So Seattle just passed a $15/hr minimum wage and my question is, are people really that stupid?
I’m not talking about understanding the economics of price floors, or shortages, dis-equilibria, or any complicated theory on the voter side. I’m saying that aside from all of that, you have to be working with the assumption that employers and employees are GARGANTUAN IDIOTS to think that a minimum wage is anything but nonsense.
Maybe a little parable would help… This isn’t about detailed economics, it’s about extremely simple small business finance.
A STORY OF TWO BURGER TRUCKS:
Bob and I used to own two comparable burger food trucks. Both of our burgers were really good, and we found over time that at $5/burger we had solid lines from 11am to 11pm everyday. The only restraint on our total income was how many burgers we could make during those 12 hours, and what determined our “profit” was that total minus the cost of ingredients and the wage we paid to the cook.
Now, I opened first a while back and found this guy Joe who could flip patties for me. I offered him $5/hr to start and surprisingly, he took it! Now it turned after I trained him a little bit out he could get 30 burgers out the window every hour which means I was making $150/hr total, minus 2 bucks a burger for ingredients (meat, cheese, buns, etc.) and his wage, and I was left with a tidy $85/hr or just over $1,000 per day. Well man, all I was doing was running the cash register, keeping the place cleaned up and ordering the food! That was CRAZY good money.
Unfortunately for me I happened to have a customer, Bob, who really liked my burgers. Over time, he watched what I was doing, figured out a good recipe of his own and calculated about what I was making every day. He thought, “Heck! I could offer Joe a 100% raise and I’d STILL be making $960 PER DAY!”
Well Bob would be STUPID not to set up that business and Joe would be STUPID not to take that raise.
And that’s exactly what happened. Bob bought a truck, offered my cook Joe the raise, which he took of course, and set up nearby. He didn’t actually take any of my clients, I still had a line from 11-11 every day, but without Joe I had to do all my duties like before, particularly taking the orders, but now I ALSO had to make the food. It slowed me down to about 10 burgers per hour. That’s only $50 per hr total and after ingredients it’s only $30/hr or $240 per day. Well that was awful! That’s why I hired Joe in the first place!
So I called him up and asked him to breakfast. At breakfast I complained about him leaving after I had hired him originally AND trained him. Doesn’t he know about loyalty and sticking with friends. He laughed and told me, he was desperate for a job when I first offered it, but I was CRAZY if I thought some story about friendship and loyalty should have kept him from taking the money that Bob had offered. “A guys gotta live,” Joe said, “and let’s be honest, $5/hr wasn’t exactly FAIR.”
I grumbled and complained, but I offered to go over and above Bob, another 100% raise, up to $20/hr! Joe shook my hand over his eggs and told me he’d see me at 11 am sharp.
That day we knocked it out of the park. Everything was humming again. Joe’s hourly was cutting into my net some more but even at the higher amount I was still netting $560 per day. That’s $140,000 per year with a couple days off each week and two weeks vacation. I was smiling all the way to the bank and Joe was actually making enough to get himself a car, and move into a nicer apartment. As much as my greed really drove my interests here, I was totally comfortable and it was nice to see him doing better.
Joe even told me that he had rejected an offer or two from Bob ($22/hr and $25/hr) to come back and work for him. He said the increase wasn’t quite enough to get him to jump ship again, he didn’t want to get a reputation for leaving employers in a lurch.
I felt good about that and Joe and I continued to work together for the next several months. We saw Bob go through a number of cooks, but we could tell none of them were as good as Joe.
Unfortunately for me, Bob had one more card to play.
One day Joe came and told me he was leaving again, and this time for good. Bob had offered Joe a partnership, 60/40, to come help him run his food truck and train more people to run additional ones in other parts of town. After ingredients that meant $36/hr to Joe and $54 for Bob, with the potential for lots more as they expanded.
Bob knew a good deal when he saw it, it would be STUPID not to get Joe back.
And Joe knew a good deal when he saw it too, it would be REALLY STUPID not to go back with Bob.
I was disappointed but couldn’t blame him. It was an offer he couldn’t refuse. He gave me the chance to top it, but I wasn’t interested in giving away 50% of the ownership in my business, Joe was the best but there were other cooks out there I could pay $15 or $20 per hr and keep making a good living myself. I didn’t want a partner and didn’t want to expand.
I wished Joe the best and over time have enjoyed watching him and Bob make names for themselves in the franchise food truck business.
THE MORAL OF THE STORY…
I did learn some things from it though:
1. You can’t get away with paying someone less than what they are worth for very long.
2. Don’t expect that someone with half a brain won’t come along and steal good and underpaid employees from right out under your nose.
3. Don’t expect loyalty or friendliness when those employees find out you were underpaying them.
4. In the end, the short-term profit of bamboozling a great worker into a lower wage than they should get, isn’t worth the inevitable (and expensive) turnover and personal disrespect that will follow.
The bottom-line is that everything works towards employees getting paid more over time, closer and closer to the amount per hour that I as the owner make on their work per hour. If I don’t pay them somewhere in the vicinity of that amount, some other entrepreneur is just gonna take my employee, leaving me up a creek with no paddle.
I simply make more money WITH my employees than I do WITHOUT my employees, so to do anything that makes it easy for me to lose them, would make me a GARGANTUAN IDIOT.
I know my employees aren’t gargantuan idiots, and that they will take a better offer if it comes along, so I try to avoid being a gargantuan idiot myself and make sure they are fairly compensated and happy enough with their work; underpayment does neither fair nor happy make. It is a kind of STUPID that business people learn to avoid quickly or they quickly find they are no long business people.