This is a guest post by the redoubtable Jonathan LaForce, who wrote it up and then let me publish it on my blog when I saw it and wanted it to have more platform than facebook. Thanks, Jon, and I look forward to seeing more like this from you.
Why a Blue Collar American Doesn’t Want A Living Wage
This article really is pretty sad. A business shouldn’t be shut down for this. But reality is that it is and will.
Now somebody is going to say “they just had a bad business model”. Hold that thought for a second.
1. Store sells books.
2. Books come from a publisher through a distributor.
3. In order for those books to arrive, they must be shipped, generally by truck, which means transportation- this is a variable cost, as fuel prices rise and fall.
4. Those books are printed which means you also have print cost, the editing, the advertising, storage facilities for unsold copies, any artwork, the author’s percentage (typically 15-20%).
5. Those prices are established by contract. This is how every business operates.
Now that we’ve established the previous 5 points, and we can pretty well agree on those, here’s three, maybe four more to consider.
6. You cannot force people to buy your product. They have the choice to not read. Borders and Waldenbooks understand this all too well. They went belly up and closed because of it. Barnes and Noble is hanging on by the skin of their teeth for the moment.
7. You can only pay your employees if you’re earning money. If a book cost $10, by the time you finish factoring everything applicable from points 3 & 4, how much is the store actually making off the book, before profit margin? About $1. Which means an hour of employee labor at the $15 living wage means you’ve sold 150 books.
And that’s to sustain one employee!
Now, a typical bookstore is going to have upwards of 20 employees in it working throughout the day. Let’s say you get a total of 160 man-hours at a flat $15 rate (not entirely realistic as it doesn’t allow for higher management pay). That’s $2,400 in salaries. Which means you’ve sold $24,000 worth of $10 books while you were open.
8. That doesn’t include operational costs for power and water. Add in another $10,000 in book sales to cover daily utilities.
$34,000 has to be made each day, at a minimum But you can’t guarantee that, can you? Let’s say you’re having a bad sales day and you only clear half that ($17,000) in merchandise. What do you do to make good the lack? Are your employees going to start press-ganging passers by from the street into the store and forcing them to buy books? I hope not. That’s a good way to get your flammable bookstore burned down around your ears.
What will more than likely happen is that the store will cut employee hours, because they cannot afford to keep that many people employed at the demanded $15 per hour living wage. Not without re-negotiating every single contract they have with publishers and distributors, so that the price is adjusted upwards to reflect an increase in the cost of goods and services- the price of the book goes up! What a surprise!
What this all means is that while theoretically the amount of money you’re earning has increased your actual buying power has stayed the same or worse- decreased! A living wage only sounds good in theory. What it actually gets you is a whole different set of unintended consequences.
At my current employer I make just over $10 an hour. I sell phones and their service for the largest wireless provider in the country. That wage is set based on what the employer feels is a reasonable price for my services. It’s not a government mandate either.
They are currently increasing the staff in our project to 200 sales agents taking instant messenger chats from customers, and we operate 24/7. Not only that, I’m now authorized to work up to 16 hours if I voluntarily wish! This means that I can theoretically make over $1,000 dollars a week before taxes. But it only works so long as I am able to sell phones. If the quality of the product I sell starts to slip, is superseded by something better, or customers refuse to buy, I am no longer authorized to work those hours. The company cannot justify that payroll expenditure. They have a profit margin to maintain. Why? Because if they are called upon to back their investments, those profits will be what does it. If they cannot justify keeping me employed, I get severed. Which in turn means my buying power goes down.
And that ladies and gents is why a fixed minimum living wage is neither practical nor desired. Deregulation of this, and allowing the market to decide would have a tremendous impact on our economy. Yes, it would be rough for some people. But for the vast majority of Americans, it would be an improvement. Certain companies would probably try to justify cutting their workers’ pay down to the bones- only to find that they can’t attract decent employees at $2 an hour with a 20-hour work week. Nor, do I suspect, would consumers stand for it.
End this living wage nonsense immediately, it will do nothing good for us in the long run.
This article is the first in a series I’m going to do on de-regulation, and why or why not it should be applied to specific cases. Special thanks to Tom Kratman, Sanford Begley and Patrick Richardson for inspiring me to write these up. Michael Z. Williamson gets an honorable mention for unwittingly providing the article that serves as the basis for this. And before anybody asks, I’m neither a classical liberal, nor an extreme conservative. I can tell the difference between Obama, Bush, Hitler, Stalin, Lenin, Rand Paul and Satan.