Raise The Minimum Wage, Destroy The Market

Mandeville, LA – Exclusive Transcript – Any wage control damages a market because it has an effect on the price mechanism.  Wage is part of the price mechanism, too.  Your ability as a businessperson to set the wage, this is part of the price mechanism.  This is how you arrive at how much to sell the donut for.  The labor cost, that goes into the price mechanism.  Anytime the government comes in and sets the price, it is altering forever the market economy.  It’s going to have unintended consequences.  Check out today’s transcript for the rest…

 

Begin Mike Church Show Transcript

Mike:  Scott in Taxachusetts is next up.  Hello, Scott.

Caller Scott:  How you doing, Mike?

Mike:  All right, Scott, thank you.

Caller Scott:  I appreciate you having me on.  I have about a million points that I want to make but I’ll keep it to two coalescing points.  I’m calling about the whole minimum wage thing that’s going on right now.  I’m a district manager for a franchisee of Dunkin’ Donuts.  I employ roughly 100 minimum wage employees.  My bosses give me a labor cost budget for each store.  For instance, my duty is towards 18.9 percent.  If we bump the minimum wage up to $9 an hour, I’m not going to get a higher labor cost percentage.  All they’re going to do is look at me and say: Figure out who you want to cut so that you can maintain that 18.9 percent labor cost budget, which is going to do the polar opposite of what they want to do by raising the minimum wage.  It’s going to hurt the economy.  I’m going to have to cut hours or get rid of people, which I’ve already had to do.

Mike:  Any wage control damages a market because it has an effect on the price mechanism.  Wage is part of the price mechanism, too.  Your ability as a businessperson to set the wage, this is part of the price mechanism.  This is how you arrive at how much to sell the donut for.  This is how you arrive at how much to sell what might possibly be one of the best coffee grinds on the face of the planet, the Dunkin’ Donuts coffee.  When I want to splurge, that’s usually the bag that I’ll buy and French roast on a Saturday.  The labor cost, that goes into the price mechanism.  Anytime the government comes in and sets the price, it is altering forever the market economy.  It’s going to have unintended consequences.

Caller Scott:  There’s another side to it, too.  It’s not just a matter of I’m going to have to cut down my employees’ hours, which I’ve already done because of everything else that’s going on.  I was given very strict instructions to make sure that I had only the absolute essential people at fulltime once all this insurance crap went into play.  Each one of my stores had about ten fulltime employees.  I have no more than two in each store now.

Mike:  So Obamacare has done the exact –

Caller Scott:  The other part of the minimum wage thing is this: I’ve got other stores that are slower that require a certain amount of people to survive regardless of how much business we do.  I have to have a certain level  of staffing just to operate the restaurant.

Mike:  Scott, I understand.  We’ve got to go.  We have to take a timeout.  Scott, we were discussing this infantile inanity that you can raise the minimum wage and all that’s going to happen is employers are going to drop their pants and bend over and take it, just pay the increased wages out and nothing is going to happen to the economy.  You run stores for Dunkin’ Donuts where you have many minimum wage employees in your employ and that isn’t the case, is it?

Caller Scott:  No.  Like I was saying, in my busy stores, I’ve got the option to cut hours and it’ll suck for the other employees because they’re going to have a tremendous amount of extra work to do to cover those hours that are missing.  In my slower stores I can’t cut those hours, so we only have one choice left, which is to raise the prices.  I’ve appealed to the conservative side, the original intent of America.  You start a business to make money, which God forbid that happens now.  To appeal to the liberal side on the other side of it, what people do not understand about the restaurant industry, the average restaurant operates on a five percent profit.  Corporate restaurants like McDonald’s and Burger King and what not, they operate on a slightly higher profit margin, obviously.  I don’t know for sure because I don’t work for McDonald’s.  I would guess, in my 17 years of experience, somewhere in the vicinity of 12 to 18 percent profit.  A successful restaurant runs anywhere from a 15 to 20 percent labor cost.  They’re talking about $15 an hour in New York.  You’re literally going to double the labor cost.  If you take a restaurant that’s operating, say McDonald’s, on 15 percent profit, they’re operating right now on 15 percent labor costs.  If you tack another 15 percent on in labor costs, their profit margin just went from 15 percent to zero, which is going to create one thing: a drastic increase in prices.

Mike:  It’s inflationary.

Caller Scott:  I’m sorry, but no McDonald’s, Dunkin’ Donuts employee needs to be making $15 an hour.  It’s not a job that requires a tremendous amount of skill.  There are so many options out there.  My average employees make minimum wage in Massachusetts, $8 an hour.  If you’re a good employee, you make $8.50.  If you’re a great employee, you make $9.  If you’re a great employee, we move you up to a shift leader position.  A shift leader makes $10 an hour.  If you’re a great shift leader, we move you up to assistant manager.  You make $32,000 a year.  If you’re a great assistant manager, we move you up to manager and you make $40,000 to $50,000 a year.

