The negative impact of minimum wage

[Barun Mitra, New Delhi]

The forgotten man of the minimum-wage debate
by Doug Altner,
Daily Caller, 19 June 2013
http://dailycaller.com/2013/06/19/the-forgotten-man-of-the-minimum-wage-debate/

President Obama has renewed his call for Congress to raise the minimum
wage to at least $9 per hour. Advocates claim that raising the minimum
wage helps low-wage workers. Opponents point out that if Congress
makes it illegal to hire an employee for less than $9 per hour, there
will be fewer job opportunities for those who lack skills and
experience.

Most minimum-wage debates focus on these arguments — how the minimum
wage affects low-wage workers. What’s rarely discussed is how it
affects business people, especially start-up entrepreneurs.

Suppose a stay-at-home mom — let’s call her Susan — wants to open a
bakery to make a business out of the pies and cakes that have been
winning praise for as long as she can remember. To open her bakery,
Susan must take enormous financial risks — paying upfront to hire and
train staff, buying industrial baking equipment, decorating her store
— costs that likely entail taking on a lot of debt.

She will succeed if she can make enough money to cover not only her
operating costs but also her initial costs. That, however, is no cake
walk as one out of two new business ventures fails in its first five
years. Susan will have to work like a dog, knowing that if her
business fails, she may lose her home if that’s what it takes to pay
back her lenders.

One strategy Susan can take to keep her costs low is to hire some
teenagers at $7.50 per hour to help work the cash register, haul
supplies, and assist bakers. She prefers to hire several employees who
are only looking for temporary work, because she cannot afford to
commit to too many permanent employees until she has a steady customer
base. And there’s no shortage of teenagers who are happy to work for a
small wage for some work experience and extra spending money. For both
sides, it’s a win/win trade.

Raising the minimum wage to $9 per hour would make Susan’s business
strategy illegal.

Trying to launch a new business is difficult enough without the
government passing laws preventing business owners from hiring
employees for wages they are willing to accept. Even raising the
hourly minimum wage by $1.75 could cost an entrepreneur like Susan
thousands of dollars per month.

Susan is fictional but her experience is typical. Holly Wade, a senior
policy analyst at the National Federation of Independent Business — a
group representing 350,000 entrepreneurs — opposes raising the minimum
wage. “We’re hearing from our members that they want more flexibility
to structure the workforce as they need to,” she says.

David Houston, who co-owns the Barney’s Beanery bar and restaurant
chain in Los Angeles, explains that raising California’s minimum wage
to $9.25 “would just squeeze the heck out of us” and that “it would
effectively absorb about half of my profits.”

Melvin Sickler, a businessman who “went all in financially” to start
his first Auntie Anne’s pretzel franchise, estimates that raising the
minimum wage to $10 per hour could swallow nearly 60% of an average
location’s income.

Should these businessmen cut employee hours, cancel plans for growth
and expansion, or absorb the blow themselves?

The debate over raising the minimum wage is in part a debate over
whether entrepreneurs should be forced to shoulder even greater
burdens. By not seriously considering what the minimum wage demands
from such business people, we are treating them not as human beings
with rights, but as pack animals that must obediently carry whatever
additional weight is piled on their backs. Their judgment, their
career dreams, their lives — why don’t these matter?

People would be outraged if the rights of employees were trampled with
such callous indifference. Where’s the outrage over the treatment of
entrepreneurs?

Doug Altner is an analyst at the Ayn Rand Institute. www.AynRand.org

[Poonam Kapoor Vasudeva]

Hi Barun,
Thanks for the article. I totally agree with the writer. I wonder what's wrong with the world? It's so apparent - the writing is on the wall !! yet powerful men Like Obama want to continue their irrational approach to business activity and how and what makes it possible.

It's very distressing and with the mammoth natural and man made disasters happening at this time all over the world - it makes it even more difficult to survive.

regards
Poonam

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