Interesting discussion over on Blue Hampshire this week regarding a bill currently pending in the state house.
HB 127 "AN ACT relative to the state minimum hourly rate."
First I would like to say that I am happy to see that Rep Sullivan is already pushing for a higher minimum wage. However, does this law go far enough? Is $8.00 per hour really what we want to set the NH minimum wage at?
There is already a national push to move minimum wage to $10.00 an hour over the next two years. The proposal was put in last session and failed to gain traction.
To sum it up, the current federal minimum wage of $7.25 an hour is bad. $8 an hour is better but $10 is better yet.
When I read this I think then if $10 is better yet why stop there? Wouldn't $20 an hour be even better. Or $50? Or why not $100 or $1,000 an hour?
Why not just make minimum wage an even $1 Million an hour and solve all the problems in our country all at once?
Think about it. Students with tens of thousands in student loan debts would be able to pay them off with just a single hours worth of work. Families struggling to pay off their mortages would be able to pay off their debts after a single day of work. And with everyone earning $1 million an hour we'd have more then enough in tax revenue to pay off the national debt in no time.
Great idea right?
Sure, it's a great idea until you consider reality.
Let's assume you run a business. You sell widgets for $5 each. The company that makes them charges you $3 each for them so for every unit sold you earn $2 profit.
In an average day you can sell around 350 units. 350 X $2 profit means you earn $700 in profits during a normal 8 hour day. Being a typical business you can't do everything alone so you have a couple employees. Let's say you have two cashiers to cash people out, a stock boy to make sure the shelves are filled and a maintenance guy who fixes things around the shop.
It costs roughly $20,000 a year in benefits for an average full time employee. This is a combination health care costs, taxes, insurance etc. To be generous let's lower this down to just an even $10,000 a year because suddenly ObamaCare makes employing people cheaper. So we have $10,000 divided by 52 weeks then again by 40 hours comes to $4.80 an hour for the cost of benefits per employee.
Doing the current math...
2 cashiers each earning $7.25 + $4.80 in benefits costs your business $24.10 every hour.
The stock boy has worked for you for a while so he's up to $8 an hour + $4.80 in benefits so he costs the business $12.80 an hour
The maintenance guy, being skilled, earned $20 an hour + $4.80 so he's $24.80 an hour
This brings the total up to $61.70 every hour not including your own salary. This comes out to $493.60 a day in expenses leaving $206.40 for your own salary to live off. Which breaks down to $21 an hour plus your own benefits of $4.80.
Increasing minimum wage to $10 an hour as our Blue Hampshire friends propose as a great idea would add to your expenses.
Your 2 cashiers are now $10 an hour + $4.80 so they come out to be $29.60
The stock boy bumps up to $10 an hour + $4.80 coming to $14.80
Assuming you keep your maintenance guy the same he'll still come out to $24.80 an hour
Now every hour you have to come up with $69.20 which all else the same leaves you with $7.50 an hour less in your own salary.
Here are a couple more things to consider...
If you were that stock boy who has slowly gotten increases over the years would you be happy now if you were essentially back at minimum wage earning exactly the same as the two cashiers who just started their jobs?
If you were the business owner would you attempt to get by on less? Most would increase the price of their product. Chances are since the company making the widget likewise has to pay out more in salaries they too will increase their price and the trucking company bringing the widget from the company that makes it to your stock room will also charge more. 350 units per day average just about 44 units per hour. To make our math easier let's round it up to an even 50. 50 units an hour would mean every 2 cents in price equals $1 an hour in store income. To raise minimum wage from $7.25 to $10 an hour would be a 38% increase. Saying not everyone earns minimum wage from the manufacturer to your business let's say it only results in a 20% increase. That $3 now becomes $3.20 and just to make up the $7.50 loss you saw in your own salary you'd need to increase your own price an additional 15 cents on top of what you are being charged. Now your widget is selling for $5.35
With an increase on the cost of living with the cost of products going up, now your maintenance guy's standard of living dropped as did yours own and this is just on a 5 employee shop.
Since you own the business you have the ability to increase the cost you sell your product for so your own standard of living wouldn't drop but there isn't a law requiring you to make it up to your maintenance guy since he's above minimum wage.
So what happens? The business owner (let's call him Rich) can set his own salary so he keeps going up the ladder by passing off higher costs on those buying his product. Those at the bottom see a small bump but they also see increased costs. Those in the middle class get completely screwed because they see increased costs but don't see any increases in wages to make up for it.
In other words, the rich get richer and the poor and middle class get poorer, everything democrats claim they are against.
And if you want to really add a double dose of reality into the mix, let's say it's a bigger company who has 100 or even 1,000 employees. In their case, rather then increase costs to consumers they can get around the added expenses by laying off 5 or 10 percent of their workforce. This puts more people living off government, increases expenses and taxes on the rest of us.
No one wins.