FT207: “Raising the minimum wage only discourages upward mobility.” -Old Pithy

Posted by PITHOCRATES - January 31st, 2014

Fundamental Truth

McDonald’s is one of the Few Places that will hire an Unskilled and Inexperienced Person

Teenagers want a lot of things.  A car.  A smartphone.  Nice clothes.  Popularity.  Fame.  But one thing you’ve never heard a teenager says is this.  “I love working at McDonald’s.  I wish I could work here forever.  If only they would raise the minimum wage so I could.”

A lot of teenagers work at McDonald’s.  Why?  Because it’s one of the few places that will hire an unskilled and inexperienced person.  Because a job at McDonald’s is an entry-level job for a teenager new to the workforce.  A place they can earn a paycheck without having the ability to do anything.  Where they are taught everything they need to know on the job.  While McDonald’s pays them to learn.

Some teens will work enthusiastically at McDonald’s.  Enjoying their first job.  And earning their first paycheck.  So they don’t have to depend on Mom and Dad to buy them what they want anymore.  While others hate these jobs.  And refer to them derisively as ‘hamburger flipper jobs’.  They don’t want them.  And those who do work there do so reluctantly as they are a lot like that teenager.  They are unskilled and inexperienced in doing anything else but an entry-level job.

There is a Direct Correlation between Paycheck Size and Skills & Experience

Some teens work while in high school.  Some go on to college and work at another McDonald’s on campus.  Or at some other entry-level job that requires no skills or experience.  So they can learn workplace skills.  Gain working experience.  And learn the responsibilities that come with having a job.  Others get bored or want more money.  And use their newly acquired skills and experience to get another job.  After graduating from high school.  Perhaps entering an apprentice program in the skilled trades.  Or becoming a line-cook somewhere.  Gaining more experience.  And earning more money.  To become an electrician.  Or go to culinary school and become a chef.  Even open his or her own business.

These people are moving up.  Which is why we call this upward mobility.  They go from an entry-level job to one requiring more skills and experience that pays better.  They may go to night school or college to gain skills that will help them get a job requiring greater skill and/or experience.  Which pays even more.  Allowing them to look to and plan for their future.  Acquiring education, skills and experience along the way that opens the door to bigger paychecks.  Which you need to raise a family.  Have a nice house.  A new car.  Nice vacations.  To save for your children’s college education.  And your retirement.

You can’t have many of these things, though, if you never leave that entry-level job.  If you stay in that entry-level job you’ll never be an engineer, a doctor, a pilot, a millwright, a pipefitter, an accountant, a hotelier, an architect, etc.  And you’ll never get the larger paycheck that comes with these professions.  For there is a direct correlation between paycheck size and skills & experience.  The more you have the more you’re worth.  It’s just that simple.  Which is why it is a good thing that entry-level jobs pay the lowest wages.  For it encourages upward mobility.  Mastering the skills at one level.  And then moving on to master new skills at a higher level.  For we want people to move on so there are pharmacists to fill our prescriptions.  Dentists to fix our cavities.  Engineers to build and maintain our cellular networks.  Aircraft mechanics to keep our planes safe.  Etc.  None of which we would have if no one left their entry-level job.

Staying in an Entry-Level Job for 5 Years could put you 5 Years behind your Earning Potential

The Democrats always want to raise the minimum wage.  To get votes by giving people more stuff.  In the case of a higher minimum wage it’s a bigger paycheck.  They’ll cite the single mother of 3 struggling while working 2 jobs to support her children.  And say it’s just not teenagers working these entry-level jobs.  These are single mothers and single fathers who are barely making it.  And we need to give them a living wage.  But paying people more for these entry-level jobs is the worst thing you can do for them.  For it removes the incentive to leave these jobs.  Jobs that these employees don’t love to begin with.

President Obama wants to raise the minimum wage to $10.10 per hour.  Others want to raise it higher.  Some would even like to make it $40,000 or $50,000 a year.  But imagine the affect of that on kids graduating high school who want a lot of things that Mom and Dad won’t buy for them.  If you can have a lot of money now instead of working hard to earn that same amount of money later what do you think these kids and young adults will do?  A lot of them will take that bigger paycheck now.  And maybe work there 3-5 years enjoying life.  Flipping those burgers.  While some of their former classmates from high school will have started a career.

