Oerdin,
The point being minimum wage increase means an overall increase of all wages. However for illustration sake, even if we were considering ONLY minimum wage positions the effect is negative towards growth.
Assume for example the business proposition of a potential new McDonalds/Walmart/XYZ company being opened.
Your total fixed expenses are: X
of which rent/licensing/utilities = $10000/mo
Your crew consists of:
20 full time entry level @ $5.15/hr = ~$18000/mo
4 assistant Managers @ $2500/mo
1 full time Manager @ 5000/mo
Benefits loading = another 33%
Therefore:
Monthly costs
= $10,000 rent/licensing/utilites
Direct Labor = $18,000
DL benefits = $ 6,000
Supervisory = $15,000
Sup Benefits = $ 5,000
Misc and other expenses = $5,000
total Fixed expenses = $59,000
Variable costs = $0.50/$1.00 (buns burgers, parts)
So in order to just break even sales needs to cover the fixed and variable costs resulting in required monthly sales of minimally $118000.
But as we know no one works to break even and investors don't invest in working capital and equipment for no return. Assuming a cost of capital for the new venture of 10% and initial outlay of $500,000 for franchise rights, equipment start up materials etc. That translates into a positive cash flow monthly of $9000. Sans tax implications that requires an additional $18000 in sales to cover the requirements of the investors. So lets for purpsoe of illustration simply say another $18000. Now monthly sales needs to be $136000.
Now inflate the 20 workers by 30% for a $7.00 wage and inflate the benny accordingly the new fixed costs number is $66200. In order to cover fixed and variable costs new sales number becomes $132400.
Wow what was a viable project before counting on sales of $136000/month all of a sudden beceomes decidedly un-investor friendly prospect.
Result no new XYZ company, no 20 employed minimum wagers, no 4 supervisors pulling in $30,000/annum and no 1 supervisor pulling in $60,000/annum.
The point being minimum wage increase means an overall increase of all wages. However for illustration sake, even if we were considering ONLY minimum wage positions the effect is negative towards growth.
Assume for example the business proposition of a potential new McDonalds/Walmart/XYZ company being opened.
Your total fixed expenses are: X
of which rent/licensing/utilities = $10000/mo
Your crew consists of:
20 full time entry level @ $5.15/hr = ~$18000/mo
4 assistant Managers @ $2500/mo
1 full time Manager @ 5000/mo
Benefits loading = another 33%
Therefore:
Monthly costs
= $10,000 rent/licensing/utilites
Direct Labor = $18,000
DL benefits = $ 6,000
Supervisory = $15,000
Sup Benefits = $ 5,000
Misc and other expenses = $5,000
total Fixed expenses = $59,000
Variable costs = $0.50/$1.00 (buns burgers, parts)
So in order to just break even sales needs to cover the fixed and variable costs resulting in required monthly sales of minimally $118000.
But as we know no one works to break even and investors don't invest in working capital and equipment for no return. Assuming a cost of capital for the new venture of 10% and initial outlay of $500,000 for franchise rights, equipment start up materials etc. That translates into a positive cash flow monthly of $9000. Sans tax implications that requires an additional $18000 in sales to cover the requirements of the investors. So lets for purpsoe of illustration simply say another $18000. Now monthly sales needs to be $136000.
Now inflate the 20 workers by 30% for a $7.00 wage and inflate the benny accordingly the new fixed costs number is $66200. In order to cover fixed and variable costs new sales number becomes $132400.
Wow what was a viable project before counting on sales of $136000/month all of a sudden beceomes decidedly un-investor friendly prospect.
Result no new XYZ company, no 20 employed minimum wagers, no 4 supervisors pulling in $30,000/annum and no 1 supervisor pulling in $60,000/annum.
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