Slave Wages

Those of you who read my articles and follow my missives on social media know that I more often write of the “soft-side” – the “human endeavor” – of Operational Excellence, rather than the forensic details of the tools (including those of Lean Six-Sigma and the like). I do this mostly because I feel that consideration for the “human endeavor” is underserved – and I also firmly believe that it’s not about the tools, but in the individual having the direction and capacity for selecting the appropriate tools for the job and increasing the level of skill in which the tools are used by the individual.

Even in this regard, I usually focus on dimensions of the “ships”; Leadership, Stewardship, Followership, Mentorship – discussing such things as motivation, communication, alignment, commitment, consistency, sustainability and the like. In essence, I usually discuss what is needed of the decision makers – from their perspective – so that the likelihood of their strategies being achieved is increased, and achieved with greater efficiency.

But over the last couple of years, and this past year especially, I have become gradually more aware of an increasing imbalance that exists in the social fabric – one which flies in the face of my working definition of “Operational Excellence”. And I believe that if the trending of this imbalance continues and is left to its own devices, it will eventually jeopardize the real and undisputable progress that globalization has made over the last few decades and even become a threat to the companies themselves.

I have a working definition for Operational Excellence which appears to be adopted much more often than it is rebuffed. In fact, I don’t know that it has ever been rebuffed; but merely has had suggested details added. So as to introduce to those who have not read before, and to refresh those who have;

“Operational Excellence is a state of readiness that is attained as the efforts throughout the organization reach a state of alignment for achieving its strategies; and where the corporate culture is committed to the continuous and deliberate improvement of company performance AND the circumstances of those who work there – to pursue ‘Operational Excellence by Design’, and not by coincidence.” – Joseph F Paris Jr

So I would like to devote the remainder of this article to the portion of the definition that I highlighted in bold, namely the improvement of; “the circumstances of those who work there”.

In my definition, I specifically use “circumstances” rather than “pay” or “compensation” and I do this for a reason; what is important to an employee is relative and must be considered in context. In some circumstances, what might be important to an employee is safety and security; for others, what might be important is a flexible work schedule or the ability to work from home; and for still others, it might be training, education, and the opportunity for advancement in the company. Indeed, what is important to an individual is very individualized.

So it is only with a considerable amount of investigation and deliberation that I have come to form a strong opinion that specifically targets the addressing of compensation – and specifically the “Minimum Wage” that is established in the United States. The analysis and ideas I will share, opinions that I will express, and the reasoning behind such are pragmatic and focus on the fiscal implications and deliberations – devoid of emotional or moral or ethical considerations.

Minimum Wage: 

For your consideration, the Federal Poverty Guidelines (2013) indicate that the poverty threshold is; $11,490 for a single person, $15,510 for a couple, and $19,530 for a family of three. All of these amounts are Gross Amounts – before Federal and State Taxes and other Payroll Deductions (insurances, dues, and the like). If there were only a very few people living at or below the poverty level in the United States, it would be awful, but not a threat. But 15% of the population, or 46 million, are living at or below the poverty level. This is a significant number of people in both percentage and in absolute terms – and is a threat.

Then we consider the Federal Minimum Wage in the United States for 2014 is $7.25/hour, which is; $290/week or $15,080/year – again, before Federal and State Taxes and other Payroll Deductions. However, there are 21 States whose Minimum Wage is higher than the Federal Minimum Wage (the highest being $9.32/hour in Washington State) – with the remaining States having a Minimum Wage that is either matches the Federal Minimum Wage or is less. In the States where the State Minimum Wage is lower than the Federal Minimum Wage, the Federal Minimum Wage prevails.   Click here for full details.

Simply put and as it stands, it is my opinion that nothing short of slavery is alive and well in the United States.  A bold statement to be sure – and one which will provoke considerable thought and dialog, I hope (as you probably know, I enjoy a good, fact-based, debate). It took me a very long time to come to this position – because it certainly runs contraire to what I believed, and what I want to believe – but I stand by it, and here is why.

The people who are working for Minimum Wage work for subsistence, for survival, alone. It is all they can do to keep a roof over their head and food on their table. They get up every morning and work those fields of the 21st Century until it is time to sleep – then they start the process all over again. Surely, the cotton fields of times past have been replaced by retail stores, restaurants, hospitality businesses, and other low-skilled jobs. Those who labor might not be chained, but with very few ways out of their circumstances, they are captive nonetheless.

