I am concerned about the latest movement to raise the minimum wage in this country. The term “entry level” has been around for as long as I can remember and I have had several positions that were considered entry level. When I was 15 I started as a dishwasher in a Chinese/American restaurant. I remember making $3.85 an hour. Even at that age I knew that I would not be able to support a family, buy a home, own a new car, or live the life of luxury, however I was grateful for the things that I learned from that job the biggest being the value of hard work and the value of a dollar.
These entry level positions were never meant to be a career. It is not feasible to support yourself totally on a cashiers wage. There are careers to be had in these industry. My mother had a good career in the food service industry. I started my professional career in a restaurant. I have Uncles, Aunts, and now cousins that have owned and own restaurants and have done or are doing very well. These are good hard working people that want their employees to succeed but know that they are probably not going to give a gold watch and a good pension to their cashier that has worked for them for 30 years. The industry cannot support the level of wages that people are demanding.
Living at home I did not have to worry about the cost of living, of buying things like shampoo or toilet paper. I would not learn that lesson until much later in life. I did learn a great lesson on priorities and of saving money. I learned how to say no to whimsical purchases so that I could get the stereo I wanted while also paying for the school activities and trips, and concert tickets. To me at that time, were what I deemed as important. I also learned that if I wanted to increase my earnings that I needed to increase my own value to my employer or to another employer. I came to work, did what was asked of me, and looked for ways to be more helpful to the man that paid me. I offered to clean the store room, organize the refrigerator and freezer, sweep the back lot, and help with the preparation of the food. When a job opened up for a cook I was the first on that they asked and my wage was increased to $4.10 an hour. I received two more increases in pay at that job by maintaining and then increasing my knowledge of the company that I worked for. Soon I was the “head” cook on the American side. I soon ran into some scheduling conflicts with my school activities and needed to either quit or find another job that was able to be more flexible with my schedule. This was another lesson that I learned. I did not fault the restaurant for not being flexible. I was proud that they relied on me to perform a function and that they needed me or someone like me to do the job that I was hired to do. They were sad to see me leave and I counted the owner a friend even after I left. I never demanded, gave him an ultimatum, presumed that I was irreplaceable, or took offence that they were unable to work with my schedule.
I met up with him a few years later and he told me that he knew that I was meant for bigger and better things than he could provide for me. He even gave me an awkward shake-bow-hug thing that was strange coming from an old gruff Chinese man.
I worked for another restaurant after that, and using the same lessons and work ethic that I learned from my experience, and was soon earning more money while maintaining the necessary hours that I needed to attend my school activities. It was also my first taste of the corporate world. There were many differences between the ma and pa shop and the chain restaurant. I went from a name to a number to the owners. There was still the need to work every bit as hard but there was less flexibility in some ways and more in others.
After High school I worked in several different industries Sales, Retail, Technology, Food Service, and more, and each time I tried to increase my wages and titles. I was not completely self-sufficient. I relied on my parents, and roommates, and even my spouse to survive. I never blamed the people I was working for. I knew that if I want to have nicer things, get better wages, afford better insurance, and to be able to support my wife’s desire to be a stay at home mother that I was the one that needed to make it happen. I needed to invest in our future by education, hard work, and sacrifice. I finished my education and through work and sacrifice we were able to get to a point were my wife can stay home with the kids. Nobody gave me the opportunity, I decided. I decided to change direction, to look for opportunities and work hard to achieve them.
I stumbled along the way. I asked for trust and credit from people that I was not capable of providing or paying back in the agreed time-line. Again, it was another lesson that I had to learn.
Life has become too easy. As a society we are a demanding ungrateful people. We covet and envy the things that the people we see above us in station. We believe that we are entitled to those same things. We put ourselves in debt to a point that we can’t immediately get ourselves out of. We are not saving money. We artificially inflate markets with fake money (credit). The funny part is that the truly wealthy people are laughing at us as we drive our 60,000 dollar trucks and spend our food stamps at the supermarket. These wealthy individuals have learned that the stuff that we are envious of is not a sign of wealth, it is a sign of weakness.
My grandfather told me that wanting possessions was not bad, in fact it was a great way to learn about sacrifice and the value of money. He taught me that just because you wanted something right now and decided to save up for it, that when you finally had the money for it you might not feel the same way about it, either because the fad was over or you found a better or cheaper way to accomplish the task that the item was going to do for you. That bit of advice has saved me from having a drawer full of gold plated letter openers, toenail clippers and nose hair trimmers. 😛
The mere suggestion that raising the minimum wage is going to get people the new Cadillac that they have been eying, or that it is going to raise their situation in life at all is insane. At the very least it is going to make them have to work twice as hard, and at the very worst be unemployed.
How? Well to explain that I will use an example of fast food restaurant.
These figures come from several sources. Most of the figures that I use come specifically from the 2010 edition of the Restaurant Industry Operations Report provided by the National Restaurant Association.
This assumes that we are discussing a Non-Chain Fast-food restaurant. Although most of the ratio’s are the same. Some costs lessened in a chain due to volume discounts on materials, insurance rates, training costs and other non consumable expenses.
Like many industries, food services vary as much as the food that they serve. Some portions of the food service industry may have lower labor but higher food costs and visa versa. These figures are averages and do very well to get the point across. We will be pretending that we are a Ma & Pa Hamburger Shop. In fact lets call it Ma&Pa’s.
