Why a $15 Minimum Wage Will Kill Small Businesses ‘For The Good of The People’

The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” – Thomas Sowell

My Facebook timeline regularly lights up with Bernie Sanders memes, many of which are positive in their depiction of the Socialist Senator. But what few people understand is that there is no free lunch. Money doesn’t come from the earth or the sky, it comes from work.

I know most Democrats are fully supportive of a dramatically increased minimum wage, or as they call it to make it sound more sympathetic, a “living wage.” Many people buy into this notion without actually taking the time to examine what a dramatically increased minimum wage would cost, and in addition, what that cost would cause the federal government to do.

The restaurant business is widely known for its failures more than its successes. The average profit margin for new restaurants, after all factors are accounted for, is between 2-6 percent. Wages average approximately 35% of cost, depending on the business. The point is that many small or medium sized restaurants operate on very thin profit margins, and as such, any forced alterations can be the difference between functioning operation and bankruptcy.

Allow me to set up a fake scenario to simplify the situation. Let’s say there’s a business that earns approximately $1,000,000 a year. 40% goes to operating costs, 40% goes to wages, and 20% is gross profit. After taxes, investments, and payments of other kinds, let’s say the profit margin falls to a healthy 6%.

This company employs 25 people, each with a slightly above minimum wage salary of $8 an hour. Each employee works 40 hours a week. Let’s set aside the cost of benefits, etc, for the purposes of this analogy. This amounts to approximately $416,000 annually going straight to employees.

If the government mandates an increased minimum wage to $15 an hour, how would that impact the business? Well, let’s begin with salary. Increasing the wage of 25 employees who work 40 hours a week from $8 to $15 would be an increase of $364,000 in employee wages. $780,000 in employee wages is unsustainable for a business that makes approximately $1,000,000 annually. Given that, cuts or increases have to be made somewhere.

The business can either increase its prices to keep every employee employed, thus driving consumers elsewhere, possibly going bankrupt in the process, or it can cut employees and hiring. The price of a burger and fries could go from $8 to $15, or employee hours can be reduced by half, or half the employees could be fired. Any way you slice it, something has to change. With the razor thin profit margins of many small businesses, mandated increases in salary cannot just happen without consequences.

That’s what the angry protestors yelling for a $15 an hour “living wage” don’t grasp. As I mentioned, there is no free lunch. They assume they’re all special flowers whose lives are worth whatever they demand they’re worth, regardless of the realities of finances. They don’t understand that if they get whet they demand, a $15 wage dictated by the government, they may well get fired.

Here’s how the situation will go down if a socialist or Democrat (though I repeat myself) is in charge. A mandate will come from the federal government stating that every employer must pay a minimum of $15 an hour to their employees. Employers will react as you might expect, cutting jobs or hours to keep afloat. The workers will loudly protest the firings and time cuts, and the government will step in once again.

This time, the fed will mandate that employers not only pay a minimum of $15 an hour, but that they keep all employees and that working hours cannot be slashed. This will force employers into their last option, which is to dramatically raise prices. Once prices are raised, fewer people will patronize their businesses, and they will go bankrupt under the strain.

Only big businesses with large profit margins will be able to handle the changes, and thus, small businesses will fall, and large corporations will succeed.

The game will continue on and on until the government, and thus the taxpayer, is subsidizing businesses “for the good of the people.”

Economics is not difficult to understand, but the puppets who are out there protesting for a “living wage” have no clue they’re being manipulated by higher-ups who want control of the private sector.

Wake up! Read a book! Put on some cultural glasses, and see for yourself what’s coming. If you don’t, we’re all headed for disaster.