Okay, somebody is going to have to explain it to me. Our friends in Washington are suggesting that an increase in the federal minimum wage is in order. The plan is to increase the rate from $7.25 per hour to $10.10 per hour. That represents an increase of over 30 percent. And the supporters are trotting out all those major employers, most of which are the retail and restaurant category, which depends heavily on a lower minimum wage and off-shore suppliers to remain competitive. And they are also leaning on the image of that single mother trying to survive on minimum wage.
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The pundits are pointing to the sales and profits that recognizable companies like WalMart, Target, The Gap along with McDonalds and Starbucks are producing each year.
Based on all these details that we are privy to in the media, it would seem that the retail and restaurant community can more that easily cover the wage increase and still have respectable numbers at the end of the year. Yes, that’s the way it looks but looks can be deceiving. And there’s always the question of view point. Are those numbers ‘respectable’ in the eyes of the shareholder or the general population?
For every successful chain, there are dozens more that are barely showing a profit each year. There are even more that fail. Those ‘experts’ will tell you how the wage increase will put more money into play and bolster the economy. Sure, no one can deny that with more money in their pockets, people will spend more. We are living in an economy where most spend what they have and more. That’s a fact of life in today’s credit card economy. But to suggest that an over-night wage increase will result in an improved economy might not be as accurate as one would hope.
In many parts of the country, we are still dealing with a fragile economy, one that is slowly coming off life-support. The restaurant industry is one in particular that, like the minors’ canary, is the first to feel the pinch when the economy softens and, because it is perceived as something of a luxury, it’s the last to feel the economy rebounding.
Certainly many of the major corporations would survive the sudden increase but at a price. The shareholders would certainly not accept the fact that this 30 percent increase will come directly out of their pockets. It will result in an expectation of greater production in fewer hours. You should remember, part-timers are what is keeping the retail and the restaurant community profitable. Employees will be shuffled into the part-times ranks, to fly under the minimum wage radar. With high unemployment numbers, that becomes the ‘take-it-or-leave-it’ rate.
There’s no question that this sudden increase will result in closures either. Not every store and restaurant is operating in the black as it is. Some are only now showing signs of improvement after weathering five or six years of drought and high unemployment. And it will dry up a large part of the franchise/investment business too. Remember, we all know of restaurant owners that, after paying staff, rents, suppliers, taxes, etc., are themselves taking home less than minimum wage. Yes, these are the ‘big bad owners’ that are taking unfair advantage. There will be more of them. That’s the ‘joy’ of having your name over the door..
One interesting comment that has been circulating in all this refers to Henry Ford and his doubling the average wage of his factory workers to $5.00 a day in 1914. The suggestion is that this step increased the company’s profitability. In fact, in 1914 the economy was strong and jobs were plentiful. Henry Ford doubled the daily rate in an attempt to find and keep workers. And what isn’t noted is that this daily rate was salary and bonus. Did it increase profitability? I’m sure it did just as I’m sure it did away with a lot of competition that didn’t hold the market share the Ford did at the time. You should also remember that between 1900 and the market crash in 1929, there were over 1800 car makers in the United States. Not all could match Ford’s pay rate. There were mergers and acquisitions as the strong absorbed the weak and there were bankruptcies as the Ford juggernaut rolled across the country.
Today, since the ‘elephant is in the room’, the wage situation can’t be ignored. If it’s not addresses now, it will surely become an election issue in a few years. No one can argue that the minimum wage will and should increase and it will likely happen sooner than later. How it will be implemented though could be just as damaging to businesses as is the increase in business costs. A staged increase over a five year period would ease the sudden shock and keep restaurant investment growing.
Regardless of the method used to gain acceptance, the industry’s image will take a hit when those single parents raising the family of four starts getting the nightly TV coverage. It’s a shame there isn’t equal time given to the surly waiter that shows up late, smelling like the bottom of whisky bottle and insults customers. In Henry Ford’s day they didn’t share in the bonus…………………..WP