Minimum wage should be $22.62 an hour

re-read the op raising the minimum wage doesn't hurt employment this is a kindergartner's interpretation of how economics work

also were not technically talking about raising the minimum wage, merely making sure it keeps pace with gdp growth or atleast inflation

 

My objection to a minimum wage has nothing to do with any experience writing a business plan. Employers who want to pay willing workers less than the minimum wage can't do so because the government doesn't permit it. My objection is that the government should not be setting an arbitrary minimum wage. It would be similar, in principle, to setting a minimum price for any product I might wish to buy. How would you like the government telling you, the consumer, that you must pay a minimum of $8 for every gallon of milk you purchase because the dairy farmers need the money?

 

In "Manufacturing" (which is what the example relates to) "Market Pricing" for labor is typically set at $100/hr but can be as low as about $80/hr and often as high as $120/hr. That's what the "Market" dictates because reasonable wages and profits can be achieved with that pricing. Based upon a business plan the allocation for compensation is between 20% and 30% based upon the pricing and if we take the median of 25% the resulting compensation for the "assembler" would be $20/hr if pricing is set at $80/hr and $25/hr if the pricing is set at $100/hr.

Every enterprise with a viable business plan can generate a profit based upon the "Market" with this level of compensation. If they can't it's because they have a bad business plan. You have to start with a good business plan but, unfortunately, many or most enterprises don't have a viable business plan. That's management's fault and not the fault of the worker.

 

But would you buy a high quality double cheeseburger for $2.90 that from a company that provides roughly double the employee compensation when compared to McDonalds that sells it's comparable Big Mac for $4.20 today? As I've noted Dick's Drive-in, a privately owned burger chain that has several locations in the Seattle area, has been doing that for years. Dick's (and Ivars a local sea food chain) has announced that it is increasing it's starting wage to $15/hr in 2015 a full six years ahead of the required $15/hr minimum wage requirements being imposed in Seattle. Of course Dick's was relatively close to that compensation already so it isn't really much of an increase in compensation for Dick's.

I'm with you because I won't buy a crappy hamburger for any price but we also know that an increase in the starting wage doesn't mean the customer has to be screwed with high prices for a crappy hamburger just because the employee is paid considerably more. What we do see is that a high quality product at a reasonable price and exceptionally good customer service generates more than enough revenue for much higher employee compensation.

 

Well I think it's worth experimenting with. There are several liberal states that could experiment with your minimum wage; say Vermont, Massachusetts, Connecticut, New York, New Jersey, Maryland, Oregon, California, Washington and Hawaii. There should be local state groups that should advocate for a $22.62 minimum wage, and the rest of the country can sit back and watch how the experiment plays out.

 

sure

but one who builds a product must incur expenses before dollar one of revenue is realized. A business plan is not as simple as you try and portray. You for some reason are not discussing that nasty little thing which gets in the way, START UP CAPITAL.

We hear all about the poor, picked-on employee who is exploited by the employer. Each business is unique and not all businesses can afford to pay an employee $20 per hour. Heck, many small business owners might not even earn $20 per hour for 40-60 hours per week. A landscaper for avg lawns can only charge $25 per week, a sub sandwich is only worth so much and then you have spoliage or inventory eating at costs. A car wash is only worth so much etc etc

 

In fact both the initial start-up capital as well as reinvestment of caplital derived from profits are a component of the business plan. For example if the initial investment is $100,000 then a reasonable return in that investment would be perhaps $10,000/yr (10%) and that has to be calculated into a percentage of gross revenues. If the gross revenues are $400,000/yr then the enterprise must have at least a 2.5% profit margin just to cover the return on investment for the initial start-up capital. That, of course, would be a very low profit margin for an enterprise and we would assume a more reasonable profit margin of perhaps 8%. If, over time, profits are re-invested in the enterprise raising the total investment to $200,000 then, based upon the business plan, it should be expected that the gross revenue should at least double and the same 2.5% profit would cover the return on capital investment made by the owner.