Mike:  High cotton.

Caller Scott:  The thing is, you have to work and earn it.  God forbid we do that now.

Mike:  Rod Dreher has an interesting post on American Conservative Magazine, amconmag.com, “GOP Loves Guest Workers. American Workers? Not So Much.”  That’s exactly what you’re talking about.  Republican leadership yesterday responded to the recent urge or bandwagon jump to pass some manner of immigration bill by pushing for:

[reading]

…the largest possible guest worker program with the lowest possible wages. The impact of such a guest worker program on the wages of Americans without college degrees would likely be small, but as an indication of GOP priorities it is a much larger problem. Faced with a slow-motion economic and social disaster afflicting the least educated and lowest-earning American citizens and residents, the Republicans are focusing on driving the wages for the lowest-paying jobs even lower.

[end reading]

Mike:  You’re almost to the point where if you want to remain profitable, you probably are seeking illegal help at the minimum, entry-level wage.  That’s what a minimum wage is.  I guess we’ve lost, in our vernacular, in our wise and enlightening stated, the grasp of the term entry-level, meaning you don’t know beans.  I’m not paying you for anything other than elbows, sweat and tears.  That’s all you get.

Caller Scott:  You work for more.  You earn more.

Mike:  You come in and learn a skill.  You come in and learn my business, the way we do it, become skilled at it.  When you can replace me, that’s when you can rise up the ladder.

Caller Scott:  That store I talked about, my busiest store, the manager in that store has been with this company for five years.  She started out, at the time I think the minimum wage was $7.25, as a $7.25 an hour employee and worked her way up all the way through the ranks.  Now she’s the manager of the busiest store in the entire company.  The girl makes $52,000 a year.  That’s how it’s supposed to work.  You start out entry level and you work your way up.  People don’t want to start out entry level anymore because you’ve got these progressives that are like: You deserve more; we’ll give you more.  You don’t deserve it until you earn it.

Mike:  The term deserve, deserve is something you get after the fact, not something you are accorded before the activity occurs.

Caller Scott:  That’s called an entitlement.

Mike:  That’s what I was going to say.  You read my mind.  What you guys are talking about is an entitlement.  It’s not earned and it’s certainly not deserved.  If you go out and work hard and prove yourself, then you have earned it and therefore you now deserve it.  To say that you deserve it because you’re a human, if that’s the case, why don’t we just make the minimum wage $60,000 a year?  Why stop at a measly $10 or $15 an hour?  Let’s just shoot it into mainline.  Get the hypodermic needles out and hang a jug in me.  Give me $60,000 a year.  Everybody makes 60 grand.  Of course, that would be one-third of the jobs would disappear immediately, or you’ll have Weimar Republic-style inflation.

Caller Scott:  Yep and prices are going to go up and everyone is going to go: Look at all these greedy business owners, not realizing that despite the fact they raised their prices, they’re still making less money than they were before.  Five percent is not a lot of money.

Mike:  I’m going to say something else, Scott.  Thank you very much for your call, brother.  I’m going to say something else that’s not going to be very popular, but I’m going to say it anyway because that’s what I do.  Sometimes you just need to hear an alternative point of view and the truth.  Much of what we hear today about how the average American’s wages aren’t keeping up with inflation and there are fewer and fewer disposable dollars at the end of the week, this is all predicated upon our having so many different and varied electronic distractions that we all must pay for.  You have to have a cell phone.  Well, cell phones cost money.  You could have a landline, and if you didn’t use a lot of long distance, it’s probably pretty cheap, $15 a month or something.  You can probably get one from Vonage or whatever for $15 or $20 a month.  No one wants to be shackled to a landline anymore.  Everyone wants the convenience of a cell phone.  Do you need a cell phone?  [mocking] “Mike, you gotta be able to stay in touch.”  Okay, this is an electronic contrivance and a cost of living now that our ancestors did not have.

I want to watch television.  Well, if you want to watch television now, you either have to have a satellite on your roof or you have to have a coaxial cable going into your home or a fiber optic cable or you can subscribe to an online service.  There’s another expense that did not expense before.  Then you have all your online accounts.  Because you’re online and doing business with your bank, they charge an extra $5 a month for your online account.  Want to pay a bill?  Sure we’ll let you pay bills.  Here’s the bill paying fee, $4.95 a month.  Were you spending $4.95 in stamps and envelopes?  Now that your information is online, you have to protect it.  People are out there to steal your identity, and they are because we’re online now.  Now you’ve got to pay for an identity protection service.  I can run this exercise out from now until the end of the program.

 

End Mike Church Show Transcript