Certainly, there are exceptions and we read the anecdotes of the very few people who do find a way out of their circumstances. But make no mistake, these are exceptions – and in nearly every case, it took a grand and nearly cosmic intersection of conditions for these anecdotes to materialize. They surely are not the result of some program or system for betterment.

I know a lot of people in the States, many of them young people – young couples, young families (and by young, I mean under 30 years old). All of those I know come from hard-working, middle-class families. Certainly, each of these people are individuals and, as such, are different from the other; some are brighter, some are more skilled with their hands, all have a high school education (or GED), some of them have post-secondary education (many have a degree), and some of them are not so young. Two things they all have in common is a desire to work, and a solid work-ethic. Another thing that almost all of them have in common is that they do have a job – in most cases, more than one job.

But I consider them to be slaves – they labor hard, but have no freedom and very few options or opportunities for betterment. The things they do and the things that occur to them are largely outside of their control – and still they toil.

All of the money they earn goes to maintaining a humble shelter (often, unhealthy and unsafe) with thrice-used (often donated) furniture. Their transportation is barely road-worthy, just enough to get them to and from work. The food and drink they consume is modest and largely unwholesome. Any free time they have is likely to be spent fixing something. They live to work, and work to live – there is no rest. They have little or no opportunities to break the cycle.

They are not lazy. They are honest. Most are too proud for hand-outs.

Certainly, I believe I have made the case for why it is in the best interests of the employee for change to occur – but what about the employer? Or the country?

Lest we forget, “The Business of America is Business” – Calvin Coolidge

… Moving from a Minimum Wage to a Livable Wage is good for America, it is good for Business.

As a company owner myself, I abhor distractions. I want to be focused on achieving my strategies and I want to pursue those strategies unabated. Of course, the unexpected – the “unknown, unknowns” will occur and these will create a distraction, introduce a friction, and be impediments to my pursuit. And certainly, what I don’t want to do is generate my own friction.

But this is precisely what I would be doing if those who worked for me were living hand-to-mouth because of the wages I was paying them.

“An Army Marches on its Stomach” – Napoleon Bonaparte

Everyone experiences money issues every now and then. Maybe you are thinking about buying a car, or going on a vacation, or college? And when you do think about these things, are you distracted? Do you “crunch the numbers” while at work? Maybe you take some personal time to make a few calls or go to an appointment? Is your head really 100% in the game (in your job and its responsibilities) during these periods?

What if this was a constant distraction? Only it was about keeping a roof over your head and food on the table and your transportation to and from work operating?

There have been times when I have given additional money to a valued employee to ease their way over some hurdle that was thrust upon them (not self-inflicted) and get them refocused on what I needed them to be focused on – and it almost always worked. It’s a small price to pay to keep, and maintain a “thundering herd*” (*from “Leadership Lessons of the Navy Seals” – click here for pdf of the book)

Certainly, a healthy employee (and their family) is in my best interest. There is almost nothing that causes more friction than an unplanned absence or a degradation in the level of their performance. And if someone is not making a Livable Wage, the circumstances in which they are compelled to live is inherently unhealthy. This will mean that they are more likely to suffer ill health due to the stress of their circumstances, eating the wrong foods, the unhealthy and less hygienic nature of their surroundings, and other harmful habits they might develop.

Like a boxer who goes into the ring full of fight – first the body gets pummeled and worked over, next the arms come down because of the pain and fatigue, and that leaves the head exposed to be dealt the knock-out blow. Down for the count.

And just like that boxer; first they will lose their motivation, then they will lose their willingness, then they will lose their ability – until finally, the only increase that will witnessed will be in their bitterness, cynicism, and resentment of your company and those more fortunate than themselves. This will and does happen. All you have to do (if you were able or allowed) is to look at the posts in Social Media by employees about the employers – they are not flattering.  

… And they will increasingly become a burden on society.

Ultimately, a healthy employee is a benefit to everyone; for the employee because it’s in their best interest to be healthy for the company because there will be in increase in the employee’s productivity and quality of the work, and for the country because there will be less strain (and associated costs) with respect to social programs including healthcare, disability, and welfare. Everyone wins.

