There are times when I think Atlas Shrugged should be mandatory reading in secondary schools.
It doesn’t last, because Atlas Shrugged is one hell of a doorstopper. I first read it when I was 19, I think; I had problems sticking with it until the denouncement, even though I have read it again and again several times since then. I don’t think that most teenagers between 14 and 18 would welcome the chance to read Atlas Shrugged, even though they could learn some valuable life lessons from it. Indeed, I have actually considered trying to write a shorter version of the story, perhaps centred on two brothers. One who tries to keep the family business going, despite setbacks, while the other becomes a politician and idealist, proposing laws that undermine local businesses and eventually cause a collapse. It might actually be workable; instead of Galt’s Gulch, have the working brother emigrate to a US state that is actually friendly to small businessmen. Meanwhile, the other brother eventually gets lynched when the money runs out.
I mention this because of some of the comments made about the recent guest post; Why a Blue Collar American Doesn’t Want A Living Wage.
Like so much else, it all boils down to economics.
Every business, including mine, has operating costs. In my case, I have to buy computers, innumerable keyboards, pieces of software, artwork, internet access … as well as keeping a roof over my head, food in the kitchen and everything else I might need to stay alive and productive. If I can’t meet my operating costs, I go out of business.
A small business, like a bookshop, has far more operating costs. It must:
-Rent the building
-Provide power/water for the building
-Purchase new stock
-Pay the staff
-Pay insurance premiums
-Whatever I forgot.
Let us assume, for the sake of argument, that the monthly operating costs for the bookshop are £10000. In order to remain open, the bookshop MUST make at least £10000 per month or the business will collapse. Furthermore, if the business makes just £10000, there will be no actual profit for the owners. At this point, the owner might just start wondering why he even bothers when he isn’t getting anything out of it. (And he won’t have a safety cushion in the event of a sudden drop in profits).
However, bookshops have problems competing with Amazon and other online sellers (EBay, for example.) Amazon can afford to discount books, while bookshops cannot without cutting sharply into their profit margins. What that tends to mean, for booksellers, that customers may find books they want on the shelves, then go back home and order them from Amazon, where they can be purchased cheaper. This means, in real terms, that a bookseller may purchase 1000 books each month, but be unable to sell more than 500 – and if it doesn’t bring in enough money to meet the operating costs, the business is doomed.
So yes, a mandatory increase in the minimum wage is a serious problem.
Most businesses pass the burdens of such laws on to their customers (or start looking for ways to replace cheap labour with machines). A bookshop cannot lower prices too far without encouraging more and more people to depend on Amazon instead. Therefore, the profit margin grows thinner … and may vanish completely. And, as I said above, if the bookshop doesn’t bring in enough money to meet the operating costs, the business is doomed.
Assume, for the sake of argument, that there are 10 workers, who work from 9-5 Monday-Friday. If they’re each paid $7 per hour, the total cost is $11200 per month. However, if they’re each paid $14 per hour, the total cost goes up to $22400 per month. Given how close most bookshops run to the margins, it isn’t too hard to see how a minimum wage increase, enacted with the very best of intentions, can prove disastrous to small businesses.
This isn’t the only problem, of course. If the price of hiring a new employee goes up, fewer new employees will be hired. Therefore, the number of entry-level jobs will fall … and do so at the same time as the costs of everything start to rise.
In short, the unintended consequences of something intended to benefit the poor will ensure that it actually harms them instead.