Schnazz Posted June 6, 2006 Report Share Posted June 6, 2006 Can someone explain to me why a higher minimum wage hurts small business? As far as I can tell, a whole lot of small businesses that hire minimum wage employees compete against major corporations. When those two go head to head, I would think that the small business would benifit from higher minimum wage. All companies have several costs that go into their products, such as wages, materials purchasing, advertising, and store front costs (lights, electricity, rent, etc...). Typically major companies can get better rates on materials and advertising, because they're buying in bulk. That usually results in the major companies having lower prices than the small business, which makes it hard for the small business to survive. However, since both companies pay the same wages, when you increase wages, the cost difference on materials and advertising becomes less important. For example, let's take two stores, Bobs Ice Cream, representing small business, and Dairy Queen, representing major corporations, and look at a fictious cost of an ice cream cone. Store - They're across the street from each other, bought at the same time, and using the same utilities, so they're the same. Bobs - 20 cents DQ - 20 cents Materials - DQ has much better rates here, because they can buy in major bulk Bobs - 20 cents DQ - 10 cents Advertising - DQ buys one ad and splits the cost between 10 stores in the city, Bobs buys one add and pays for it all from one store. Bobs - 10 cents DQ - 1 cent Wages - They're both cheap bums, so they both pay minimum wage Bobs - 20 cents DQ - 20 cents So the total cost for each cone is: Bobs - 70 cents DQ - - 51 cents Bobs is 37% more expensive than DQ However, if you where to double minimum wage to 20 cents, than the cone costs would become: Bobs - 90 cents DQ - - 71 cents Now Bobs is only 26% more than DQ, which should make it more attractive to customers. I just made the numbers up to illustrate what I'm talking about, I would think that in reality it isn't nearly as pronounced of an effect, but I would think it would still be true regardless of the numbers. A higher minimum wage wouldn't do much, but if anything, it would slightly help small business. So why does everyone say it's going to hurt small business? Quote Link to comment Share on other sites More sharing options...
MaxFly Posted June 6, 2006 Report Share Posted June 6, 2006 Everything finance related for small businesses is magnified because they are working with less inherently... How successful a small business is can't be guaged by how many workers it has, but rather by how much money it brings in. The ratio that small businesses pay in wages to their workers vs how much they make is generally more than the ratio that larger corporations pay to workers vs. how much they make. Quote Link to comment Share on other sites More sharing options...
Schnazz Posted June 6, 2006 Author Report Share Posted June 6, 2006 The ratio that small businesses pay in wages to their workers vs how much they make is generally more than the ratio that larger corporations pay to workers vs. how much they make. Could you explain why that would be so, that seems opposite to how it should be. Quote Link to comment Share on other sites More sharing options...
MaxFly Posted June 6, 2006 Report Share Posted June 6, 2006 The ratio that small businesses pay in wages to their workers vs how much they make is generally more than the ratio that larger corporations pay to workers vs. how much they make. Could you explain why that would be so, that seems opposite to how it should be. I think this goes back to advertising... Lets say my local Dairy Queen is interested in new advertising... Because they are apart of a larger conglomerate, the company will take care of that advertising, and will reach farther and will generally be more successful that individual Dairy Queen ever could. Now whatever amount in dues that Dairy Queen has to pay to the central office for advertising will increase their earnings exponentially because of the type of advertising (television, movies, partnerships with other companies, etc...) whereas the advertising done by a small business will generally only increase it's earnings linearly... Also, if we take into account discounts on supplies, larger companies have an even bigger advantage. Quote Link to comment Share on other sites More sharing options...
Schnazz Posted June 6, 2006 Author Report Share Posted June 6, 2006 Right, so higher minimum wages should help small business. Quote Link to comment Share on other sites More sharing options...
MaxFly Posted June 6, 2006 Report Share Posted June 6, 2006 Right, so higher minimum wages should help small business. Well, not really... in all, because of the money saved on supplies, and the boost from advertising, lets say the local Dairy Queen will end up making 400,000 dollars a year with 8 workers while your local small business will make 100,000 with 4 workers... If the minimum wage averages out to be 5,000 dollars a year per worker, the large business is paying 40,000 a year while bringing in 400,000... 10% it's annual income while the small business is paying 20,000 on 100,000... 20% it's annual income... Now lets say that minimum wage is increased by 1000 dollars a year per worker... The large business is paying 48,000 on 400,000... 12% it's annual income... The small business will end up paying 24,000 on 100,000... 24% it's annual income... Because of the increase in mimimum wage, the small business ended up paying a higher percentage increase of it's annual income in wages than the large business. Quote Link to comment Share on other sites More sharing options...
3cookies Posted June 7, 2006 Report Share Posted June 7, 2006 speaking of... Max think u can help me out with my business plan? Thas one part that I just cant seem to get right, when its only ONE person collecting the dividends and residual income. ME!!!! :2thumbs: nicely put... peace, cookie Quote Link to comment Share on other sites More sharing options...
