Creator1

Often we hear complaints about the lack of wages keeping up with the pace of inflation. Specifically, minimum wage will be sited having no federal mandate raise for over 20 years, during which we have experienced some intense inflationary events.

I can hear myself asking, ‘how the hell can someone even live off of that!?’ And that’s a fair question.

I’ve had the opportunity to be on both sides of this argument, both as a minimum wage worker, and eventually briefly as a small business owner. I agree that the minimum wage leaves little to be desired or even lived on, I also ask where this money is coming from.

Roughly half of minimum wage employees work at locations with less than 100 people in a business, with 40% of employees work in locations with less than 50 people. This may sound significant, but the US Government defines an entity as a small business (from a headcount perspective) until 500 people are employed! The remainder of the employers are large mega corporations, that arguably can afford the increase.

I think the disconnect is when local small business owners are wrapped into this problem. I would argue that small business owners are actually victim of low minimum wage by design. For the sake of this argument, we have two kinds of businesses; a large out of state mega corporation that fixes oil and gas pipes needs to fill 1,200 jobs statewide, they will never start people higher than $1.20 more than minimum wage for most of these jobs (you need to be ‘competitive’ for ‘talent’, ya know). Then you have the other company; a local home services company with 10 employees, they pay about $16.5 an hour, an IRA, and the employer has worked to set up affordable healthcare plans working with the state.

Company one does not have competition, they have a huge amount of funding, they attempt to extract every single cent from the area they establish in while trying to skate out on paying a dime in taxes and benefiting the local community. They do not have to adjust their pricing model, put any significant capital into marketing, taxes, and they likely don’t wait for weeks to resolve issues with the local governments.

Company two has a very different story. The owner lives in the community, they usually are gouged by customers and vendors (‘well this company will do this service for $50 less!’, ‘I’m not paying you!’, etc.) They are usually not protected from default on debts (unlike most large companies), they have to be involved in their community, they have to go find individual jobs to keep people employed. More often than not, the local and state governments are hostile towards small business owners, making getting government or community work extremely difficult or impossible. It’s likely the case that eventually the local government will give it to the same company who’s gotten contracts for 50 years because the owner’s dad is friends with the contracting officer. I hate to break it to most people, this is how government contracts are rewarded outside the federal government, and even there sometimes.

Additionally, the minimum wage is not what businesses actually pay. Generally, it’s a safe assumption to take the wage that an employee earns and multiply that number by 1.6. This will fully encompass the cost per hour of this employee, it factors in other costs such as taxes, insurance, workman’s comp, overtime, uniforms, etc. This is completely separate from equipment, materials, supplies, marketing, rent, insurance (on the equipment and buildings, not the people.) For our example here, company two ends up paying roughly $26.5 an hour to keep an employee, and remember the small business has to be competitive with the other small businesses in the area. Company one doesn’t care, and often gets unfair tax breaks to employ certain people that small businesses don’t get credit for.

Given the numbers we just talked about, something simple like an dollar increase for pay across the board would cost company two will cost roughly $3,200 a week, or an additional $166,400 a year. This is without a single hire, a single investment in equipment or parts, single increase in productivity. Yet, we hear all the time how greedy these small business owners are. Personally, when I was a business owner, this attitude caused me great deal of resentment for my community. My competitor had the contract for all government work in the area, the competition had over 1,000 employees and buys small businesses to act as subsidiaries to disguise themselves. Due to their government contracts, they can declare a price that is outrageous (and has no other competition offer). This allows them to lower prices in competitive markets (such as residential) where they could actually take a loss due to their government over-funding, an unfair advantage against the small business.

I do not have a solution for this situation, but I think it’s important to point out there are multiple facets to this problem. If small businesses where treated with the grace and flexibility in rules, tax systems, and exposure to government support, then we would likely have much better, healthier communities. I wonder if there is a way to increase the minimum wage pay for companies that have over a certain amount of employees, such as Walmart, etc. It is sad that the argument for improved localized wages and conditions causes the local populace to point fingers and blame each other instead of looking at who is actively exploiting these individual communities (these large companies who’s only incentive is to grow and consume other smaller businesses.)