Instead Minimum Wage, Concentrate on your Maximum Wage


Much to do has been made about the minimum wage,  President Obama proposed raising the minimum wage to $9 and then $11 per hour.  Not to be outdone, Elizabeth Warren recently proposed raising it to $22 per hour.  As previously discussed, the trouble with raising the minimum wage is that it prices individuals out of the marketplace and there are fewer jobs since some jobs are just not worth the money anymore when wages get too high.  Employers close down, eliminate some jobs and do with fewer workers, or replace workers with technology when wages get too high.  Raising minimum wages also raises the price of providing goods and services, which means the price of things go up, so the ability of people at the bottom end of the income scale to buy things remains about the same.

People who want to become successful shouldn’t worry about the minimum wage, however.  While your first job may start at minimum wage, individuals who are willing to work hard and provide value for customers and their employers will not be paid minimum wage for very long.  What you should really be worrying about is your maximum wage.

Your maximum wage is the amount that your employer could pay you and still make a profit.  This wage is directly related to the amount of income you make for your employer.  (If you are self-employed, your maximum wage is related to how much you give in value to your customers.)  Your actual wage is related to your maximum wage because the greater the profit your employer makes because of your work the more he or she can pay you.

For example, if you worked at the counter of a restaurant and were able to take 10 orders per hour, with you employer making a profit of roughly $3 per order before labor, your maximum wage would be about half of that profit, or about $15 per hour.  If you became more efficient and were able to take 20 orders per hour, assuming that the kitchen could also handle the additional order volume, your maximum wage would be about $30 per hour.  Furthermore, if because you were able to handle orders fast and more customers came because they knew they could get in and out in a hurry, your maximum wage might be even higher.

Perhaps the ultimate maximum wage is that of a CEO.  Often part of their wages are based on how much money they make for the shareholders.  When they generate $10 Million in extra income, suddenly a $1 million paycheck doesn’t seem that high.

Of course, an employer will not necessarily pay you more just because you make more money for them, but if your maximum wage is higher than that of your coworkers, you are likely to make more than them over time since you will be more valuable to the employer.  You are also likely to be the last one who would be laid off during a slowdown.  If you do bring in more money than others in your field and your employer doesn’t compensate you accordingly, you can also typically find someone who will.

There are many ways to raise your maximum wage.

1.  Be reliable.  The first thing is to simply be punctual and reliable.  Believe it or not, at the lower end of the spectrum just finding someone who will show up on time is difficult.

2.  Get training.  Getting degrees or training can also raise your maximum wage, but only if the degree or training is actually useful.  You may be interested in ancient French literature, but it is unlikely that this will be useful to many other people.

3.  Strive to meet the needs of your customers.  People who meet the needs of customers build loyalty and create more business.  The more business you generate, the higher your maximum wage.

4.  Learn to manage people.  Being able to manage others is generally more valuable than doing work yourself.  You may be able to make 10 widgets a day by yourself, but managing a group of ten people, you might be able to produce 100.  Few people are able to manage others, so being an effective manager is a sought-after skill.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

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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.

2 thoughts on “Instead Minimum Wage, Concentrate on your Maximum Wage

Add yours

  1. I like this. It seems like common sense, but, as we can see in the world, it is not. For example, when people complain about how much money a professional athlete makes, I always take the time to explain how their salaries are “within” and “proportional” to the amount of money they generate for the owners.

    On the other hand, what young people need to learn is that just because you are making the company more money, you will not automatically get more money. You have to a) ask for it and b) have the leverage to get it. If you are working for Manpower, and you see they are making $5/hr off of your labor, you won’t get more by saying, “I am generating money for you, you need to give me more.” They will simply replace you. But if you are doing the same as a salesperson, you have more leverage.

    Just as in most things, you have to have the proper balance between self esteem and modesty. And most of all, you have to have skills.

    1. I think it is a little of both. You certainly need to ask once in a while, or perhaps look around to see how you are doing in your current job compared to others. Unfortunately, few people get real salary increases (afetr inflation) without getting promoted or changing jobs. I think good employers, however, will promote their best employees and raise their pay to keep them around. Not because they want to reward the employee (although this is part of it), but because it makes sense to keep your good employees.

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