What about the effect on the United States and its economy?

First and foremost, it is a myth that jobs will be lost to offshore (Asia) or nearshore (Mexico) and those business owners, economists, analysts, pundits, academics, talking-heads, and elected government representatives are just plain wrong to suggest otherwise. The most significant reason for this is that in all of my years of experience, I have never come across a manufacturer in the United States who pays minimum wage – so these jobs are not the jobs to which I am referring and will not be affected. Perhaps there might be some sweatshops that are affected, but these are in the minority and those companies will continue to behave illegally or immorally and should be dealt with by the authorities accordingly.

The jobs that will be affected by instituting a Livable Wage will be those primarily in the service sector; restaurants and the rest of the hospitality industry, retail stores, warehousing, and the like. But these jobs will not be lost to overseas. Who is going to fly to China to save a few pennies on their Big-Mac and Large Fries – or even a few dollars on a hearty steak and glass of wine? Who is going to travel to Mexico just to save $20 a night on their hotel – or as much on a flat-screen TV? And will Amazon move their warehousing to Vietnam instead of being able to get the goods to their consumers now? I mean, right now?

People will grumble, then get over it. The person who is willing to pay $25 (or even much more) for a steak dinner will pay $30 if that is what the market demands. The same goes with hotel rooms and retail. It really is that simple.

There might be a push to offshore certain “call-center” activities. But has anyone ever had a satisfactory experience speaking to a call-center person located in India? I have never heard of one from anyone and have never read a favorable report anywhere. No; consumer frustration will lead to irritation, the businesses will reconsider – and that will be the end of that.

After the yelling and screaming from the “talking-heads” on television and radio, and the rants and posturing of the media moguls, and the nonsense on Facebook and other Social Media outlets – all predicting that economic Armageddon is upon us – will people even notice if the prices go up a bit? Will they care? Will businesses figure a way to become more efficient if their numbers start becoming out of alignment with goals?

And, what if the opposite were to occur?  

… What if spending (and the resultant revenue realized) actually increased?

There is precedent for this. In 1914, Henry Ford made the audacious decision to increase the daily wage he paid his employees by more than double – from $2.38/day to $5.00/day. Many people thought he was crazy, some thought he was criminal and others (including the Wall Street Journal) thought he was a threat to Capitalism. But Henry was not being altruistic. He knew that in doing so, he would greatly expanded his customer base by enabling those who worked for him to purchase the very automobiles (the Model-T’s) his company produced. And his employees didn’t purchase just Model-T’s with their wages, they purchased a vastly expanded assortment of goods and services – helping to expand the economy on a macro-scale.

I predict the same would be true if the Minimum Wage was raised and a Livable Wage is established. People – many of them with the pent-up desires to spend – would do just that, spend. And I also predict that they would spend across the spectrum of goods and services – from household items and white goods, to a night on the town, to actual vacations.

Some people might be concerned about inflation rates, and keeping inflation in check should always be a consideration. But inflation for the last three (3) years out of four (4) has been trending significantly under 2% (the unofficial “speed limit on inflation”) and, in the very recent past, deflation was actually a greater concern to economists. The “Great Recession” almost turned into the “Great Depression Redux”, were it not for the actions of the Ben Bernanke and the Federal Reserve.

There is presently so much economic stimulus from the Federal Reserve, in the form of a near-zero percent Federal Reserve Funds Rate and Quantitative Easing (the purchasing of Bonds by the Federal Reserve – currently $75 Billion per month), that there is a lot of room for maneuver in controlling inflation should it become an actual concern.

And maybe it’s time for companies to focus less on managing costs and cost-cutting (including interest rates and the cost of borrowing) and more on raising their revenue numbers.

That might be okay for now – but what about longer-term?

Higher wages mean more taxes will be collected – this will be good for the government coffers, and deficit reduction (assuming those in Washington don’t decide to spend the windfall) and would also take some of the pressure off the “rich” to pay more.

But one of the biggest benefits will be the positive effect on Social Security – which will see a significant increase in the amount of taxes collected for this benefit, paid by those who will benefit – and generally add considerable “runway” to the program’s viability. If this program is not sufficiently funded, you can bet that the government will look to the “rich” to pay in more.

