How the minimum creates jobs — Laurens R. Hunt

How the minimum creates jobs.

A minimum is adjusted and set by the US Legislative Branch.  This means that it has to receive majorities both in the US Senate and House of Representatives.  The legislation about changing the assigned wage is known as HR for House Resolution and S for Senate Resolution.  Wages are measured by a rate per hour.   In the labor market is known as the price of labor.  This is because this is the minimum hourly compensation an individual firm or entire company can pay.  Final adoption requires the US Legislature (legislative branch), and being signed off by the sitting President (Executive Branch).  Since the assigned rate is initiated by the US Legislature and signed into federal law by the current president, it is a minimum baseline standard that all 50 of the United States must adopt.

What minimum baseline means is that all states must pay at the federally adopted wage rate and never any lower.  Conversely some states have made their minimum wages rates higher than that of federal law.  Currently it is at $7.25, but some states have agreed to bring theirs to over $9 per hour.

The following hyperlink is a state by state schematic of the United States map as follows:

There are many states with the minimum allowable rate of $7.25 per hour, and the highest current state rate is $9.19 in Washington (State).  Because wages are measured as a rate and also intervals they are considered microeconomic.  Wages and prices are measured on an individual basis.  Therefore any future increase in the minimum wage will impact each industry and each firm within that industry differently.  This is most closely reflected on a firm’s balance sheet as accounts payable, or in some cases the account ledger maybe itemized as wages payable.   I am providing below another hyperlink about sample balance sheets as follows:


The ledger known as accounts payable or wages payable is less than 10 % of the budget.  If a firm’s budget is $10,000,000 then paid wages would be $1,000,000 or even less than that.

$                         1,000,000.00


 $  0,000,000.00



Let’s use the current wage rate of $7.25, and a proposal of $9 an hour as recommended by President Barack Obama.  This translates to:






0.241379 is just below .25 hence just under 25%.


This results in an increase in paid wages of







This is less than 2 ½ % more spent in paid wages.

If the minimum wage was to fully double then $1,000,000 spent on paid wages would be raised to $2,000,000.  Still this would be only $1,000,000 out of a $10,000,000 budget and hence would be 10%.

This additional $1,000,000 spent on paid wages can more than be paid for with improved productivity (units of output), reduced absenteeism, lower turnover of the workforce, and fewer customer complaints on the part of the external clientele.

One way to know this is that more of the budget is spent on inventory purchases than paid wages.  If sales improved by a full $1,000,000 this would already cancel out any cost increased cost from the higher payroll expenditures.  This is barring better attendance, less turnover, and fewer administrative and/or transactional errors.  With even a full doubling of paid wages the company can easily add to its profits by lessening these other costs.  Less worker turnover, tardiness and missed days, and fewer employee errors can easily yield another $1,000,000 in revenue.

Another factor to consider is less time spent on these personnel matters.  Less time will be spent in the byte room about sour morale and frequent client complaints.  Time spent offline would be more allocated to job training.  Proper job training is partially about job enlargement where there is benchmarking.   Bench marking measures prior output targets and results against future goals.  Performance reviews address output levels and just how satisfactorily or unsatisfactorily the expectations had been met.

There are qualitative as well as mathematical measurements weighed about the workers performance.  Could the performance be suffering because of an unprofessional tone?  Was incorrect information provided about the product or service?  Customer loyalty cannot in of itself fully indicate why sales and / or transactional benchmarks are improving or deteriorating.   This is why job enlargement must be complimented with job enhancement and job rotation.

Job rotation simply means having exposure and involvement in other departments and work units.  Job enhancement has to do with the variety of tasks, and it is not exclusively about enlarging them.  These other job training components are necessary for a multitude of reasons.  Job enhancement allows for different ways of meeting output targets.  This can also allow for discerning what issues are problematic with respect to organization and application of the task.  This is where making the necessary corrections and changes can make meeting the agreed to output targets not only tenable but also a reality.  Still job rotation must also be part of the training equation.

