Living wage, or MSRP? - Granite Grok

Living wage, or MSRP?

Every time I hear about a state (most recently Massachusetts) or city (most recently Seattle) raising the minimum wage to some unsustainable level, it makes me wonder what I would do if I ran a business in one of those jurisdictions.

The obvious responses would be to (1) move to a new jurisdiction, (2) hire fewer employees, (3) raise my prices, or some combination of those three.  But there’s a less obvious response that I think I would try first. 

I would start charging a training fee for my less experienced employees.

After all, they’re learning valuable job skills on my time, under my tutelage, using my equipment and other resources.  And maybe there would be an insurance premium, since they’re interacting with my customers, and therefore risking my future business if they screw up.

At $8 per hour, maybe I can afford to allow them to do all that for free.  But at $15 per hour, that might no longer be feasible.

So, say it’s $15 per hour in wages, minus a $4 per hour training fee, and a $3 per hour insurance premium  That puts us back to $8 per hour.  As an employee gains experience, and becomes more valuable to me, the fee and premium would naturally be reduced, in lieu of wage increases.

Interestingly, for employees who aren’t even worth the nominal $8 per hour, the fees and premiums could be adjusted to reflect that.

And these adjustments could be made on either side of the transaction.  That is, if someone looking for employment lacks the skills to be worth the mandated minimum, he could offer to compensate an employer for training him, to pay a premium to offset the risks of hiring him, and so on.

In any case, just because you can’t pay a wage of $5 per hour doesn’t mean you can’t hire someone at a net cost of $5 per hour.  In the end, it’s the cost, not the wage, that matters.

In consumer markets, buyers and sellers make use of all kinds of creative ways to adjust what gets paid for a product, without changing its nominal ‘price’:  discounts, rebates, trade-ins, core charges, combination deals, free shipping, affiliate plans, customer loyalty points, and so on.  Why shouldn’t the same be true when the product happens to be ‘labor’, and the nominal ‘price’ is a mandated minimum wage?

Perhaps it makes sense for employers (and employees) to start thinking about ‘minimum wage’ in much the same way that we think about MSRP — as a kind of reference price, that no one actually pays.

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