While in Berkeley I often heard the concept of a “living wage.” The idea was that the city could force businesses to pay their employees a certain amount an hour, say $15 per hour, deemed needed to live in the city. They would then have all the money they needed to buy necessities and have a little extra spending cash.
The part of the concept I didn’t understand is where the money was supposed to come from to pay this living wage. I mean, let’s say that you are running a lemonade stand on a corner. This is not a really busy corner so you only make $15 per hour in sales. The lemonade you sell costs you $2, so you make $13 per hour after paying for the lemonade ingredients. Of course you also have business taxes, insurance, and other expenses. Let’s say these come to $6 per hour, meaning you now net $7 per hour from sales.
If you hire an employee, it might be worth it for you to pay him $5 per hour. You would then be making $2 per hour, which you may decide is worth the hassle of having an employee.
Let’s say now that the city requires you pay your employee $15 per hour. This means that you will lose $8 for each hour the employee works.
So what are your choices? You could try to charge more for the lemonade. This might work, but the laws of supply and demand say that you will sell less at a higher price, and that at some point you will be making less each time you raise the price because you’ll get more per cup but sell far fewer cups $15 per cup lemonade anyone? No? Also realize that your employees also need to buy things, so even though their wages go up, the amount of stuff they get for their money goes down. The city could then move the “living wage” up to $20 per hour, but this just means prices would go up further.
You could close up shop and move to a different spot where you could sell more lemonade. There are a lot of other people on those same corners, however, and only so much lemonade that can be sold, even on a busy corner. This also means that the people who live near the first corner where you were at can no longer conveniently buy lemonade, so their quality of life degrades.
You could also just fire all of your employees and just sell the lemonade yourself. This means there would be fewer hours in which people could buy lemonade, and that there would be fewer jobs available. If you didn’t have the skills and drive needed to start your own business, you would be out of luck. You could get a living wage if you could get a job, but it would be difficult to find a job. Even if you did find one, you would be paying a lot more in taxes because you would need to support all of the people who couldn’t find one.
So, the result of a living wage is:
1. Fewer services since businesses would be set up only in the most profitable locations,
2. About the same net amount of pay since people would be paid more but receive less for their money, and
3. Fewer jobs, and higher taxes on those jobs.
So, if forcing businesses to pay higher wages isn’t the answer, what is? How can you move up from making $5 an hour to making $20 per hour? The secret, as I discussed in my previous post, comes from the book The Go-Giver. You need to give more in value than you get in payment.
If you want to make $20 per hour, you need to give your boss (or your customers) a level of goods and services worth $40 per hour. You need to make more for your employer so that she’ll be able to pay you more. This is what highly paid people do (outside of the Government, perhaps). They make so much money for their employers that they are valuable and therefore can command a higher salary.
So what if you think you are providing a lot of value for your employer, but you still aren’t getting paid more? The first thing to do is to really look at the value you’re providing. If you do and still believe you should be paid more, perhaps talk to your employer, explain the value you bring and why you think you should be rewarded more. You might also discuss the additional value you could bring for additional salary.
If you still make no progress, perhaps you should look for another place to work where they will pay you what you are worth. If there is no place, maybe it’s time to strike out on your own. Be careful here though, because if you can’t find anyone to pay you more for what you do, maybe you aren’t bringing as much value as you think.
So, if you want to make more, make more for your employer. More importantly, give her customers more so that her business will increase. Give a smile. Give great service and try to satisfy their needs. Give them more than they are paying you for. Differentiate yourself from everyone else who could do your job. Bring value.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.