The key always remains with the business plan because if you're going to invest $100,000 and define 2.5% of gross revenue as profit to cover the return on capital investment then the business plan has to define how your enterprise is going to generate $400,000 in gross revenue.

Once again the key is in the business plan. An owner that is also working is an employee of the enterprise then their wages need to be accounted for in the business plan. The business plan also defines how the enterprise is going to generate the revenue to pay for the labor of all employees including the owner. If the enterprise is not generating enough revenue then either the business plan isn't being followed or it's an invalid business plan based upon false assumptions and, in either case, the problem must be immediately addressed and resolved.

I have no idea of where you came up with the billing price of $25/hr for landscaping services because it's completely bogus. Before I retired I had a lawn mowing service, that charges less than a landscaping service, and the billing rate was $60 per man-hour. It typically took almost an hour for two employees (i.e. 2 man-hours) to mow/edge my lawn every two to three weeks, depending upon the time of year, and I was billed $120 per visit. It could also be noted that the lawn mowing service didn't require a "brick and mortar" establishment (i.e. all of the tools fit in a trailer) so it had no rent to pay and could afford to pay more than the standard business model of 20% to 30% of gross revenue to the workers and still have considerable room for profit left over. Landscaping companies typically have a "brick and mortar" establishment because they have supplies and equipment not used on every job and they always charge more per man-hour than a lawn mowing service.

As you correctly note all enterprises are slightly different which is why there isn't a one-size-fits-all business plan but all business plans can be created where adequate compensation is accounted for and the means for securing the necessary revenue is clearly defined. Only if an enterprise doesn't have a good business plan or fails to follow a good business plan is there any problem with providing adequate compensation and paying the rent or owner's wage or other expenditures necessary for operation of a successful enterprise.

 

pssst- landscaper was an example and I CLEARLY wrote $25 per week per lawn. If it takes 15 minutes or 15 hours then that is their problem. Thye then must also weigh in when they can afford better gear to improve productivity, regional area served, scheduling for maximum use of time with minimal driving etc.

There are businesses which require a heck of a lot more capital than $100k to begin and yes, a biz plan is key but CAPITAL IS KING

 

What I continue to see is that people don't know how to create a business plan so let me provide a simple example where I'd provide a service.

I'm going to start a business that cleans boat hulls. Obviously someone that has a "trailerable boat" is unlikely to pay someone else to clean the hull of their boat so we're looking at boats that typically remain in the water and that have a problem with marine life growing on the bottom of their boats. These people also have money generally and can afford to pay someone else to clean the hull of their boat. They have a choice though, they can put the boat in "drydock" and have it done but that's expensive because waterfront property where the drydocks are located is very expensive. Or they can have the work done while the boat is docked and in the water.

I'm going to employ divers to do the work because I don't need to own a dockyard or even have an office to conduct business. There is very little equipment involved but would include a truck with a portable air compressor for a "huka" that provides air to the diver and a powerwasher (yes, they do work underwater) to clean the hulls. I'm going to pay my divers $30/hr estimating that they can clean about 10 square feet per hour so my billing rate will be $12/sq ft of boat hull. That would mean a 30' boat with 300 sq feet of bottom surface would cost about $3,600 to clean. That might be a bit steep for someone that only has a 30' boat but a person with a 100' yacht that has that has 1,000 sq ft of bottom probably wouldn't flinch at paying $12,000 to have the bottom of their yacht cleaned because they're a multi-milionaire. So my business plan would target the multi-millionaires with yachts and would establish how I identify them, how I would contact them, convince them to use my services, and then generate repeat business (e.g. and annual bottom cleaning program because a relatively clean hull can be cleaned in 1/2 the time so the cost is less).

