for the bacon company?  They have to raise the price of bacon.  So now, instead of our food cost being $.31 it goes up…do you see where this is going?

I honestly do not know the answer.  This is just not a restaurant issue.  I feel like the restaurant and retail sector probably employee the most minimum wage workers.  This will impact them the most.  These are things that people need to consider when they look at this issue.  I hope this helps some of you.