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Monday, November 23, 2015

Why $15 An Hour Minimum Wage Will Destroy Black Entrepreneurship

By Professor Devin Robinson

Devin Robinson

Nationwide — Black people have a bad habit of trying to find the most comfortable way to stay at the bottom. We got angry over President Clinton’s reform on TANF. We fight for the expansive rights of conjugal visits. Now, we are in a battle over the minimum wage law. What kills the black community most is that we live in a democracy. What does that mean? It means that, in most cases, majority rules. The unfortunate thing is the majority of blacks are not widely exposed to the art of economics, wealth-building and leveraging. This simply means that oftentimes our concerns will be economically self-centered and short-sighted. It’s not because we are stupid. In fact, that’s far from the truth. But often what we are is underinformed.

Let me explain. Employees are part of the machine that brings goods and services to the market. For every good or service that’s produced there is a cost per unit. This cost includes employees. In fact, one of the vulnerabilities that humans have is that we have this thing called “capacity”. We can only do so much in a specified time. Add the emotional aspect of having to inspire or consider the emotions of a worker, and you sometimes have a frustrated employer.

The common myth is that every worker does a good job, just like the myth that every homeless person is a victim. There are cases where workers don’t deliver on the performance they promised in interviews, yet the government holds companies feet to the fire to pay a worker once they are on the clock, no matter their performance. This alone has been one of the top reasons a company elects to pursue replacing workers with technology. The bad workers are putting good workers’ jobs at risk every day. Let me break down everything in segments:

Small Business Disparity – Let’s talk about the segment of business that many unions, workers and government tend to overlook: the small business. I’ve been championing for legislation that allows small (and new) businesses the option to pay lower wages or have corporations’ minimum wage be higher than the minimum wage that small businesses are forced to pay. Why? It’s simple.

New and small businesses have at least 24 months before they are stable, have the sales volume and are competitive. Inside those 2 years is crucially vulnerable for a small business. Put a hefty price tag like a $15 per hour minimum wage and less people will get hired, small business owners may find themselves in much greater debt to satisfy payroll and float expenses, and fewer entrepreneurs will be willing to take the risk at business ownership. Put these obstacles up against a black entrepreneur and we will soon see black entrepreneurship becoming extinct. The real problem is as we go along our daily lives we tend to view businesses as these wealth machines and the truth is only 3% of all businesses in America generate over $100,000 per year. There are way more businesses struggling and trying to make ends meet that those sitting like fat rats.

Black Businesses – When you think about it, most businesses that we are able to start don’t require high skilled labor. We start mom and pop type businesses with small locations, out of our garages or from the trunks of our cars. We are the segment of businesses that are more likely to hire a high school drop-out, convicted felon or recovering drug addict. We are the segment that have less customer traffic and sell less complex items. If we lose that ability to attract workers for less, we lose the chance to build our businesses.

Consider this – Salary and hourly employees are guaranteed to go work and go home every day with more money in their pockets than what they left home with. Businesses, on the other hand don’t have that guarantee.

Government winning – It’s been our culture to turn to government for rescue, rather than turning to ourselves. The fact is, this rhetoric of higher minimum wage only gets the masses going and causes us to endear the politicians. What we are missing is that the real beneficiary of higher wages is the government. Remember, the government’s tax cut is based on percentage. Government’s design is commission-based. It doesn’t have to do more to earn more. We are the ones doing more so it can earn more. Basically, the more you make, the more it takes; even if the service it provides remains unchangeable.

High prices – In economics, it is understood that the higher your costs, the higher your prices will need to be. A massive increase in minimum wage can create slow job growth, hyperinflation and higher unemployment, more so in black communities

Effects – Because we don’t have a strong lending network, diverse customer base and wide diverse industry types of black owned businesses, other ethnic groups may be able to survive such cost increases. We won’t. It may begin with some initial pay increases but in the long run there will be shrinkage in payrolls.

Our Grandparents – Here’s my last point. Remember how entrepreneurial our grandparents were, and somehow that lifestyle didn’t get to our parents? It’s because our grandparents were locked out of the mainstream system that would’ve taught them how to create generational enterprises. So they remained stuck at the “hustler” stage of entrepreneurship, instead of evolving into enterprisers. This made our grandparents look like strugglers and it made true entrepreneurship look unattractive to them and to our parents. So our parents became discouraged, and when America integrated, it became the opportune time for our parents to pursue college, government or corporate jobs. We lost it along the way and now entrepreneurship has become a “back-up” plan. It has become the “Plan B Morning After pill”. When all else fails. When we get felony convictions. When we retire. It’s only then is entrepreneurship an option. But that’s because of the lack of explanation and our ability to breakdown the complexity of entrepreneurship to our children. We have stuck our heads in the sand.

The high school drop outs, convicted felons and low performing people in our communities will go unhired. The current $12 and $13 earners will get hired first, not those currently earning minimum wage. Minimum wage workers’ income is at risk of stopping immediately over the long term until those people retool their skills. What they will be forced to do is return to government for further assistance as a result of their minimum wage protest.

(see my full interview on black entrepreneurship here: www.youtube.com/watch?v=NnWaG9Wj7Pc)

Yeah, I get it. There will be people who will say it’s easy for me to say all of this meanwhile what about the people struggling every day to make ends meet. What I explain to those people is, the workforce is an economic cesspool full of decisions and circumstances. It’s full of investments and returns. Employees are investments. Employers want a return. If a company loses, workers are protected from feeling those losses. Can you truly provide a micro return on a $15 per hour investment? Don’t look at the overall earnings of the company. Look at what you bring to the table. We have to focus on enhancing our collective skills at all costs, rather than forcing benefits to arbitrarily drop down to us.

When you are starting a business, it is an uphill battle. Your fixed costs are often higher than that of a corporation or a company with years in business. Add higher employment costs and we’re done.

What black people are doing is fighting for personal economics that will destroy our collective economics. The fight has to be to get into the best business schools, start businesses, get equal opportunities for government contracts, and yes, we must hold black business owners’ feet to the fire to hire black workers, treat them well and give them growth opportunities. That’s where our energies are best spent. Everything else looks good on paper but will hurt us in reality.

Professor Devin Robinson is an adjunct economics professor, author of “Power M.O.V.E.: How to Transition from Employee to Employer” and founder of Urban Business Institute, www.UrbanBusinessInstitute.com, a business training agency. You can learn more about him at www.DevinRobinson.com.