The only thing left out was competition and I do have to deal with that. How do I establish market share and one way by providing superior customer service. For example I might be the only one offering a annual inspection and cleaning program that reduces the costs to the yacht owner without sacrificing my billing charges per hour for my $30/hr employee. It could be nothing more than how personable I am with the customer or how proactive I might be in addressing my customer's needs when compared to any competitors. There are many ways to compete that don't hinge on the billing costs to the customer.

Business is not all about pricing but instead it's about providing "value" both tangible and intangible to the customer and the successful entrepreneur knows that and includes it in the business plan. Once the business plan is created then it needs to be followed. If for any reason things aren't working as planned then the business plan needs to be re-addressed and modified as necessary so that it does work. This really isn't rocket science and anyone that takes the time can create a successful business plan based upon pretty much any level of compensation.

I could pay a baker $100/hr if I can identify a target market that is willing to pay that amount and there are those that will pay over $1,000 for a cake. It's not a big market but it does exist so how do I access that market and acquire market share to generate enough sales to ensure a successful enterprise? All of that is covered by the successful business plan.

 

Yes, there are many enterprises that cost more than $100,000 in initial investment capital and the business plan has to include the capital investment in establishing how it's going to generate enough revenue to pay a "return on investment" plus covering all other expenditures such as rent, cost of goods/supplies, and employee compensation. Employee compensation is merely a factor like rent and the most important part of the business plan is what needs to be done to ensure enough gross revenue to cover all expenditures regardless of the amount of the expenditures.

The business plan doesn't just define the budget but must also define how the enterprise is going to generate the revenues necessary for the business to be successful. People seem to forget that part.

BTW With a really good business plan the capital can always be secured to fund the enterprise.

 

I'm going to have to call BS on that one.

Maybe if you found a way to always find water in a desert then perhaps. In many countries especially in the USA, the govt has made it less attractive for private capital to be invested into businesses in exchange for an equity stake. Angels have all but disappeared and group funding can be done but is a pain in the behind. Now, many times you need to put your entire personal savings, home and credit on the line, start the business and only after bringing the product to market, obtaining customers and repeat business will investors even take a look at you.

I've been restarting and starting businesses since the 90's and have performed due diligence on behalf of several VC firms when they were considering investing.
These past 8 years and especially since Dodd/Frank have been anything but entrepeneur friendly.

I can tell you this. If you plan on starting a business and need unskilled labor, and show the potential investors that you'll be paying $23 per hour unloaded for those employees, you won't find any investors. Investors demand that you extract the most value from every penny they invest and over-paying for any service be it telephone and even labor, does not meet your fiduciary obligations.

 

If the minimum wage is to be raised, an argument can be made for raising it gradually, to give the wage increases time to create enough increasing demand in the economy so that the wage can later be increased further without causing unemployment.

 

I selecting a random month of all reported financial "investment" transactions in the US I found that fewer than 0.00005% of those transactions provided capital to an enterprise. In short if we round off to 1/1000th of a percent the percentage of financial transactions in the US that fund enterprise is 0%. Overwhelmingly enterprises is funded by the owners and not by outside investors which, of course, exposes the myth that the investment markets fund enterprise and create jobs. They do but the percentage of funds that are actually used to capitalize enterprise is 0% for all practical purposes.

All workers have skills but when hired they're untrained for the specific needs of the enterprise. It's management's responsibility to apply the skills of the worker so that they complete the tasks necessary for the enterprise. It's also management's job to apply the skills that any individual brings to the most suitable tasks that must be done for the success of the enterprise. Virtually everyone has the "skills" but they do require the "training" to apply their skills and training is a function of management. It really annoys me when people refer to "unskilled labor" when the real problem is "incompetent management" for most enterprises. The new-hire without prior job experience or knowledge is not unskilled; they're untrained.

A viable business plan probably doesn't require outside investors because the business plan includes the means of capital funding. Once again we only need to look at history where many of the major corporation of today started out very small, some in the garage of the original owners (e.g. Harley-Davidson and Apple Computers) and then grew based upon profits.

