I was a small business owner, the very sort of person that both the Right and the Left claim is the driver of job growth, and claim to support and believe in. I ran a successful restaurant for two decades, a New York City-style 24 hour diner that my father and his partners built back in the early 1970s. A simple business model: comfort food, good quality ingredients, large portions, good prices, decent decor, decent service. High fixed costs, fairly high marginal rate of return. Profits were driven by sales volume – a great year meant good profit, a terrible year required putting money into the business, and a so-so year meant we’d earn enough to make it worth our time, effort and risk.
It was successful because its cost structure/business model worked in the marketplace for a period of time. A number of years ago I saw the writing on the wall. Food costs were climbing. Labor costs were being forced up, up, up by minimum wage laws. Energy costs were climbing. “Overhead” costs based on labor costs, including various insurances, were climbing as well. Regulatory compliance became ever more expensive. I knew the business model was becoming obsolete, because there’s only so much I could raise my prices, only so much I could cut my portions, and only so much I could cut my staff, and still maintain the identity of the business.
It became obvious that labor costs were going to continue in only one direction: up. What was $4.25 in 2000 became 5:15, then $6.00, then $6.75, then $7.15, then $7.25, then $8.00, and now $8.75. That $4.25, adjusted for inflation, would be $5.87. The politicians are talking about $10, $11 and $15 minimum wages, and have enacted a law that will raise the minimum wage to $15 for fast food workers on December 2018. While that rate hasn’t (yet) been imposed on other restaurants, it will force other restaurants to raise wages to compete for employees. This reality, more than any of the other cost increases and operational difficulties, was what made the business model obsolete. We closed up shop and sold the underlying real estate to a residential developer. In this we are not alone. This particular style of restaurant, the big, serve everything, always open New York City diner, is slowly disappearing into history. Many still remain, but more than half the estimated 1000 diners that have fed the residents of the NY metro area have closed up. Those that remain open will have to dramatically alter the business model. The price/portion/quality balance will change for the worse.
Over the four decades our restaurant operated, it provided jobs to thousands of people, a few dozen at a time. Those who came in at the bottom of the ladder who had ambition could, in a relatively short time, learn some skills and make more money. Dishwashers could learn to cook or bus tables. Bus boys could learn to be waiters. Waiters could learn to be managers. Managers could learn operations and eventually buy into another restaurant as junior or working partners. I saw this happen hundreds of times.
Of course, some had no ambition, and ended up staying at the bottom of the pay scale. People with no skin in the game, i.e. many politicians and the busybodies that support them, decided that those people at the bottom should be paid more than the free market determined their labor was worth. That money had to and has to come from somewhere. That “somewhere” includes some or all of: smaller portions, lower quality food, cutting corners on other consumables, fewer total labor hours (meaning more productivity would be demanded from workers who might not be capable of or inclined to provide it) and higher prices. There are limits to all of these, of course, which means that the balance comes out of profit (if there is any).
As these trends continue, the business model stops working – the profit generated for the owners becomes insufficient. Insufficient to compensate for the risk associated with running a business, insufficient to offset uncertainty, insufficient to maintain the business as the owner’s best use of his time, talent, skills and resources, and insufficient in comparison to alternatives.
Now, those few dozen jobs are no more. As or more importantly, the ladder that so many climbed is no more. There will be other jobs born out of our shutting down the restaurant – construction jobs for the condos that are being built – but those are skilled jobs, not entry-level or quickly learned, and they will only exist for a year or two. One pathway to skills and good earnings has been eliminated.
I recently saw an Internet graphic wherein a woman was protesting in favor of a $15 minimum wage for fast food workers (something that NY’s Governor Cuomo has enacted through administrative means) put forth a complaint that she had worked at a McDonalds for 8 years and never got a raise. We are expected, I suppose, to consider this situation inherently unfair and thus to support her call for government forcing employers to give her and everyone like her raises.
Much ink has been spilled over the minimum wage. People have correctly pointed out its racist origins, its enabling of racist behavior, its destruction of entry-level jobs, its spurring of greater automation to replace entry-level jobs, its inflationary effect on the full spectrum of wages, its impact on prices and disparate impact on poorer consumers, and the like. I won’t go into all that here, I will only ask questions in one vein:
Why should we believe that the protester deserves a higher wage? What should we make of the self-stated fact that she never advanced beyond a minimum wage job?
Liberals/statists routinely subordinate the individual to groups and to the collective. In doing so, they debase individual success and the rewards that can be achieved through individual effort. Concurrently, they absolve responsibility for individual apathy and indolence. They break down the effort/reward system that is wired into our brains, and in doing so do real harm to society as a whole. They exaggerate and prioritize our superficial differences (race, ethnicity, gender, etc.) and subordinate or dismiss our real differences (goals, desires, motivations, ability, talent). In doing so, they create false entitlements and counterproductive incentives. They absolve people of the consequences of poor choices, laziness, excess and bad behavior, and diminish the achievements of those who work hard and live prudent and thoughtful lives. They deny achievement by assigning its origin to others rather than to the self.
Economic mobility has been a hallmark of America ever since her founding. The American Dream has always been to move up the ladder through one’s own efforts. The moniker “land of opportunity” didn’t arise in a vacuum. Over the decades of the 20th and the 21st centuries, however, obstacles have appeared on the ladder, placed there by governments that sought to put people on higher rungs of that ladder. Indeed, many find themselves on higher rungs than those from earlier generations, but when they look up, they don’t see any more rungs. They see obstacles and ceilings. They find themselves stuck on their rung, face big challenges and hindrances should they try to climb, and those who say they wish to help them give them countless reasons not even to try.
A job paying a particular wage is not a right. Nothing that involves forcibly taking from others can be considered a right, because it involves infringing the rights of those others. A job is an opportunity – to see to one’s basic needs, to learn skills, to establish a record of reliability, usefulness and worth, and to create wealth. Some recognize that opportunity and use it to improve their lives. With skills learned, experience gained, and work history expanded, they can get better jobs, jobs that create more wealth and that pay more. Jobs become careers, and further opportunities arise. The ladder gets ascended.
But, when people are inculcated to believe that a job is a right, that the government can tell someone else that they must be paid X, that if they want more than X they should look to the government to force an employer to do so rather than pursuing “more than X” by climbing the ladder, no one should be surprised that they stay on the same rung forever.
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