Walmart and Amazon Have Not Killed a Single Mom and Pop Business (EP. 305)

Government is using its power to help select business winners. In this case the big guys. Is that what you want?
Government is using its power to help select business winners.

Introduction

Each of us chooses where to buy. Businesses offer value propositions, e.g., price, selection, convenience, hours, location, quality, customer service, return policies, etc. We consumers vote with our dollars; we choose which businesses thrive and which ones do not.

But Joe Biden is putting his thumb on the scale.

That is the subject of today’s 10 minute episode.

Continuing

Every business person chooses the type of offering they believe is right for them, i.e., the combination of price, selection, customer service, convenience, etc. that will work best for them and their business. Customers choose which of the offerings is best for them. In the end, it is the consumer who chooses which businesses succeed, and which do not. I will give you an easy example. Not many years ago, I would go to ACE hardware when I needed anything of the type of products they sold. I would buy everything from a $1K barbecue to a 27 cent bolt. Regardless of the size of the purchase, I knew that I could count on great customer service. In recent years, that service has been slipping badly, becoming more like self service. As Amazon started to carry more and more products, I began to go to Amazon instead of ACE. Amazon is self service, but it has reviews that are often helpful. And going to other sites, e.g., YouTube, for pre- and post-sale advice, helped me become more confident with my online purchases. The selection at Amazon is far greater, returns are easy, and everything comes to my front door. Amazon did not steal me from ACE; I made the choice.

But a $15 per hour minimum wage may very well tilt the playing field. Amazon can well afford to pay that minimum, and has done so since 2018. Mom and Pop can’t. I still shop at a lot of local businesses that will be greatly disadvantaged by a $15 minimum wage. A local franchisee owns the nearby Dunkin’ Donuts shops, and I like going there, mixing my visits to Dunkin’ in with visits to Starbucks. Dunkin’ is the poor country cousin to the upscale Starbucks. Basic operations, not much of an in-store experience, good donuts and great coffee. And a business model that cannot survive having to pay $15 per hour.

I was travelling abroad a few years ago, and like a lot of Americans, I wanted a “taste of home.” I pulled into a McDonald’s ready for a familiar experience. The menu was familiar, but there was a wall of computer screens in place near the entrance for order entry. Huh. Okay, that was easy enough to navigate. And my order was brought to me at my table. That was a change of pace experience that should be a warning to people who want to force the payment of $15 per hour to fast food order entry workers. I did not go back to a McDonald’s on that trip. I loved it that any truck stop there offered truly good coffee and a selection of delightful pastries. And all of it came with engaging personal service. At twice the price of McDonald’s. Business models like that can afford $15 per hour; fast food can’t.

There is a coffee house in my neighborhood in Colorado Springs. They are near my home, have a good coffee drink selection, and a variety of foodstuffs, including different quiches–a favorite of mine. COVID regulations hit them hard, but that is not what stopped me from continuing to enjoy going there; they wanted too much money for counter service. They have one of those tablet based check out software programs, Square, likely, that forced me to make a tip selection–with the employee in question looking right at me. The minimum suggested was 15%, with the visuals steering me toward 20%. (There were lower tip options, including zero, but they made it awkward to get there.) Twenty percent is what I tip for good full service at a restaurant, where they come to my table to take my order, bring it to me, take it all away when I am finished, and check on me for things like refills along the way. And I am allowed to make my tip selection in private. I won’t tip like that for counter service. One reason that restaurants like this choose to push higher tips is so they can pay lower wages. In most states, the tipped wage minimum is lower than the non-tipped minimum. In Colorado, those minimums are $8.98 and $12.00 respectively. 

In effect, this restaurant is forcing me to add to the tipped employees wages by pushing customers to pay full service tip percentages to counter workers. The government’s push to a $15 per hour minimum wage is asking businesses and their customers to pay a greatly increased wage for the same job and service as before the minimum was raised. Both processes add greatly to the wage cost without adding any value to the experience. And the increase in wages is even worse when driven by the raise in the minimum wage. If you raise the minimum, by definition the wage paid to employees on the bottom rung of the ladder, then each rung of the ladder above them must get a raise as well. Each promotion, each new title and set of increased responsibilities, comes with increased compensation. All the way to the top of the business. The upward ripple effect of increasing the minimum wage on the overall compensation that any business needs to pay will be far greater than simply the difference in the increased minimum. Is that being accounted for in any of the minimum wage political discussions you have heard?

The Amazons, Walmarts and Safeways will be fine; they know how to use ever more capable technology to keep costs down as wages rise. Mom and Pop don’t. 