Lerkot Posted June 7, 2006 Report Share Posted June 7, 2006 In Sweden its a real problem... 5% of the population doesnt have a job and the high minimum wage is definitely making things worse. Really sucks, because young people cant get jobs. Quote Link to comment Share on other sites More sharing options...
Jazzy Julie Posted June 7, 2006 Report Share Posted June 7, 2006 i dont get all this business talk but i work for a small business and they pay me over the minimum wage, but that reason is if they dont i'll just leave and go somewhere else. Working in a small business u dont get the same holidays, bank holidays and breaks like people do in larger businesses that have more people working for them. I dont know if that has anything to do with it, but i suppose they need the workers more, bcoz i would prefer to work for a larger business if i got paid the same. Quote Link to comment Share on other sites More sharing options...
3cookies Posted June 7, 2006 Report Share Posted June 7, 2006 I'm having a difficult tyme surviving on the wages that i make, which are pretty good, so i cant see myself making minimum wages. My daughter makes minimum wages, but its 50 cents more than she made when we were on the east coast, so she's not complaining about it... The only people that i can see making minimum wages and do ok with it, is maybe high school kids to have some spending money,... when you have someone trying to make a living and pay bills, there should be some changes because its just too hard... peace, cookie Quote Link to comment Share on other sites More sharing options...
Schnazz Posted June 7, 2006 Author Report Share Posted June 7, 2006 Well, not really... in all, because of the money saved on supplies, and the boost from advertising, lets say the local Dairy Queen will end up making 400,000 dollars a year with 8 workers while your local small business will make 100,000 with 4 workers... If the minimum wage averages out to be 5,000 dollars a year per worker, the large business is paying 40,000 a year while bringing in 400,000... 10% it's annual income while the small business is paying 20,000 on 100,000... 20% it's annual income... Now lets say that minimum wage is increased by 1000 dollars a year per worker... The large business is paying 48,000 on 400,000... 12% it's annual income... The small business will end up paying 24,000 on 100,000... 24% it's annual income... Because of the increase in mimimum wage, the small business ended up paying a higher percentage increase of it's annual income in wages than the large business. But while the small business was bringing in 25% of what the large business was bringing in before the wage increase, it's now bringing in 25.4% of what the large business was bringing in, which would imply that it can now compete more effectively. Quote Link to comment Share on other sites More sharing options...
MaxFly Posted June 11, 2006 Report Share Posted June 11, 2006 Lol, I forgot we had this thread going... Man I've been MIA lately... Well, not really... in all, because of the money saved on supplies, and the boost from advertising, lets say the local Dairy Queen will end up making 400,000 dollars a year with 8 workers while your local small business will make 100,000 with 4 workers... If the minimum wage averages out to be 5,000 dollars a year per worker, the large business is paying 40,000 a year while bringing in 400,000... 10% it's annual income while the small business is paying 20,000 on 100,000... 20% it's annual income... Now lets say that minimum wage is increased by 1000 dollars a year per worker... The large business is paying 48,000 on 400,000... 12% it's annual income... The small business will end up paying 24,000 on 100,000... 24% it's annual income... Because of the increase in mimimum wage, the small business ended up paying a higher percentage increase of it's annual income in wages than the large business. But while the small business was bringing in 25% of what the large business was bringing in before the wage increase, it's now bringing in 25.4% of what the large business was bringing in, which would imply that it can now compete more effectively. Schanzz, I'm not sure I understand... I'm having a difficult tyme surviving on the wages that i make, which are pretty good, so i cant see myself making minimum wages. My daughter makes minimum wages, but its 50 cents more than she made when we were on the east coast, so she's not complaining about it... The only people that i can see making minimum wages and do ok with it, is maybe high school kids to have some spending money,... when you have someone trying to make a living and pay bills, there should be some changes because its just too hard... peace, cookie Yeah, you're right Cookies... Many of those making minimum wage are kids working part time... Minimum wage definitely isn't sufficient for the cost of living in most places though... so I think that most who are dependent on jobs that pay minimum wage have multiple jobs, work weekends, holidays... whatever to make ends meat. It's hard for the worker, but most small businesses are against raising the minimum wage because it hurts their end profit. Quote Link to comment Share on other sites More sharing options...
Mike Posted June 12, 2006 Report Share Posted June 12, 2006 (edited) hey im getting minimun wage for a small bakery until im out of my training, then once im out of training my salary goes up Edited June 12, 2006 by Concept Quote Link to comment Share on other sites More sharing options...
WesSyde Posted June 12, 2006 Report Share Posted June 12, 2006 minimum wage stinks. im trying to find a job where i can work without getting minimum wage.... haven't found it yet :rofl: Quote Link to comment Share on other sites More sharing options...
Jazzy Julie Posted June 12, 2006 Report Share Posted June 12, 2006 well when i started work i was on less than the minimum wage but they could get away with it bcoz technically i was on a trial for 3 months. if u stick with the job its bound to go up. Its worth going for a job with minimum wage then just work hard. Quote Link to comment Share on other sites More sharing options...
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