Rotating from one department and work unit to another is critical for two major reasons.  One is communication as well as experience.   Are certain departments having distinguishably more difficulty with proper management than others?  Are the personnel matters of tardiness, absenteeism, lack of teamwork, and high error rates especially glaring in certain areas of the firm as compared to every other section?  Better communication also begets more transparency.  More involvement in other facets of the business allow a worker to help identify what personnel issues are potentially and even likely weighing down on the company’s output and production.  What this demonstrates is that the cost of labor only emanates from the wage in very limited measure.

Productivity and proper management don’t lessen the payroll expenditures.  They do however make a place of business profitable or unprofitable based on their practices.  Cutting costs does not in turn saved cost unless revenues are maximized.  Output often times will double with some of the training issues being more closely examined.  Lower turnover saves on costs because more sales will be completed, and there is more consumer loyalty.  There will be fewer instances of workers calling in sick.  Therefore more units can be produced with more of an established team.  The learning lesson is that higher wages and payroll expenditures don’t drive up the cost of labor.  The loss of productivity and lack of skills training are what make the wages unaffordable.

Why there must always be a federal minimum wage law and why turning it over to the states is unnecessarily costly

An argument that some opponents of a federal minimum wage will make is that it should be left up to the states.  States can better set their own wage rates.  The cost of living varies greatly from one state to the next, and states from one region have a much different cost of living than other regions do.  This argument is not that concrete.

The basis for this claim is that it arises from differences in rent and also home prices.  If it costs twice as much to rent or home values are twice the price for a home owner’s mortgage, then the cost of living is purportedly twice as much.  In fact it is not that simple at all.  Rentals and mortgages are determined based on demand; that is true.  Cheaper rates either for a home owner or renter only indicate a lower cost of living in limited measure.  Market demand maybe a lot lower in blighted neighborhoods, but there are often other reasons for this.

Rural areas cost less in terms of these monthly payments than in major cities.  Therefore it is much cheaper to live in these places.  In fact this is not necessarily the case.  The higher cost of food, utilities, and travel often cancel out these savings or at the very least will great lessen them.  For instance the average apartment rent is $1,000/ month in one state and only $500/month in an adjacent state or a different region.

This means that $500 a month only costs half as much.  This is false.  Rents can be lower in poor neighborhoods and in rural areas.

Here is why $500 a moth is not half the price as $1,000.  Longer commutes often add $100 or more to the cost of gas consumption.   Wider extremes in temperatures put upward pressure on the cost of utilities both with respect to heating and air conditioning.  Temperature extremes are categorized in 2 ways.  One is how much the rises during the day and then drops back off at night.  This is known as the diurnal range because of the contrast between day and night.

The other measurement has to do with the overall monthly mean.  For some communities well inland the monthly means changes by more than 50 degrees (sometimes 60 to 80 degrees) from the summer to winter and vice-versa.  This places extensive pressure on the use of utilities during the summer and winter alike regarding air conditioning and heating respectively.  As with gas consumption the continually elevated need for heating oil and ventilation can add easily $100 to $200 a month and in some cases more than that.  Food prices are another factor.

This can be true for fruits, vegetables, meat, poultry, dairy, cattle, livestock, and other food related produce.  Due to the extensive variability of both altitude and latitude, different sources of food require different climate conditions for proper growth.  This is also true about livestock, cattle, and farm animals.  Some function best in the hot dessert while others also thrive in the heat but also require more moisture as is the case in tropical and humid subtropical climates.   Other species need very cold weather while others still need very high terrain, sometimes an altitude of 10,000 ft. or more.

All of these topographical, meteorological, and biological factors affect transportability.  This means that certain food related products cannot be produced in that town or city.  They need to be imported or transported from elsewhere.  Changes in elevation are one consideration.  Long distances are no doubt another.  It would seem that traveling long distances on flat open road is easier than ascending or descending in a mountainous valley.  The flat open road is known for major and common weather hazards that clearly refute this notion.  Tornadoes, pummeling thunderstorms, hailstorms, and dust storms can occur on uneven terrain, but they are very much common place in flatlands.  The culminations of these factors affect one more layer, insurance rates.

The price of insurance is determined by volatility and variability.  This is true for car payments, mortgages, and rentals.  Some vehicles may cost a lot more to ensure than others not just because of size but also how prone they are to collisions and what they are used for.   Homes and dwellings frequently pounded by violent weather cost thousands a year more to insure hence costing a few hundred a month more to insure.

