Guest post by Kevin Harmon.
HI gang,
Weird title for an ecommerce blog, isn’t it? Don’t worry, I’ll get a relevant point pretty quickly.
So in case you don’t know, the state of California activated a new law on April 1 (and no it’s not an April Fools joke) that fast food restaurants in California MUST pay their hourly employees at least $20.00 an hour. The Federally mandated minimum wage remains at $7.25 an hour and has not changed since 2009. Meanwhile, in the last 4 years alone the cost of living has risen something like 27% and aspects of living like rents and food have gone up even more than that. Of course, I don’t need to tell any of you that lol I’m pretty sure you’re aware already.
Before I continue, I’d like to state that I am not a monster. I feel that people should be paid both what they’re worth and what supply and demand decide they should be paid. I have arrived at 2 simultaneous conclusions: 1) $7.25 an hour is just stupid. Idiotic. For most jobs, though, the supply/demand market has taken care of that, and most employers pay much higher, which is great. 2) $20.00 an hour to work at a fast-food restaurant is also stupid. Idiotic. In this case, the supply/demand market would land much LOWER than that and so a state mandate to pay them higher absolutely interferes with their business – and that’s what scares me for ALL of us business owners.
Let’s think this through, ok? Large corporations like McDonalds have a fiduciary duty to their shareholders to always make as much money as possible. COULD they simply absorb the giant increase in labor costs in California and just continue the status quo and make less money? Sure. WILL they? Absolutely not.
$20.00 hourly wages will make 2 things happen for certain:
- The corporation will innovate, automate, consolidate labor tasks so that less people are needed to produce the same results. This is already happening with McDonalds – recently we have seen order kiosks replacing workers just about everywhere, and they have even rolled out a FULLY automated store – NO employees at all.
- They will raise the price of their food. Simple as that. Again, this is already happening.
So, I think that California has accelerated a tidal wave of automation for corporations like McDonalds, and what people may not understand is that when they nail down the processes, they will roll this out EVERYWHERE, not just California. One estimate I read shows that they may be able to replace 2/3 of their hourly workers within 5 years. When this is all over, hundreds of thousands of jobs will be lost AND McDonalds will be more profitable than ever. I’m singling out McDonalds but of course I’m talking about any large corporation with the resources to automate.
Large businesses can and will innovate away from state and federal wage mandates – but what about us small guys? How will small businesses be able to cope with mandated higher wages? Houston, we have a problem.
I am a tiny business. I buy and resell goods on Amazon and eBay and Walmart. Many of you also do this and so you feel the pain of the last 10 years or so with me – costs of everything just keep going up. Shipping costs have almost tripled in the last 15 years. Cost of product keeps rising. Sales venue prices are on a non-stop climb to the sky, especially Amazon. Amazon is hell-bent on taking not some or most, but ALL our profit margins. Believe it or not, there was a time when I could sell a book on Amazon for $.01 with their mandated $3.99 shipping and MAKE $.25. Brother, those were the good old days. Now, if you ship the item yourself and sell for .01 + 3.99, you’re paying Amazon a minimum of $1.81 and then the USPS $4.00 or more plus labor costs plus packing costs plus warehouse costs. By the way, that is NOT using FBA. Those costs are even higher and for reasons I simply don’t understand they’ve now added a processing fee that is STUPENDOUSLY expensive and is probably the end of Books FBA and many other categories. It’s an excellent model if you are trying to lose a million dollars a year lol.
Imagine if, after all of this, the state or federal government swooped in and mandated $20.00 an hour for employees. Many of us are still living in areas where everyone can happily agree to $12.00 – $15.00 an hour for office/warehouse staff. What happens to our profits when labor costs spike up like that? Bye bye. Yes, we still can and should innovate our way to more efficient costs for sure. How about just raising prices of our items 25 % – 50 % on Amazon? How well do you think that would go over with buyers?
Something like that would just be a disaster for small businesses, plain and simple. We should ALL be wary and nervous about something like this happening because it IS happening. California is not the only culprit of course – around half of the states have adopted higher minimum wages than $7.25.
What I’m trying to say here is that I feel people should earn as much as they can and that market supply and demand almost always comes up with the right number. In fact, I’m sure most of us have goals to pay our people more than average, especially if our businesses are successful. I absolutely want to reward my employees for being great workers when I can.
When you have these wages mandated to us, however, you’re throwing a hand grenade right into the middle of the working supply/demand system and it’s usually NOT a good thing for the business owner.
So, I’m looking forward to buying 2 Happy Meals and a Number 4 from the RoboRonald at McDonalds for $54.00, aren’t you?
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