My partner and I started our manufacturing business a year ago with about $10,000 in private funds and loans and we've already sold enough to pay off the loans and recoup our investment. After just one year our expansion is exclusively based upon sales today. Admittedly we haven't had a paycheck yet but we're accounting for our time/wages and we have no doubt that the enterprise will eventually be able to pay us back wages because it's all in the business plan so we know how that is to be accomplished. Based upon the long term business planning we'll have over $1 million in annual sales at the end of year five and we know exactly how to get there from here. Our short term business plan is reviewed weekly to address any possible need for revision to keep us on track for our five year business plan. Starting an enterprise from the ground up does not require large investments or luck. It takes knowledge, dedication, and a willingness to adapt the business plan as necessary to stay on track and nothing more.

Of note our long term business plan does include going "public" in the future and the "prospectus" will address employee compensation based upon a percentage of gross revenue. Investors don't give a damn how much you pay each employee but they do care about the overall cost of labor and how it's accounted for in the business plan. An investor couldn't care less if the enterprise pays a new-hire $25/hr as long as the enterprise is going to turn a profit based upon the business plan. A very solid business plan, preferrably with past performance for validation, is what the enterprise needs to present to the potential investor.

 

I agree completely. It takes time for the business plan to accomodate signficant changes without causing disruption to the the enterprise. When it comes to an increase in the minimum wage the challenge for the business owner is to increase the starting wage, and make any other compensatory adjustments necessary, without distruption and preferably without impacting pricing. It's doable but it takes time for this type of change just like it takes time to address an increase in the rent in the business plan.

As also accurately noted an increase in the minimum wage also includes more disposable income for society in general that can be beneficial to the enterprise and increase gross sales eliminating any need for reductions in employment and/or price increases. Many financial factors are in play and allowing time for them to have an influence is important.

 

you need to qualify what "enterprise" means to you

Also, your "business" has another name for it in the real world, it's called a hobby.

Not to offend you but after a year and no paycheck, that's a hobby. Sure, you are making a gadget and finding buyers but the sales are not enough to pay yourselves or even 1 employee. That is the reality and you are fortunate to either be retired or have a day job.

For me, it was all in and it's that way with many entrepeneurs. And in my market space, it IS CAPITAL INTENSIVE but the rewards bring a good ROI once you begin making sales. I do not sell widgets to a biker crowd or end consumers. I don't mow lawns. I sell to established businesses and with that brings a cost of sales more than posting on Facebook or Ebay. None of my employees have a loaded cost of under $60,000 per year. Well, one employee does on occasion and that would be me......................

When we get slow rolled on a $150,000 invoice it hurts tremendously. As I've said time and again, prior to Dodd/Frank we had a line of credit to flatten cash flow. Also, doing business internationally is a challenge as it's even tough to factor invoices given the instability in some countries.

My end goal is for the business to get to a point where it's an acquisition target. But, it also must be cash-flow positive and it's there, but does get challenging when big customers go 90 days past, or more, because they themselves have cash-flow issues.

So, we've both been clear about the challenges. Yours is more of a hobby, and I have to make sure that employees get paid as well as other obligations. Maybe your hobby will turn into a real business but if nothing else, it keeps you occupied and that in itself is a worthwhile venture. I don't know what I would do if I ever stopped working completely and respect you for doing what you did.

I've thought of retiring to Miami and selling sunscreen on the nude beach and include free installation. My gut tells me that I'd need a divorce attorney if I did that.

 

We actually do have an employee (we hired one as soon as the revenue funded the position) but we are talking advantage of our "personal wealth" because neither of us require immediate payment of wages owed. We do expect to be paid for all of the time we're investing in the enterprise and we know how and when we will be paid. Of course if we needed that income immediately we would have had to include it in the business plan. Our current goal based upon the business plan is "cash flow" to the enterprise and it's been increasing monthly since we first started offering products for sale. We're actually ahead of schedule because we established pessimistic revenue projections in the initial business plan. We need to reach that $1 million annual sales benchmark, that the long term business plan projects in year five, and any enterprise with $1 million in revenue is far from being a hobby.

