Making Sense of the Minimum Wage Debate

Making Sense of the Minimum Wage Debate

By Marsha Bailey, Founder & CEO

As a small business owner, employee compensation is a huge issue, especially for cash-starved start-ups. Most business owners don’t have the option of taking a salary until the business is profitable. Employees, however, are unlikely to show up without the promise of a paycheck. So what do you do, find the cheapest employee you can, or pay more and hope your investment pays off?

Henry Ford is often praised for doubling the going pay for workers (from $2.50 to $5.00 per day) so they could afford to buy his cars. But a recent story in Forbes says otherwise: Henry Ford increased wages to attract and retain reliable workers. You can imagine what would happen to Ford’s major innovation – the assembly line – if workers failed to show up or walked off the job. You can’t just skip that particular widget and move the car down the line – picture wheels falling off.  It also turned out that he significantly expanded the market for his own products.

Today, those opposed to raising the minimum wage inevitably point to the impact on Small Business, but some of the biggest opponents are not small at all – they’re traditional low-payers like McDonald’s, which pays an average hourly wage of $7.72 per hour. Contrast that with In ‘n Out. The famous West Coast burger chain offers an entry level wage of $10.50 per hour with raises of 25 – 50 cents an hour typically given within the first six months of employment. And you don’t see In ‘n Out’s business or profits suffering. On the contrary.

The reality is that wages have not kept up with productivity gains since the seventies.  A study by the Center for Economic and Policy Research says that if wages had kept up with increases in worker productivity, the minimum wage would have stood at $21.72 in 2012.

So what’s a small business owner to do? When you’re deciding how much to pay an employee, you have to think about your return on investment. How much training do you need to provide, will the employee interact directly with customers, what does a high turnover rate cost you in both time and money? Constantly having to hire and train new staff takes you away from the higher level planning, marketing and sales work you need to do to grow your business.

My own personal belief is that you get what you pay for. Paying employees fairly and providing good benefits fosters commitment and loyalty. Employees who feel underpaid and underappreciated are prone to higher rates of absenteeism and are more likely to steal from their employer.

WEV’s annual impact survey indicates that among the clients we serve who have employees, the median wage is $14.00 per hour. This is significantly higher than minimum wage and supports other research indicating that women business owners tend to pay better and provide better benefits.

What have you learned about hiring and retaining good employees?

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