How To Deal With A Minimum Wage Hike

Increasing the minimum wage to $15 an hour has become a cause celebre among the progressive left. A number of cities, such as Seattle, San Francisco, and others, have already enacted these increases recently, to be phased in over several years. California has passed the first state-wide minimum wage hike to $15 an hour, with a number of other states, including New York and Massachusetts, considering following suit. Both Democratic presidential candidates are on record for supporting a federal hike to $15 an hour, though Hillary Clinton’s position has evolved from favoring $12 an hour to match that of Bernie Sanders.

The argument that an arbitrary increase of that magnitude is a job killer has thus far fallen on deaf ears. Proponents of the $15 minimum wage maintain that workers need a “living wage,” no matter what the market will bear.

The effects of the California statewide hike, even though it will not be entirely phased in for a few years, are already becoming apparent. The Los Angeles Times reported that the California apparel industry, which had been undergoing something of a revival, is starting to leave the state en masse. While many garment manufacturers will head south of the border, others will relocate to lower-wage states, such as New Mexico, Nevada, and Texas.

Another industry that is being affected by the drive to increase the minimum wage is fast food. McDonald’s, for example, is already rolling out automatic kiosks to order food and drinks. A company called Momentum Machineshas developed a machine that churns out made-to-order burgers with minimum human intervention. The raw ingredients go in one end, and the finished burgers go out the other at 400 an hour. The company intends to open its own restaurants and sell its technology to third-party vendors.

However, if you’re in an industry that is not as susceptible to automation or outsourcing, you may be forced to cut staff, raise prices, or even close down. The politicians who are so keen to force businesses to pay their workers a “living wage” are not aware of the narrow profit margins that most small businesses operate under. Many low-income, low-skill workers will sooner or later find that their wages will be zero dollars an hour.

That doesn’t mean that you don’t have options if politicians suddenly increase your labor costs by 50 to 100 percent.

When San Francisco increased the minimum wage to $15 an hour, Borderlands Books, a science fiction bookstore located in the Mission District, concluded that it would have to shut its doors. It could not operate with fewer staff than it was employing, and since the price of books is set by publishers, it could not hike prices.

Taking a suggestion from a customer, store owner Alan Beatts began to offer memberships for his store at $100 per year in exchange for a number of special perks. He calculated that if he could sell 100 memberships, he could stay open for a year. He shattered his goal by selling 449 memberships and was able to stay open.

Forbes offered some more generic ways to deal with a minimum wage increase. Two basic strategies exist.

“The first: reanalyze the components of your labor costs. Labor costs include not just wages and benefits but also the cost of hiring, training, firing when necessary, and day-to-day supervision. There are usually significant tradeoffs among these different elements, and companies in some industries can choose very different labor-cost strategies.”

For example, if a business is more generous with wages and benefits, it will retain employees longer, cutting down on turnover, hiring, and training costs.

“The second strategy: get your employees on board. Begin educating them on what those higher costs mean for the business. Engage them in figuring out how to boost sales, increase efficiency, and grow profits—and then share the improved profits with your employees.”

The trick is to listen and put into effect the best suggestions, perhaps providing a financial incentive for employees to devise cost-saving strategies.

Neither of these strategies is perfect or applicable in all situations. But they constitute a better alternative than closing your doors and should at least be tried.

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