The subhead of a Wall Street Journal column this morning by Andy Puzder, CEO of CKE Restaurants, sums up what's behind the president’s current rhetorical intensity on the necessity of hiking the minimum wage:
A mandated 40 percent increase in labor costs will put people out of work. But, hey, anything to get out the vote.
President Obama is calling to increase the federal minimum wage from $7.25 to $10.10 an hour. Like so much of President Obama’s program, this may sound great to potential beneficiaries, but it will more likely be a disaster, including for many who believe they would benefit from such a move.
Of the called for hike, Puzder writes:
That sounds nice, and the hike would give a raise to Americans who already have jobs earning the minimum wage, assuming that they’re still employed after the required raise. Unfortunately, this 40% minimum-wage hike would also reduce employment opportunities for those who need them most.
Puzder notes that more than six million people are, according to the Bureau of Labor Statistics, not in the labor force but want a job. Hiking the minimum wage would actually raise the number of people who can’t find a job by drying up the supply of jobs that exists right now.
Puzder, whose firm licenses Hardee’s and Carl’s Jr. examines what would happen to typical restaurant franchisees. A typical CKE franchisee employs about twenty-five people and earns around $100,000 in pretax profit (about eight percent of the outlet’s sales). Here is how it works:
Our general managers, often also the store owners, are responsible for the success or failure of the business. They manage the employees and are in charge of a million-dollar facility. General managers are responsible for at least 25% of store profits. The other 24 employees are responsible for the remaining 75%, which comes to about $3,125 an employee. That is a generous estimate, as entry-level employees likely contribute less than their more experienced colleagues.
If minimum-wage crew members working 25 hours a week received a 40% raise, they would earn an additional $3,705 a year. That is $580 more than what the employee contributes to the restaurant’s profits.
The point is simple: The feds can mandate a higher wage, but some jobs don’t produce enough economic value to bear the increase. If government could transform unskilled entry-level positions into middle-income jobs, the Soviet Union would be today’s dominant world economy. Spain and Greece would be thriving.
Unlike bureaucrats who believe themselves possessed of magic wands, business people live in the real world. In order to keep afloat, they will be forced to cut jobs or raise prices. After six years on the job, President Obama, who lacks private sector experience, may not know that yet.
Read the entire column.