Winkler & DFL To Push $1.3 Billion Minimum Wage Tax Hike

I got a couple of comments and emails about my last post:

Winkler & DFL Massive Minimum Wage Hike And Union Kickback?

The responses were that the 282,000 people Rep. Winkler said were going to get a pay increase above and beyond the 93,000 that get the minimum wage are people currently making less than the proposed minimum wage who would see a bump.

I was told the DFL commissioned a study that these numbers were derived from.

So let’s look at the actual cost of the payroll increases the DFL is proposing in terms of employers bearing the cost. The second line of 375,000 is the number of workers Winkler claimed would see a pay raise. I approximated the $1.86 as half of the full $3.35 pay hike as an average.

# of employees Hourly Rate difference Hourly Employer Labor Cost Increase Annual Employer Labor Cost Increase
93,000 $3.35 $311,550 $648,024,000
375,000 $1.68 $628,125 $1,306,500,000

The DFL’s expectation is that employers like Walmart will just sock it to their stockholders and pay ‘the man’. They assume that businesses are all sitting on hoards of cash because evil Republican administrations and Legislatures of the past decade let them amass their fortunes.

What the DFL fails to realize is threefold. Well they don’t understand business, they think they … (can’t get into a rant here)

1) Most investment into businesses that can expand or grow comes from outside Minnesota. There really are few homegrown and locally funded success stories, so if you have higher costs of running businesses (or branches) in one state vs. another, the cheaper state to operate in is the preferred target for growth. If you don’t believe me, just ask Dayton & the DFL why the had to exempt a major business from the high taxes and mandates in Minnesota in order to get them consider relocating here? Go to border cities and look at whether the Minnesota side has more new businesses than the Minnesota side. Fargo vs. Moorhead for example.

2) The fact is that businesses don’t pay taxes, their customers do. You have to account for the materials and labor to produce a good for sale or provide a service. If they lose money on every single transaction you will not be in business long. (As long as you aren’t in say electric cars, solar panels, or making batteries subsidized by government for example….) Businesses are already feeling the pinch of Obamacare. Health Insurance rates have been skyrocketing and are going to increase even more next year.

Companies aren’t in the business of creating jobs. They are in the business of selling a good or service as efficiently as possible. You don’t need 3 people to change a light bulb for example. If it costs $7000 more next year to have that employee to change light bulbs but you can’t raise prices to pay for that mandated wage increase and remain competitive, the business will find another way. Automation, outsourcing, elimination.

3) At some point it just gets too costly to be a big business.Democrats gave us a great example of this in action already. Due to the “Large employer” thresholds in Obamacare. You’ve already had scores of businesses reducing work hours (below FT to avoid requirements) or reducing overall employment to remain in the lower brackets. The higher your employment force, the more the IRS requires you to pay or provide per employee. Businesses avoid the taxes. Its the same for wages.

In the cases where the taxes are unavoidable, the companies just raise the prices on their goods and services. So in the DFL’s utopia where whatever politicians demand, business just pay, and no one loses their jobs due to the minimum wage hike, Minnesotans will end up paying at least another $1.3 Billion to live in Minnesota each year.

The money to pay for payroll has to come from somewhere.

Now Walmart is the Big Corporate bully Winkler and DFLers aim to harm, but their broad brush isn’t going to hit Walmart. Why? Because Walmart already pays an average wage above what the DFL is even proposing.

Minnesota

Associates:
Associates in Minnesota: 20,121
Average wage: $12.34*
*For regular, full-time hourly associates in Walmart Discount Stores, Supercenters and Neighborhood Markets, as of January 31, 2013

Source: http://corporate.walmart.com/our-story/locations/united-states#/united-states/minnesota

Ah, you say that the asterisk points out that’s only for full time employees. And I respond that Walmart only employs 20,000 people in Minnesota. They are only 6th in terms of size of workforce in Minnesota. If you add up the top 50 employers (including Government, Higher Ed, & hospitals) its only 510,203 Minnesotans or about 1/3 of the workforce. But wait, that includes the non-hourly people. The top 50 employers in Minnesota actually only employ about 1/5th of the employees.

In that year [2011], an estimated 93,000 hourly workers in Minnesota were paid the minimum or less, out of the total estimated hourly workforce of 1.53 million. (Including nonhourly workers, the overall workforce totaled an estimated 2.44 million.)

Source: MN Dep. of Labor & Industry

Meaning, this Winkler & DFL push to increase the minimum wage is going to hit mom and pop shops hardest. The big companies and employers can either absorb the higher cost of labor, or adapt (Automate, outsource, or eliminate)

The smaller employers that are scraping by who don’t have shareholders to sock it to. Most don’t have trust funds over the horizon or Renoir’s hanging on the wall to sell to pay their handful of employees the $6,760 a year wage increase. Something has got to give and not to the state.

The $1.3 Billion of increased wages is going to come out of someone’s pocket, and I got news for you, it isn’t the employer’s. A lot of people will lose their jobs. McDonald’s and other service industries are reducing the need for people where there are high minimum wages. They have automated deep fryers and some restaurants are even eliminating waiters and waitresses with iPads or kiosks where people punch in the order and runners just drop it off or you go an pick it up at a window. Its a hybrid of fast food like service all to eliminate the cost of labor.

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