The people and groups pushing this dramatic increase in the minimum will also be fine. Should it blow up in their faces, then will set the blame elsewhere, likely on “greedy capitalists” or even on capitalism itself. And then demand more money and more programs to help those who have been put out of work by the “bad guys.”

Today’s Key Point: Assuming a level playing field, it is we consumers who decide which businesses thrive and which do not. When government tilts the playing field by putting its thumb on the scale, e.g., pushing a huge increase in wages, government is using its power to help select the winners. In this case the big guys. Is that what you want?

Tell me what you believe. I and many others want to know. 

As always, whatever you do, do it in love. Without love, anything we do is empty. 1 Corinthians 16:14

Contact

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Will Luden, coming to you from 7,200’ in Colorado Springs.

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5 Responses

  1. Tim Larson Reply

    Amen, Will.

    An entrepreneur in COS a few months ago suggested to me that this administration will push the “little guy” out of business. The minimum wage one of the issues. A funny conundrum for the left, which doesn’t like big business. Wage policy, regulation and red tape will push everyone else out.

    As to tipping, I leave a 20% now almost all the time. I appreciate those who are getting my food, coffee, anything, just being there. Enjoyed a bkfst this a.m. at New Day Cafe, not far from you. Left 20%+ for the waitress; she was smiling, attentive and I was happy she was there!

    Stay safe and well,

  2. William Dempsey Reply

    Hi Will,

    Thanks for the read! Really interesting and insightful.

    I was wondering what your thoughts were on the perspective of the worker, rather than the consumer, or business owner.

    I find it hard to think of an argument that can justify not paying a “living wage”. And discussing tipping seems to only really apply to hospitality businesses, and table service. What about the person at the back of the restaurant washing dishes.

    If a business cannot survive paying their workers a “living wage”, then maybe that business shouldn’t survive. Previous raises in the minimum wage have never resulted in the loss of small business that was feared.

    If you look at other countries (Australia, France, Germany) with much higher minimum wages you can see the benefits in spades. Better health (physical and mental) for the lowest-paid workers. And it looks as if small businesses do survive.

    If people had more cash in their pockets, rather than never making ends meet on the current minimum wage, then maybe they would be able to afford slightly more expensive items from these businesses. It would spur economic growth.

    If workers are unable to support themselves on the minimum wage, then they turn to the government for public benefits. For example in the fast-food industry alone research by the University of Illinois and UC Berkeley documents that taxpayers pay about $243 billion each year in indirect subsidies to the fast-food industry because they pay wages so low that taxpayers must put up $243 billion to pay for public benefits for their workers.

    As President Franklin Roosevelt said in 1933: “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”

    This isn’t meant to be an attack on your post. I am genuinely curious, and I think it is only with discussions like these that we can start bridging some of the gaps in society.

    This is obviously a complex issue. It has both pros and cons. But I believe the pros outweigh the cons. Obviously, things will change, and businesses will adapt. But I do believe that the benefits outweigh the disadvantages.

    Thanks again for your post! Stay safe.

    • Will Luden Reply

      William, thank you, and some thoughts: 1. Minimum wage is designed to pay inexperienced, entry level workers compensation that matches their contribution–not compensation that matches their wishes. These workers can live with three roommates in a two-bedroom apartment and walk, bike or take public transit to work. Minimum wage is indeed a living wage for that kind of living. Life can get better fast as one works hard and gets promoted. If someone is trying to support a family on the minimum, the problem needs to be addressed differently, not through a national wage hike. 2. Your “pay $15 or die” approach to small business will drive tens of thousands of them into bankruptcy, leaving them and their employees looking for jobs in a tough economy. And will make the Amazons nd Walmarts of the world very happy. 3. The EU economy has consistently lagged that of the US. There are reasons for that. Cheers, Will

  3. William Reply

    Thanks for the reply Will.

    Good point regarding the fact that positions on minimum wage are ideally at the outset of a person’s time in the workforce. I completely agree that younger individuals fresh out of college can survive hardships, and uncomfortable living situations. With 40% of the workforce being paid below a living wage it does feel as though nearly half the population is being condemned to this. It is often not the teenager stuck on minimum. Not everyone can get promoted out of minimum wage/above a living wage. The number of jobs below that level has remained stable for years.

    And while the EU may lag economically, what about other metrics of social well being? Who is really benefitting from this impressive economy?

    As mentioned previously, the other rises in minimum wage have never resulted in the feared extinction of small business that was feared by many. They adapt.

    Thank you so much for your reply. I appreciate your time and thoughts.

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