As I mentioned we just did a cost study that included labor and our labor is only 23% and that's below the 25% we allocated in the business plan. Our sales are exceeding our business plan projections and our costs are below our business plan projections. Life doesn't get much better than this for a business owner and it really reflects how robust our business plan is. If this keeps up it will drive a change to the long term business plan because we'll hit the $1 million per year benchmark in year four instead of year five.

 

you have an employee!!!!!

$23 per hour....................just remember, you didn't build that

 

Minimize government meddling in the private sector! No problem with regulations to protect our safety and health and environment but don't allow government to mess with the fundamental processes of the economy and labor.

If the supply and demand of labor determines a wage to be $10/hour, and if government has a problem with this, then let government subsidize this person funded by general taxation. Of course the government must have approval from the voters to fund these programs...

 

All you've calculated is the median wage in your hypothetical above...$20/hour median wage for all labor. Since all workers have different skills/education and varying job descriptions your workers in this example are going to earn between $7.25/hour and $32.75/hour.

A 'business plan' does not guarantee anything! It is the day to day and per unit expenses and revenues which determine success or failure. A business plan does not create revenue or worker wages, etc. If you have demand for something, selling at a competitive price, if a company wishes to compete for all or part of that demand, they must have expenses and income equal or better than the competition...no matter any business plan...

 

The business plan includes the "roadmap" to the business and adjusts based upon performance.

Let me be specific because I an co-owner in a start-up manufacturing company with a both the short term and long term business plans required. In creating the business plan we were conservative related to projected sales and and projected our cost of labor at 25% of the product costs. Our sales have actually out-performed the business plan projections and, based upon a cost study we just did today our labor costs are coming in at 23%. This is based upon a $25/hr rate for labor that a new-hire could produce perfect parts with about 1 hour's worth of on the job training (note: it would take the same amount of time to train an experienced person to fabficate the same part). Admittedly I'm a manufacturing expert and we designed the part and created the tooling and manufacturing process so that anyone could make the part with little to no prior knowledge but that is the responsibility of management (the owner) to ensure.

 

What does any of this have to do with the government making employers pay more than they deed to?

 

Eliminate the minimum wage and require those who are able, to either find employment or be assigned some work in return for any benefits provided by taxpayers. Continually raising the minimum wage reduces our competitiveness in the world market, raises the cost of living for those who are working, and raises the amount being redistributed to keep pace with the rising costs.
People should be paid what the work they are doing is worth to both themselves and their employer, and if government would stand aside and allow the market to perform, more people would begin to recognize that it is they alone who are responsible for what they achieve in life and maybe then more people would begin to act responsible. As it is now, the nation is acquiring debt at an unsustainable rate which will only make resolving the problems more difficult, if not impossible, in the future.

 

Employers need to pay enough so that their employees don't have to rely on government welfare assistance for the basic necessities. No working person should be living in poverty. The employee deserves more than that and they earn it with their labor.

I merely demonstrate that the employers can afford to pay a liveable wage and there's no reason they shouldn't.

There is an interesting paradox. Virtually everyone agrees that a person should work for a living but then there are employers that believe that they shouldn't pay a liveable wage to their workers. Why don't we all get on the same page. If the person works then they should be able to live off of their wages.

 

I disagree. The only person responsible for making sure I am earning a liveable income is me. It is incumbent on me to figure out a way to deliver something to the market place that brings in enough income for me to live on. I have no right to anyone else's money. If I think I'm going to live in a three bedroom house with cable and drive around an SUV from a "career" of flipping burger, I'm delusional.

 

$20 per hour.....
and your just flipping patties, companies
would really oppose on that.