Business owners and the minimum wage.

Minwage3 (Photo credit: Wikipedia)

     The minimum wage debate is in full swing again. Many of the leaders in the argument against it are business owners, and they are frequently demonized for this, even though they rightly maintain that they need to preserve their profit margin in order to stay in business. In this they are correct, however, most of them make a fundamental mistake in regards to their pay scale, for which they should be blamed as much as the minimum wage is. This mistake is to view their labor costs as a whole, and therefore wholly as an expense. This is the root of their basic mistake. This has, unfortunately, been fostered by the increases in the minimum wage at a faster pace than the market would sometimes bear, especially since the minimum wage is usually applied as a blanket rule rather than being tailored to a specific environment.
If the employer would look at wages as in individual investment in a specific person, based exclusively on their contribution to the profitability, they would be able to more easily see that the more they invested in a productive person the more they would profit, and the more they invested in a non-productive person, the more they would lose. Whenever everyone in the employ of a company is paid at the same rate in perpetuity without real possibility in greater reward for greater profitability, the company is enticed to look at all employees equally due to the fact that on paper they are all an equal expense. Likewise, the employees are subtly discouraged from putting forth extra effort, as there is no tangible reward. There will always be a few who exhibit enough pride and self-esteem to do their best in spite of this, but for the most part, the employee will work no harder than anyone else, because for them it is not personally worth the extra expense of effort for no apparent reward. This leads the company into the realm of the lowest common denominator, and prevents the company from succeeding solely on its own merits, causing a reliance on market demand to keep the doors open, and when demand wanes, these companies usually fail or are forced to significantly downsize. It also leads to the employment of a cross section of all who are available in the work force, rather than being able to draw the very best exclusively by having a higher pay scale than the average company in the same market. This leads into further mediocrity cause by having an adequate set of employees instead of an excellent one.
There is no easy solution, as the minimum wages skews the market and limits the flexibility of employers to have a large enough wage spread to provide real and obvious incentive with which to reward the best workers, but to start the process employees need to be viewed as investments which are either profitable or not rather than as a piece of a large labor cost analysis.


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