The price contrasts I used were between $500 and $1,000 a month.   In more expensive markets the difference maybe $1,000 versus $2,000 a month.  The wider the separation in price from one locale to another the greater are the likelihood that the lower rate will yield some savings.  The $1,000 a month location may not lead to $1,000more a month in expenditure outflows regarding these other variable expenses.  Still $1,000 per month is very unlikely to cost $1,000 less than $2,000 given the broad depth of these other budgetary outlays.  This is why the cost of living is a relative and not a nominal measure.

Monthly rents and mortgage payments are nominal figures.  They are agreed to prices by the rental office or bank as in the case of a mortgage.  These other variable expenses and cash outflows are variable and not fixed by a signed contract.  This is why it is unrealistic to conclude that much lower rents or mortgages payment translate into proportionate savings.  These monthly contracted rates are usually much lower because the living standards are also a lot less desirable.  Services are often much further from the place of residence and hence more costly to provide to the community.  Everything discussed here has to do with outflows as confronted by the renter and mortgage holder.  There are also administrative reasons why letting each state set its own minimum wage rate is problematic.

Many of the personal budget items discussed above pertain to small business and corporate offices as well.  Letting all of the 50 states set its own wage rate would lead to complete mayhem for the employer and employee alike.  This will lead to confusion about applicable labor laws and ultimately be a headache for the worker.   This is because places of businesses will not able to adjust to the lack of concrete regulations.

One state has a minimum wage that is twice that of a neighboring state, or perhaps the adjacent state has no set minimum wage whatsoever.  This is confusing for employers and employees alike.  Fliers can be posted all over the office.  Labor laws can be explained in the personnel handbook as well as the Department of Labor Manual.  With this much printed material transparency is still lacking.  It leads to repeated questions about how this is possible.  This is not just a hardship for the worker because hiring managers are also left wondering why is there so much contrast in labor laws within possibly as little as a few miles when considering interstate borders.

This level and type of confusion also emanates more litigation.  The complaints from both management and support staff become consternation as to why are some businesses lucratively rewarded for a lack of wage compensation while savagely punished over another state line.  The best public relations campaigns about these contrasts will not eliminate litigation.  All this can possibly do is lead to management/ worker strife where excessive expenditure will be lent to answering questions about these practices.  Morale will always be strained and productivity will in turn suffer.  All of this serves to show that the cost of labor is most correctly measured by productivity.  Here is one more distinction that must be made.

Productivity and output is not necessarily the same thing.  Like the hourly wage and price per unit, the rate of output and cumulative units produced are concrete and quantitative numbers.  Therefore they are not qualitative pinnacles.  The most number of units produced can also be the most profitable if they are also the most efficient.   Customer loyalty may not answer everything about the level of efficiency.  Still this dependability will do a lot to help a business discern how well are the units produced and not merely how many of them are there.  Often times the fixation on quantity leads to many items being returned.

When items are returned the cost is not just a lost sale.  This disrupts future production.  For example if the item originally cost $25 and it is returned that now becomes $50 because another sale of $25 is lost.  High rates of return will drive these loses into the hundreds and thousands of dollars very quickly.  This is why maximum productivity and quality of output will best determine the cost of labor rather than wage rate.  This issue is better simply viewed as quality control.  Quality control will be the most beneficial and meaningful through well- developed product knowledge and job training.   As discussed earlier there are several sub-parts to proper job training.

This needs to include not just enlargement of the tasks but also enhancement and rotation.  Having interdepartmental exposure facilitates transparency both with respect to troubleshooting and updates about any known changes.  Job enhancement allows for the worker to respond to sudden changes in production, irate clients, and customer complaints.  This will make it more possible for those customers who are dissatisfied to continue conducting future business because the place of business will be accepting greater responsibility for the errors committed and allay ensuing confusion.  Hence the worker will be much better equipped to communicate with the external clientele and garner future consumer trust.  Taking these steps will foment better working relationships with consumers rather than the funds being directed at resolving elongated and unresolved worker grievances.  This can best be illustrated by the topography of our landscape in 2 key ways.

