The Real Minimum Wage

Consumers Decide What the Minimum Wage Is

New York has been escalating its Minimum Wage rate. But consumers are having their say. In many cases, they are reminding us that the real minimum wage is $0.00—meaning that if consumers won’t pay, workers lose their jobs . . . and maybe their futures.

By: Dan Smith

If you’re like me, you like seeing people do well. You like to see people have a job where they can support themselves and their loved ones. Doing well requires that they have a wage which allows them to pay the bills and build a future.

Most voters care about this, too. And voters often see the ballot box as a way to vote for a wage sufficient to afford life’s expensive necessities.

But do voters really get to make this choice: to set wages at a minimum of $7.50/hour or $10.50/hour  or $15.00/hour?

No, they don’t. Voters don’t decide this . . . neither do politicians.

And businesses and workers don’t decide this, either.

Consumers decide what a workers’ minimum wage is. If consumers value a product or service, they pay what it’s worth to them—or they walk away. When consumers buy, businesses and employees each get paid. But if consumers aren’t willing to pay for products or services, no one gets paid. Businesses close. Workers get nothing, even if the Minimum Wage law says the rate is:  $7.50/hour or $15.00/hour or $100/hour.

It’s All About Choices

Consumers are people—you and me.  Billions of times each day, we demand, ‘GIVE US WHAT WE WANT, AT A PRICE WE’RE WILLING TO PAY!’. We only have so much time and we only have so many dollars in our pockets. We have to make choices. That’s what consumers do.

And business owners have to listen to consumers. Businesses have to choose the right products, services, employees, locations and prices. If a business gets any of this complicated mix wrong, customers will scream, ‘NO!’, the business will lose money and may even go out of business.

And closed businesses have no workers.

Some businesses make a lot of money. Many do not—they survive on thin or no profits. They sometimes suffer losses for long periods.  

If the state raises the legal Minimum Wage rate, a shop owner has to react. She has some options. She might choose to raise prices, but customers may walk away. She may cut employee hours. She may choose to absorb the loss, but her profits may be too thin already. She might run out of options and have to go out of business. Going out of business involves firing all her employees—their wages go to $0.00/hour. Employees have no job and therefore no wage, and their futures are damaged.

Workers normally have a number of choices—which jobs to apply for, which job to take, when to ask for a raise, when to quit. But when a business doesn’t make money and closes, all of its employees lose the choice of working at that job. Their wage goes to $0.00/hour.

Workers Get Paid What Consumers are Willing to Pay

Although only 3 percent of workers earn the Minimum Wage rate, that 3 percent are the most vulnerable people: the young and low-skilled. They are the ones whose futures are most dependent on having a job—to learn new skills, to gain working experience. A 2004 study found that two-thirds of minimum wage earners quickly get raises after learning skills, escaping the minimum wage. Without the job, they don’t get those skills and they don’t start climbing the ladder of success. Without that job, they are most at risk of falling into the trap of illegally working under the table or becoming dependent on handouts. They won’t have a legitimate job to list on a future job application. Until employees have skills which customers value, they get paid less. If the state’s Minimum Wage rate is higher than the value customers put on a person’s skills, that person doesn’t have a job. Their future is compromised.

This probably sounds unfair. However, it’s the result of the choices everyone has.

But if this sounds like a made-up story, it’s not. It’s happening in New York right now.

New York Workers Are Facing Some Uncertain Times

In 2016, New York City’s Minimum Wage rate increased by 50 percent for restaurants and 17 percent for fast food.

In 2017, Minimum Wage rates for all businesses in New York state went up 22 percent.

While New York lawmakers are still patting themselves on the back, consumers and businesses have reacted. And workers are suffering.

There’s a “scourge of store closings that afflicts one section of the city after another, notably in Manhattan and parts of Brooklyn,” The New York Times proclaimed this week.

People are losing their jobs. As Forbes describes, 2016 was the first year since 2009 where New York City’s retail trade experienced a decline in year-over-year employment growth. Current data suggest that the 2017 decline in retail employment will be even worse.”

Workers employed by restaurants and fast food are struggling, as well. Labor growth in those jobs is less than half of that seen in 2015, the New York Department of Labor highlights.

While the overall economy is improving, businesses which are most dependent on low-skill labor just can’t keep up: small shops and restaurants. Raising prices doesn’t work, customers won’t pay. For many businesses, there aren’t profits to eat into. So, some businesses are cutting back on workers’ hours (something seen recently in Seattle, as well, when they raised their minimum wage to $13/hour), some are starting to close their doors. Employees’ paychecks are getting smaller and some are losing their jobs.

This wasn’t the goal of the changes to New York’s Minimum Wage law. But it’s the outcome: fewer choices, lost jobs.

And this isn’t the end. The Minimum Wage rates are set to keep climbing in New York City—and across New York state for years to come. New York consumers, businesses and workers will face even tougher choices and they will increasingly suffer.

Voters and politicians can make a law that will drive the Minimum Wage rate to $15.00/hour. And that’s what they’ve done.

But consumers might just tell you the real minimum wage is $0.00, because employees without a job make nothing. And that’s what consumers are doing. They’re taking their business elsewhere.

Businesses are closing, jobs in New York are being lost. Low-skilled workers are getting paid less, or nothing at all.

The REAL minimum wage for workers is $0.00 once consumers have their say.

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