Perhaps the employees might even be able to start planning for their retirement outside of Social Security. At these levels, it might be possible (read: “The Millionaire Next Door – pdf”).

But isn’t this just another form of welfare? 

... Of income redistribution?

To both of these questions, I say absolutely not.

It’s not welfare because the money is not a government-imposed tax on the rich (or anyone else) nor administered by the government, either directly nor indirectly. The monies are earned by the employees, not granted. And the monies are paid directly to the employees who earned the wages directly from the companies who employ them.

And wouldn’t making employment considerably more attractive than being unemployed motivate people towards employment and off government assistance or illegal activity; with the result being a decrease in costs to the government (taxpayers) for welfare programs, law enforcement, and incarceration – and at the same time benefiting the employee?

A perversion does exist; a person who does not work and has no assets is given unemployment benefits, or welfare. They might qualify for food stamps and housing allowances – and even heating allowances. If you add all of these benefits together, it becomes a significant value.

… But a person who has a job at Minimum Wage loses access to most of these benefits – to the point where a person can legitimately argue that it is in their best interests to not work.

Increasing the Minimum Wage would generate a motivation to work.

As for income redistribution, I don’t believe this is the case either. First, because everyone would feel whatever price increases might be the result (likely to be modest and very close to being proportional to their income), and second, the net positive effects of an increase to the Minimum Wage for the vast majority of companies would be of benefit to those who have jobs there – and also to benefit of those better-off and their investment portfolios.

But how do we get there without causing chaos?

First, this can’t be done overnight or all at once. Although those making Minimum Wage will have a tough go of it for a period of time yet to come, a leap of this magnitude cannot be made quickly without causing chaos in the economy. In some cities where the increase has been too much and too quick, the result has been a modest downturn in employment at entry-level jobs in the service sector. And, anecdotally, there have been reports of some restaurants closing (but I wonder how close to being out-of-business these failed businesses were in the first place).

Of course, I don’t have the resources at my disposal to analyze the data to a more precise level – but a reasonable expectation would be that a Minimum Wage, which would also be a Livable Wage, will be between $11.00/hour and $12.50/hour. For the sake of argument and this article, if the Federal Minimum Wage was $12.50/hour, that would mean $500/week or $26,000 per year.

And, it is also very important that we keep in mind that what is "livable" in one geography is not in another. For instance, you might be able to live like a king on $26,000 in rural Appalachia - but you would be living like a squatter if you made $26,000 and lived in Manhattan.  

Therefore, I also believe that a Livable Wage needs to vary. This will probably be the most difficult part of the process to manage, but the data exists and statistical analysis can be performed as to how much it costs to live in one place versus the next. The challenge will be, how granular do we want to go (my gut tells me down to the county level - or maybe clusters of similar counties within the same State).

I would also propose a lesser Minimum Wage (discount of 25% from Minimum Wage) intended for students up to 18yrs-old for temporary, part-time work (max 24hr/week) so that the opportunity for the very young and in school to work is not lost, but also so that they do not compete with those who are in need of making a living.

As for an implementation horizon (and assuming that $12.50/hour is the wage amount settled upon), I would suggest that the Minimum Wage be increased by $1.00/hour each year until the target is achieved. So if the increases in Minimum Wage start in 2015, then the target of $12.50/hour will be reached in 2019.

It would be important to remove the Minimum Wage from the political process where it is repeatedly bullied about. Therefore, the indexing of the Minimum Wage should be set to inflation for 2020 and beyond. To solve this potential problem, I would simply state in the original legislation that the Minimum Wage for 2020 and beyond will be indexed to the same rate as Social Security.

What are your thoughts?

I don’t have all the answers. But I believe this is a good starting-point for meaningful dialog.

I don’t subscribe to the “soak the rich” for more taxes just because they have the money – and I also don't subscribe to “the poor are lazy and just trying to take my hard-earned money”. I do believe that the politicians in power want to keep this game going – pitting one group of people against the other – because it serves their selfish purpose to stay in power.

And most important, what I do believe in is the good ole American standard, “An honest day’s pay for an honest day’s work”. What can be wrong with that? For anyone?

These are my observations, analysis, opinions, and suggestions – and I welcome learned dialog and debate and I am prepared for same.

Find me at; Operational Excellence Society, XONITEK, or my Blog.

Originally Published 09 January 2014