(L120 & 125) The Broken Window Fallacy: Minimum Wage Requirements

Why wouldn’t someone voluntarily offer you a job at twice today’s minimum wage?

Story time! Let’s say that a small business opens up selling handmade jewelry and other goods in the middle of a New Hampshire town. Let’s also say that the current minimum wage in New Hampshire is $10.00 an hour. At this rate, the business owner can really only afford to hire 5 employees (in total). So the owner hires his employees, and business is alright; they are new in town, so large profit margins and excessive foot traffic are not to be expected.

After about 6 months of being open, business is rapidly growing. The owner is finally getting out of the red, and into the black! There is so much business in fact, that the owner needs to hire more workers just to keep up. He decides to add 2 more people to the team; it won’t quite cover all of his needs, but because of the high minimum wage, it is all that he can afford right now.

The night that he interviews for his two new employees, a woman comes in asking for nearly $20.00 an hour. Her skills are extensive, and she would be able to bring brand new products into the shop without any training whatsoever. Not only would she save him time, but she would make him money! He thinks back on his other employees; no prior knowledge or skills, no new ideas, nothing even nearly as valuable as this employee would be worth to him. If it were up to him, he would be paying his employees exactly what he deemed their skills to be worth; maybe that would mean $8.00 an hour for a cashier, $8.75 an hour for an opener and a closer, etc. However, since he was forced to overpay for their basic services due to government intervention, he cannot afford to hire this valuable and worthwhile prospective employee.

In short, he is in need of two more workers. He would be able to afford both the above average woman and another cashier/clerk if it was not for minimum wage requirements. With these requirements however, he must choose between superior product and a shortage of man power, or basic work and enough workers to scrape by. In the end, a shortage of workers is just not something that a business (owner) can afford, and so he must kiss this great opportunity goodbye. This issue could have been completely avoided had he and the employees been able to come to an agreement on a fair hourly wage without government intervention or mandate.

When an owner is forced to pay someone more than they’re worth, they lose out on opportunities to hire higher quality employees for a greater cost. This is the broken window fallacy; the seen and the unseen. While we do see that an average worker is being paid very well, we do not see that a better worker is being paid less than they deserve or not being hired at all (because of the average worker’s forced wage).

Advertisements

Turning a Smartphone Into a Financial Management / Business Management Tool (L40)

Last year for Christmas I got the first cell phone I had had in years; a brand new iPhone 5s. It was beautiful; and having my new toy-camera-textmachine turned out to be much more beneficial than I had previously anticipated. The more comfortable I got with my thumbs on that slick glass screen, the more I found myself exploring the depths of the Apple world. Before I knew it, I was writing essays on my phone waiting for the train, and creating Powerpoint presentations at lunchtime – amazingly, all without a computer. To passer-bys I was another teenager glued to my phone; little did they know that I was teaching myself the value of my time, simply by eliminating wasted minutes. Setting alarms to be awake at certain times, or to keep you on task are extremely helpful as well. There are hundreds, probably thousands of apps available for smartphone users that will allow them to increase their productivity during what would normally be “dead time”. From document applications, to spreadsheets, to calendars/planners and, even “brain training games”.  Waiting for appointments, standing in line, commuting, even short treks to the bank – these are all instances displaying the value of our time, or rather the value of the time we’ve wasted already. Beyond using a smartphone to make calls, send and receive texts and emails, and plan meetings, they can be used to organize, and remind you of these events as well. Downloadable credit trackers, budget planners, and even stocks are now at our fingertips – and so many of us aren’t taking advantage of all the free help being offered.
Jumping back on the Apple bandwagon – there is a product that was released some years ago; it is simple. Just a little tiny white cube that plugs into the headphone jack – however this little block offers a whole new world of convenience to small business owners and self managing people. Being able to swipe and charge credit cards with a touch of your phone screen is a huge step in both time management and organization. This will also build better relationships between buyer and seller due to the interaction, which the bank lacks. This is the time and age of taking charge of our lives; taking control of what we really want. Don’t be afraid to let technology help you achieve this, but don’t let it push you back either.