It is almost immediately apparent what the bad area of city looks like, e.g. empty buildings, closed store fronts even during rush hour, rancid odors from the emissions, traffic bottlenecks, and lastly but of course not least neighborhood violence.  Then there is the rural poverty and many desolate towns that are dozens sometimes hundreds of miles from the nearest metropolis.   The state of South Carolina speaks largely to this very point.  Closer to the Atlantic Coast are cities such as Myrtle Beach, Florence, Charleston, and also Hilton Head Island.  Inland communities include the state capital Columbia, Greenville-Spartenburg, and Aiken.   This are of the state has many non-union jobs with low skilled workers.  There is little if any of a tax base to support public schools and other municipal structures including public libraries and post offices.  Here there have been many shut down factories and textile mills.  The following article outlines some of this

SC Governor Nikki Haley touts how SC is leading in private business growth in her state.  It is no wonder why she would never talk about this side of it.   While we know that the federal minimum wage is $7.25 Governor Haley does not believe in any minimum wage.  There is little or no collective bargaining, and at least many hourly workers receive no medical benefits.  This is also often no OSHA protection.  The high cost of crime and abject poverty places constant strain on municipal budgets.  This environment is no different than the poverty stricken cities often spoken about in other countries.  This is true in the Appalachian Mountains as well.

The Appalachian Mountains have been known about the severe and chronic poverty for decades.  In other mountainous area throughout the western United States the only difference is geography and altitude to some extent.  There are many shacks with no commerce for dozens of miles.  Much of the land is baron.  This is especially prevalent in the Rockies where the weather is very extreme throughout the entire year and also where transportability of resources is very limited in this region.  Government facilities including post offices, libraries, hospitals, and community centers lend some stability and reliability in employment.  Then higher terrain towns would become much more inhabitable.  During this past year’s presidential campaign former one-term governor of MA Mitt Romney was the Republican frontrunner who had the hope of defeating Barack Obama for reelection.

Mr. Romney’s private business experience in MA came from a venture capital firm known as Bain Capital.  Mr. Romney talked about how he created over 100,000 jobs, and Barack Obama knows nothing about the private sector because of being a Community Organizer.  This was virtually all we heard from Candidate Romney with nothing concrete to facilitate this argument. The farcical success story didn’t just come into question during last year’s national campaign.  When the now late Senator Ted Kennedy ran for one of his reelection cycles in 1994 Mitt Romney had his first known foray at trying to enter politics.  1994 was among one of the worst years for the Democratic Party.  Ted Kennedy had a great chance of losing his US Senate seat, and Mitt Romney would have his victory.

All of this was true until Mr. Kennedy successfully asked about Bain Capital/ Venture Capital what job creation?  It turns out there were net job losses from Bain Capital, not gains.  This was especially bared out because it was not just the Democrats who called Mitt Romney’s bluff.  Other Republican challengers have included former US House Speaker Newt Gingrich and former PA US Senator Rick Santorum.  Both of these Republicans have noted that venture capital is not about job creation.  In fact even Rush Limbaugh has made mention of this.  This refutes Mitt Romney’s premise much less any concrete numbers behind his purported job creation.  It also helps to explain another big employment miracle myth which is that of Governor Rick Perry’s TX.

Everyone wants to run to TX to work and do business there.  Business taxes are among the lowest and government is very much out of the way.  The oil and energy boom are second to none.  Really?  This is how TX actually focuses on job creation.  TX is always stealing from other states.  The link to this article below compares the state economies of TX to CA.  TX produces little for itself and borrows off other states besides CA as well.  This article reveals just why Texas is far behind in California regarding development and innovation.  It also exposes why the economy in TX is not much better than in CA.

This next link below also explains why the TX employment miracle is temporary.  The lack of investment in both infrastructure and education along with severe income disparity and lack of attention to climate change will turn this concept right on its head.

For obvious reasons our former President George W. Bush and preceding governor to Rick Perry is not mentioned.  What Rick Perry is doing is an extension and acceleration of his predecessor’s policies.  It is a matter of time before there will be even more job loses under Rick Perry than George W. Bush.  The labor market in TX is hardly ideal for many workers.  Many earn minimum wage or just barely above it with many workers having no medical benefits at all as in SC.


Comments are closed.

Email Newsletters with Constant Contact