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All jobs (defined as someone is hiring you to perform certain tasks for a fixed or indefinite term) requires particular job skills.

This article stems off of two of my previous articles, The concept of a job and Basic Economics.

But just doing the task is more than doing the actions. Anyone with a normal intelligence can be taught brain surgery or how to fly an aircraft in 10 easy steps. But do you know what to do if something unexpected happens? Airline pilots don't get paid $100k a year to just fly aircraft. They get paid to safely land the aircraft when an engine falls off. The brain surgeon likewise earns his pay when the patient's brain is hemorrhaging or the tumor is on a major nerve and still pulls the patient through.

In both of these cases, it takes years of hard work, study and practice to acquire those skills. There are many other vocations that take months or years to acquire the skills to be competent at that particular craft.

Likewise, there are many jobs that require little or no training at all. It takes about 5 minutes or less to show you how to run a shovel to dig ditches. You can be taught to build sandwiches at a fast-food restaurant with pictographs in less than an hour.

Your knowledge, effort and time must add value to what you are creating.

Let's build something. Before we can build our product, I want to tell you about profit. Profit is good, because it is what we have left after we have used our knowledge, time and effort. In a business, there is Gross Profit and Net Profit. Gross Profit is the cost of the physical materials subtracted from the sale price. Net Profit is all expenses subtracted from the sale price of our product.

As an example, let's make a home appliance. These numbers have little basis in reality, so don't hold me to them. They are examples. The price we want to sell our appliance at is $1,000. Here's how it breaks out:

  • $400 in parts and materials
  • $325 Factory costs (maintenance and replacement of machines and tools, administrative and shipping costs and so on)
  • $125 labor costs (the people who actually assemble the finished product)
  • $150 Net profit.

It takes about 15 work-hours (one person working for 15 hours, or fifteen people who each spend one hour on it) to assemble the parts into the finished product. If your worker pay rate averages $12.50/hour, you are on budget to sell your product at $1,000.

Why would someone need $150 a unit in net profit? Because running a business is a risk. First, the owner likely fronted several million dollars to purchase the factory building and equipment. Most people in that position would like to get that money back, and earn some more in the process. The owner put that money up front, which means if the product doesn't take off, he doesn't sell enough units, or any of a hundred other reasons and the business fails, he's out of that money and likely owes that money to investors. That's why it's a risk.

To get back to the pay issue, let's say you have ten people in each line and when they work together they can crank out an appliance an hour. Let's say two of the ten are skilled workers with multiple years in the company. They manage and instruct the other workers, do the technical work, test the equipment and troubleshoot/repair if it doesn't work before it is sent on. Those two are each paid $22.50/hour. We then have five experienced line workers, who do most of the assembly work under the supervision of the skilled workers. They are paid $11.20/hour. The last three are trainees, new at the company. Their primary job is to make sure the needed parts are in per-positioned bins for the experienced and skilled workers. They are "go-fers." They only get paid $8.00/hour.

If the city/county/state where the factory is located decides to require a $15 minimum wage, then the owner has to make some hard choices. His production cost just went up. His per unit factory cost just went up to $350 per unit because there are other people who order the materials, make the parts, quality control and administrative people in that $350. His direct labor costs also jumped to $165 per unit because eight of the ten workers now make $15.00/hour instead of $11.20 or $8.00.

*POOF!* The appliance now costs $915 to get it out the door and the owner took a 44% pay cut. He now makes $85 instead of $150 a unit. Here are the owners choices:

  • Take a 40% pay cut,
  • Raise the price to $1,065 per unit, or
  • Cut staff.

Ask yourself this: If your boss came to you and said, "the company is not doing well. If you want a job at all, everyone has to take a 40% pay cut." Would you take the pay cut and work the same amount?

If the price is raised, there will be a number of people who will decide not to buy that appliance at the new price, or buy a competitors less expensive appliance. Either way, when prices go up, demand goes down.

The last option would be to lay off one of the experienced workers or trainees and lay off some of the other factory staff to bring the labor costs down.

I can hear the Liberals screaming, "THE OWNER DOESN'T DESERVE TO MAKE THAT MUCH MONEY!!!!!" Remember, we all work because it is worth our time and effort to do so. If the business owner (who invested large sums of money, usually personal finances) doesn't make a return on their time and effort, why should they even be in business? If they can't earn a return on their investment, they will close the business and put dozens, possibly hundreds of people out of work. Now how do you feel about him not making a profit? Faced with rising costs, he can lay off 10% of his workforce, or close the business and lay off 100% of his workforce.

Each worker has to provide a value to the product proportional to their level of experience and skill. When you pay a less skilled worker equal to a higher skilled worker, how do you think the higher-skilled worker will react? He will likely contribute value equal to the lower skilled worker.

Liberals are correct (thought you'd never see me write those words, amirite?) when they declare, "Minimum wage is not a living wage!" What they do not realize (or want to admit) is that it's not supposed to be a living wage. The jobs that by-and-large pay minimum wage are meant for teenagers and young adults who are still being supported by their parents. If you are over 21 and making minimum wage, you were either laid off and temporarily taking something to support yourself and family, you have suffered a physical or mental tragedy and are unable to work at what you used to do, or you are supplementing your income. If you are not one of the prior categories, over 21 and have always made minimum wage, you need to go to school to upgrade your knowledge and skills to become more valuable.

If you have a Bachelors degree in Art History (or other such "foo-foo" degree) and $40,000 in student loan debt, you made a very stupid choice. I didn't say you are stupid, I said you made a bad choice. Go back to school and learn something that pays more than minimum wage.

Another thing to consider is people move up and down the pay scale throughout their lives. I started working at 16 at minimum wage in a K-Mart and several fast food places. I joined the Navy and after that I became a computer technician, making it up to CIO before losing everything. After years on disability and part-time minimum wage jobs, I made it close to the CIO level of income before being laid off and falling back again.

The bottom line is, your knowledge, time and effort must add value to the company equal to what you are paid. If you contribute less than what you receive, don't expect to have a job. If you want to be paid more, be worth more.

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