The Horse Sense Blog compares the nonsense in today's news with good ol' fashioned horse sense

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Wednesday, February 19, 2014

White House Tells Businesses To Lose Money

Here's the Nonsense:  Raising the minimum wage will give low income workers a chance to earn a decent living and get people out of poverty.

Here's the Horse Sense:  Raising the minimum wage has never worked and never will.  This is about the Democrats trying to make their opponents look bad.

It's reported that the White House has said that businesses should lose money to increase the minimum wage.  The White House's push for an increase in the minimum wage to $10.10 per hour to give people a "livable wage" is one the biggest misconceptions they continue to put forth on the American public.  If increasing the minimum wage worked, then poverty would have been eliminated decades ago.  But with every increase in the minimum wage all that changes is the definition of "livable wage."  It fixes nothing and just puts more burden on employers, which results in more burden on citizens as the employers have to pass their costs on to keep their businesses afloat.

Let's take a look at what would happen in a business where the owner has to increase wages.  We'll use a fast food restaurant franchise as an example because that industry is where this fight is focused in the news.  The average McDonald's franchise brings in $2.3 million per year in revenue and has 50 employees.  Let's assume that 10 of those employees are managers, supervisors, and others who make more than $10.10 per hour.  That means that 40 employees would get a pay increase under the proposed raise in the minimum wage.  

The average hourly worker at fast food restaurants makes about $8.25 per hour.  With the new requirements for benefits under Obamacare, most employers are cutting hours to 29 or less per week.  While many fast food workers work part time, let's assume that all 40 of these hourly employees work 29 hours.  So, here's what we have so far:

40 employees at $8.25 per hour = $303.00 per hour
40 employees at $10.10 per hour = 404.00 per hour
Difference = $74.00 per hour increase

So, the labor costs would go up $74.00 per hour for the franchise.  Multiply that by the 29 hours per week the employees work means that pay increase costs $2146.00 per week x 52 weeks = $111,592.00 per year in increased cost to the franchise.

The average profit for these types of restaurants is 2.4%.  Based on the average revenue of $2.3 million, that would mean an annual profit of $55,200.00.  Now subtract the increased cost of the new pay level, which is $111,592.00 and the business is now losing $56,932.00 per year.  ($55,200.00 - $111,592.00 = - $56,932.00)

Increasing the minimum wage would cause this business to lose $56,932.00 per year, and these numbers do not include increased FICA taxes and other costs that the employer will have to pay thereby causing even greater losses.  

The employer only has two ways to survive:

1.)  Increase prices to cover the additional costs.  How much are you willing to pay for your hamburger?  And if you won't pay the higher prices to support this, then the business fails and not only does the owner lose, but all the employees lose their jobs, too.  Then the taxpayers get to pay unemployment to support those same people who got that minimum wage pay raise because they're unemployed.  

2.)  The only other choice is to cut costs, which means laying off employees as most businesses like this have little other "cushion" they can cut.  They would have to lay off 3.73 employees just to break even.  There are 12,804 McDonald's in the U. S. and that would be 12,804 x 3.73 employees to lay off = 47,758 employees laid off at McDonald's alone.  

Raising the minimum wage doesn't fix anything.  It just burdens all of us and is simply a tool of the Democrats to try to make those opposed to it look like they're villains who want people to starve.  

If the Democrats really cared about people, as they say they do, then they'd push legislation that would increase the minimum wage to $100,000 per year so that no one would live in or anywhere near poverty.  But they know that won't work so they work under the guise of helping people while really they are only trying to vilify their opponents.  They have no solutions, only attacks.