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LOS ANGELES, CALIFORNIA - APRIL 04: A Service Employees International Union member celebrates after California Governor Jerry Brown signed landmark legislation SB 3 into law on April 4, 2016 in Los Angeles, California. The law makes California the first state in the nation to commit to raising the minimum wage to $15 per hour statewide. (Photo by David McNew/Getty Images)

The Federal Minimum Wage is always a hot topic on talk radio and every January 1 of any given year there are states that have voted to increase their minimum wage.

The year of 2017 is no exception.

Starting January 1, 2017 the following states will raise their minimum wage.

Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Hawaii, Maine, Massachusetts, Michigan, Missouri, Montana, New Jersey, New York, Ohio, South Dakota, Vermont, and Washington will all be paying more per hour in 2017.

More wage increases in Oregon, Washington, D.C., and Maryland will take place later in the year.

Is A Minimum Wage Really Necessary?

As I have written before since we have no maximum wage do we really need a minimum wage?

Shouldn’t the minimum wage be whatever the market will bear? We don’t want the lowest employee at the lowest price after all.

All companies want the best employees they can find at a wage that will work within the parameters of the business model.

I’ve talked to many business owners who wish they could pay their best employees a higher wage.

But the company budget will not allow the increase.

Where Do Raises Come From?

Just dictating that companies pay people more might work in the emotional world but not in the real world of economics. Here’s why.

Let’s say that I have a Montana company that grosses $1 million dollars per year. My business model says I can pay 15 percent of my gross sales to payroll or in this case $150,000.

Using the $8.15 per hour minimum wage pay for each full time employee (2080 hr./yr) each would gross $16,952. Using that math I could employ 8.8 people.

If the minimum wage suddenly was pushed to $15 per hour then I would have to pay each employee $31,200 per year which would mean I can only employ 4.8 workers.

Unless I can almost double my business, increase my prices or some combination of the two I’m going to have to lose 4 employees

And with half my staff gone can I still satisfy customer demand?

One possibility would be to increase automation of some systems to make up for those lost workers.

Some Final Thoughts

We also have to take into account that those same employees are going to want some time off with pay with zero production from them during that time.

One or two weeks of paid vacation, a few sick days with pay, and perhaps one or two personal days off.

While someone is gone from work someone has to take up the slack so perhaps vacations can only be taken during slow times which may not be the ideal time for the employee.

As you can see there are many things to consider besides just paying more because it’s a feel good thing to do.

What are your thoughts?

Comments below

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