Minimum Wage Debate Part 2

raise_minimum_wageTwo years ago I decided to make the case for why raising the minimum wage would be bad for business. In the post I mentioned how this was something tough for me because I struggle with it from my work side and my personal side. I figured today would be a good time to discuss it from the other point of view.

First off, raising the minimum wage would help the economy. If people have more money, then they can spend more. Maybe they can start buying homes, that would help the construction business. Then there are more people paying property taxes and whatnot, so that helps your schools and local government. I think most of us can understand this, right?more moneyInstead, I want to take another look at this from the business perspective. Would there be benefits to raising the minimum wage from that point of view? I think there could be. One problem with paying people low wages is that employees need to get multiple jobs in order to make ends meet. If they only have to work one job, then they are happier and they may stick around longer. This would help decrease turnover; which lowers hiring/training costs. That is always a positive!

When I looked at this last time, I mentioned how this would lower the bottom line for businesses and eventually it would cause them to raise prices. However, what if a company decided to take that hit for a year or two. Yes, those bottom line profits would drop, but you allow those people who are now making more money (especially if all wages go up because of the increase) to start spending that money. It may not even take that long really, once people have more income, they will spend more. Hell, the people who never had the chance to eat out or buy new stuff, now have a chance. Those businesses will see the benefit, especially the ones that do things well.

cooltownAllow me to break this down. Pretend you live in the city of CoolTown with a population of 100,000. Okay, you own a restaurant. On average you have 5,000 guests per week at your restaurant. They spend on average $10, so you make $50,000 each week. We are going to assume that of those 5,000 people, half are people who come there multiple times each week. So now we have 2,500 people per week. So basically 2.5% of the people of CoolTown eat at your restaurant on a given week.

Once the minimum wage goes up and the denizens of CoolTown have extra money to spend, what if that 2.5% jumps to 3%. So now, an additional 500 people come in to enjoy your delicious food. That is an extra $5,000 per week in sales. And if you really impress those people, maybe half of them will come multiple times in a week.

Because of the higher volume at the restaurant, the manager has to order more food. The companies that supply the food are now making more money and can in turn afford to pay their people more money…and so on and so forth.

Will this be hard? Yes. But no one ever said doing the right thing was always the easy thing. People need to start having actual discussions about it instead of just resorting to name calling and attacks.