A "Living" Wage Pays Off For Some Employers

There have been protests and rallies around the country calling for a so-called living wage.  Specifically, some fast-food workers are advocating a minimum wage of $15 per hour.

These workers don’t understand that if the government followed through with their wishes, they would probably be out of a job.  Employers are not going to hire people for more than they are worth, unless they have a lot of money and are willing to be charitable.

We don’t currently live in anything close to a free market environment now, with minimum wage laws, various taxes, and thousands of regulations.  But employers, for the most part, still have enough rights that they don’t have to hire people and they can also pay employees what they want, as long as it isn’t below the minimum wage.

There is a burger and chicken chain in suburban Detroit called Moo Cluck Moo where some workers are paid up to $15 per hour.  When the first place opened a couple of years ago, the starting pay was $12 per hour for all of the workers.

While this is something of a fast food restaurant, it is a step above McDonald’s.  The workers make the buns fresh daily and they use grass-fed meat for the burgers.  Due to the better quality of food (and probably better service), Moo Cluck Moo can also charge higher prices, with burgers starting at around $6.

The higher prices certainly contribute to the employer’s ability to pay higher wages while still managing to turn a profit.  The employees are also expected to know how to do various jobs.  It is a two-way street.  If employees expect higher pay, they need to show more motivation, stronger work ethic, and their ability to please customers.

Not surprisingly, the turnover at the restaurant chain is low and we can be sure that the higher wages are a contributing factor to that.

Employee Advantage

Of course, one obvious thing to point out to all of these protesters is that they are free to leave their job at any time.  Other than being in the military or having to fulfill some contract obligation, you can walk out of any job at any time without penalty.  If you can find a better job with higher pay, you can take it at any time.  The people protesting perhaps would have very limited options if it weren’t for their current employer.

The large majority of workers in the United States make far more than the mandated minimum wage.  So why are employers paying them more than they have to?  Obviously, the employees are worth it to the employers.

If you have skills in demand and show some kind of dedication or work ethic, then some employers are going to want to hire you.  The expensive part of hiring someone is at the beginning.  You don’t necessarily know if the person is right for the job.  (This is why temps and interns can be an advantage for both parties.)  In addition, an employer has to train people, so they are usually losing money at the beginning.

For that reason, employers usually want to keep employees if they are doing a good job.  It is more profitable than to have higher turnover.  It is in the interest of the employer to pay higher wages to get better performance and lower turnover.

The reason that many of these fast food workers are being paid relatively low wages is because they lack demanded skills.  They also sometimes lack a strong work ethic, although that is certainly not true from many others.  These jobs are not really meant for heads of household.  They are supposed to be a beginning, or something of a stepping-stone.  They can also act as part-time work for people needing a second job and some extra income, or for a spouse that is not the primary breadwinner.

If you look at some third-world country where the average wage is $2 per day, the reason for the low wages isn’t a lack of minimum wage laws.  Setting higher minimum wage laws would just eliminate jobs.  The wages are low because they are poor societies with a lack of capital and investment.

For anyone who wants to see higher wages, they need to advocate for lower taxes and less regulations.  This leads to more savings and more capital investment, which increases worker productivity.  The key is to increase worker productivity, which will enable employers to pay higher wages.

A living wage sounds nice, but it needs to be done voluntarily in a free market.  It cannot be achieved through the use of government force.