Raising the minimum wage only discourages upward mobility.  Life is short.  Time passes fast.  Staying in an entry-level job for 5 years could put you 5 years behind your earning potential.  It could change where you live.  And what school your kids go to. Because that smaller paycheck will limit your options in life.  A higher minimum wage may sound nice.  But it would be the death knell of any hope or aspiration you ever had.  People stay in jobs they hate because they don’t like leaving their comfort zone.  If they have decent pay and benefits they will endure some of the worst jobs ever (bad boss, office politics, a coworker they can’t stand, dealing with unruly customers, etc.) because it is easier and less scary than finding a new job.  These people are never happy.  They never truly enjoy life.  And they just dread Mondays.  Raising the minimum wage will only condemn more people to this fate.

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California raises their Minimum Wage, condemning some to Remain in Dead-End Entry-Level Jobs Forever

Posted by PITHOCRATES - September 28th, 2013

Week in Review

Those who don’t understand economics always want to raise the minimum wage.  Because they think it will help unskilled workers.  But it actually hurts unskilled workers.  For a couple of reasons.  It will increase the cost of business.  Especially for small business owners who survive on thin margins.  If they have a few minimum wage workers an increase in the minimum wage may force the owner to lay off one of them.  Or more.  It is often that or working at a loss.

Another way minimum wage workers get hurt by a higher minimum wage is that it will keep them in a minimum wage job.  Where they never will earn much.  Causing them to struggle throughout their life.  You see, minimum wage jobs are entry level jobs.  Unskilled jobs for the unskilled.  So they can get some working skills when they have little to offer an employer.  Which is why historically high school kids and college students work these jobs.  Gaining useful job skills to apply to a future career.  Where they will earn a lot more.  Allowing them to raise a family.  It’s why people go to college.  To earn more money.  As they didn’t expect to get a ‘living wage’ without this higher education.

So raising the minimum wage is not in the best interest for minimum wage workers.  Unless they want to remain in dead-end jobs for the rest of their life.  After all, these jobs are often referred to contemptuously as ‘hamburger-flipper jobs’.  But state governments are always willing to keep people in these ‘hamburger-flipper jobs’.  Why?  For the votes.  Which is why California is raising their minimum wage (see California raises minimum wage to $10 by Melanie Hicken posted 9/25/2013 on CNNMoney).

The state’s minimum wage will gradually rise from $8 to $10, under the law signed by Governor Jerry Brown Wednesday morning. The hourly rate will increase to $9 on July 1, 2014 and to $10 on Jan. 1, 2016…

More than 90% of minimum-wage workers in the state are over the age of 20, while nearly 2.4 million of the state’s children live in a household with a parent who earns minimum wage, according to the statement. The pay bump would boost a full-time worker’s income by about $4,000 to around $20,000 a year.

The next time you go to a McDonald’s count the people working there.  There are a lot people.  Sometimes 8 or more.  Let’s look at that additional $4,000 in a worker’s income.  Which if you add taxes and other employee expenses let’s say it costs the employer $6,000 per worker.  If there are 5 employees that’s an additional $30,000.  Most McDonald’s are franchises.  Basically small business for one single small business owner who pays a whopping franchise fee.  For the privilege of having to do no marketing to get people to walk through their door.

Let’s assume an owner clears $100,000 in profits for his or her own salary.  And works 80 hours a week to earn that.  So his or her spouse can be a stay-at-home parent for their children.  Who bought the business so the two of them didn’t have to work.  Each earning $50,000 to make the house payment in a nice neighborhood with an excellent school system.  With the raise in the minimum wage this business owner will take a $30,000 pay cut.  Making it difficult to pay his or her bills.  Which will force them to lay off some workers and work more hours.  Or close the restaurant.  So they can get a job.  The spouse, too.  So they can afford to stay in the house they worked so hard to afford.  And keep their kids in the school they worked so hard to put them in.  Turning their kids over to daycare as they become working, part-time parents.

Business owners are not all getting rich.  More businesses fail than succeed.  Some make a lot of money.  Some lose a lot of money.  While every month is a struggle to meet their cash-flow needs.  And increases in the minimum wage won’t make this any easier.  It will just increase their costs.  Making it harder for them to stay in business.  And if they go out of business then that higher minimum-wage won’t help those minimum-wage workers.

Of course the question that just begs to be asked here is this.  Why is it that so many families have to rely on entry-level jobs to raise their families?  Is it because the Californian educational system failed them and they’re unable to go on to college?  Is it because the taxes and regulatory costs in California are so onerous that it is hindering job creation in better paying industries?  Or is it because people are so sexually active in high school that they’re having babies before they have an established career?  Or is it because they choose to remain in these hamburger-flipper jobs because the minimum wage plus a generous welfare state is enough to make life comfortable?  This is the more important problem to resolve.  What is putting these people in these dead-end hamburger-flipper jobs to begin with?  For these people would be far better off advancing out of these entry-level jobs than staying in them forever.

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