Ma&Pa’s have been around for 20 years. They have 10 employees. The Manager makes $15 an hour. They have two shift leaders that make $11 an hour, and 4 other employees make $8 dollars an hour. These employees all work full time. They also employ three high school students as part time employees and are paid $7.25 an hour and work an average of 20 hrs a week. There is more cost associated to employees that they never see or know about. These costs are paid by the owner, but for this demonstration we will ignore them.
So we have:
# Employee Wage Hours Pay/Week
1 Manager $15 40 $600
2 Assistants $11 80 $880
4 FT Emp $8 160 $1280
3 PT Emp $7.25 60 $435
For a grand total of $3195.00 a week in labor costs. Using a 30-35% labor cost their revenue should be $9128.57 a week. Using a $6 average combo meal as a unit Ma&Pa’s would need to sell 1522 units to fall in the labor cost ratio. This is an average of 253 units day sold. Food cost should be about 30% or $2738.00 and other operating expenses such as leases, equipment, cleaning supplies, fixtures, utilities, etc.. that should come out of the other 35-40% of the revenue. The profit margin is very small in the restaurant industry relying on volume to make it a profitable venture.
Now if we were to look at these figures again with the “$15” minimum wage we are going to see some drastic changes.
# Employee Wage Hours Pay
1 Manager $24 40 $960
2 Assistants $20 80 $1600
4 FT Emp $17 160 $2720
3 PT Emp $15 60 $900
So, you see that the chart is different. The managers end up making more, the FT employees get a bump to help pay for the “Health Care” tax that we now have to pay and the PT employees get their 15 dollars an hour. What? Do you mean to tell me that the Managers should not get more money? Of course silly, why would you do more work and take more responsibility for the same amount of money?
Now we have a grand total of $6,180.00 in labor charges. We can’t assume that the volume of customers is going to increase because of the wage increase, so we have to recalculate the labor cost. The new labor cost is 67.7% and if we are lucky enough to keep our food costs the same which is unlikely as our food suppliers are feeling the effect of the minimum wage increase as well, we now have a 97.7% cost of labor and food alone.
Remember that this does not include utilities, paper products, plates, silverware, lease payments so on and so forth, so as a business owner we need to decide on how to get the revenue up to make the labor costs come in line or lower the labor costs in a much more painful matter. If not we will have to close the doors or the Land lord may with a change of locks and boarding the windows.
We also have to keep in mind that the price of services and product of which we are a consumer will go up but we will get into that later.
Lets look at ways that we can get labor into line.
Increase Volume – Increasing volume is not generally a good way to reduce labor costs using the same work force. One, It taxes existing resources more or requires us to bring on more expenses by hiring more people. With enough volume increase revenue levels will eventually come in line but unless you have the capital to take the losses and pay for the other operating expense until the labor to revenue ratio evens out, it is not very practical.
Increase Cost of Goods Sold – This is one way to bring labor costs in line, but is bad for the consumer and as this can affect volume as well it is an act that needs to be done carefully. If we were to increase the cost of goods sold to make up for the revenue shortfall that $6 dollar combo meal now increases to $11.60 assuming that we can keep the same volume. I don’t know about you but I don’t like the idea of paying 5.60 more for the same meal I got last week. As a consumer I would most definitely look for another restaurant.
Reducing other Expenses – Don’t get me wrong this is a great business practice that should be done all the time. We all know how ChainBurger A saved millions by reducing the amount of olives by one in their salad. This practice is prudent as long as it does not affect the quality and sometimes quantity of the product. I mean lettuce is Lettuce. Hamburger A is the same as Hamburger B? Who is going to miss one pickle on the burger or 5 or six fries? Right? Wrong! Consumers are fickle, everyone visits a restaurant because it is filling, satisfying and tastes good. We all have our favorites and when that favorite changes things it tends to upset us and we go somewhere else. Reducing quality is not a good way to increase your volume or profit. I have been out to eat with people that won’t go to a restaurant because they have too small of drinks, or they changed their fries. I worked for a national franchisee that decided that he was going to save money by not buying from the franchises food supplier and instead use the Sysco special that he could get locally cheaper. His restaurant lasted only a handful of years after that descision.
RIH/RIF – The quickest and usually first way to bring labor costs in line is a RIH (Reduction in Hours) or RIF (Reduction in Force). Yes, that right, Lay-offs. That dirty word is feared by every person that holds a position in any company or business. As a business owner the first thing that I would do is to reduce the amount of hours for all of the non managerial employees first and if it was not working I would get rid of 2 PT, 1 FT, and 1 Assistant Manager. This would reduce the labor cost per week by $2577.00. I would also need to raise the cost of the food by $.76 per unit, and then look at more ways to cut costs in supplies and food costs. I may have to eventually raise prices again but I have staunched the bleeding for a short time.
So as you see the “Fight for 15” movement’s logic does not have a leg to stand on. There are other issues that will arise due to this you can be sure. Primarily the decrease in tax revenue from the lost workforce and the increase of unemployment and welfare entitlements. These deficits will be made up from the remainder of the workforce and the businesses that employ them. This will only compound the issue as the cost of having employees increase and income and gains taxes burden those that are employing the country.
As the wages increase the cost of everything will increase. When our budget gets thin the last thing we do is visit Ma&Pa’s so that we have more of our money to spend on the other more essential things that are needed. So “Fight for 15” when you start driving or bussing by all of the vacant buildings that once was the home of your favorite Greasy Spoon or your former employer, remember how good you had it when you got that 15 dollar an hour raise while you are on route to the soup kitchens or lines for government cheese and rice with the rest of us after the economy goes into the toilet. You got what you wanted, the same wage as everyone else……….Nada.