I posted the other day about the effect of the new Florida minimum wage on prices. I spoke with my brother about it, and he actually gave me a few details about how he is going to deal with it.
My brother owns a retail sales company that has 30 employees. Since the new minimum wage is going to increase his labor costs, he is going to have to find a way to make the new numbers work. He can’t raise prices very much, because his competition will slaughter him if he does.
So he has to cut costs. He can’t cut the cost of inventory, those prices are what they are. he is already at a cost disadvantage because larger companies already buy product by the railcar and get quantity discounts that he cannot hope to match.
Here is what he came up with:
An employee currently is paid for 2,080 hours per year. A 16 percent raise is equivalent to 333 hours of work. That is equal to 42 days at 8 hours a day, or about 2 months of the work year.
Vacation, paid sick leave, and holidays mean that employees get paid for 180 hours per year when they are not working. That means that 9 percent of his labor cost is paying employees when they are not working. So, half of the first year’s raise is going to be made up by eliminating all paid time off- no sick leave, vacations, or holidays. If you aren’t at work, you aren’t getting paid. Now he isn’t a Scrooge- his employees will still get holidays off, they just won’t be getting paid.
Additionally, he will be implementing a quota system for productivity. Any employee who falls short of their quota will receive a warning. If they continue to fail to meet that quota, they will be terminated.
Liquidate, fire everyone, and retire.
Nick Flandrey · November 6, 2020 at 2:39 pm
Given all the other factors, like burdensome regulations, threat of EEOC lawsuits, etc, I think a whole lot of people are going to choose Plan B, and just say F it, let's enjoy what's left.
SiGraybeard · November 6, 2020 at 3:52 pm
OK, maybe this a bit too geeky, but I saw an interesting paper over on the FEE website (Foundation for Economic Education).
It's on who pays for the minimum wage increases. I've always thought that prices have to go up commensurate with the labor rate. If labor is 25% of your costs and labor goes up 12% (about $1 out of $8) your selling price goes up by 12% on the 25% or 3%. That basic idea.
The point of that paper is prices need to be a bit elastic for that to happen. If you absolutely can't raise prices, their paper argued exactly what your brother said; labor pays for the increase in min wage. Labor gets squeezed. Maybe everyone gets made part time and loses benefits as well as 10 hours pay/week.
I only wish we could explain to the hapless people who voted for this hot mess how they'll end up hurting the very people they're trying to help. Far too many people have that Scrooge McDuck image of "rich business owner" stuck in their head.
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