# 023 April 13, 2009
Why Have We Lost the Value of Real Education?
By: Allen Wells
What is the major reason the concept and practice of internships and apprenticeships virtually disappeared in the 20th century? The answer, simply put is minimum wage laws and government controls on pay and hiring. The cost has become too great for employer’s to bear.
Minimum wage laws are one of the most onerous regulations placed upon business owners in the history of our country. By legislating minimum wage laws, the government has stated there is a minimum price that someone must be paid (under the law). Correctly understood, wages are prices. The wages paid to you is the price your employer pays for you – by the hour, day or week. Our government, in its infinite wisdom has decided that every single person working in this country is worth at least the amount at which they have set the minimum wage. It does not matter if you are young or old, single or married, skilled or unskilled. If the minimum wage is $6.50 per hour – the government has dictated that is what you are worth – maybe more, but certainly no less.
To set a person’s minimum wage level (regardless of ability or experience)is to say that the government has the right to control private business and dictate that the very least a person can make is a certain amount of money per hour… period. If an employee is willing to work for less money, or if you agree to pay someone less money than this – it does not matter. It is not your choice. If you do pay someone less than minimum wage, you are a criminal, in violation of the law and subject to penalties (possibly jail and forfeiture of your assets) under the law.
Let me give you a ridiculous example of the same concept… what would happen if this law were passed tomorrow?
“The Minimum Home Ownership Value Law”
“The value of homes has dropped dramatically in the past 18 months as a result of our severe economic downturn. In some areas, homes have lost 50% or more of their value. As of today the new “Minimum Home Ownership Value Law” is to be enforced: ‘... regardless of the amount a home was paid for in the past, regardless of what condition it is in, regardless of the neighborhood or area it is in, and regardless of its resale value, all homes will hereby be worth a minimum of $100,000. Not only are all homes to be worth a minimum of $100,000 (from this day forward), but lenders cannot discriminate in any shape, form or fashion as to any lower value of the home when they make their lending decision. Appraisals on any home previously worth less than $100,000 are no longer relevant or legal.’ Now, how much sense would this make? The goal may be considered honorable (by some), the government has decided that everyone paying for a home should not have lost value below $100,000… even if a law this ridiculous were to be passed, it does not change the fact that this would be a stupid and economically damaging law.”
If you are an employer this is the same requirement you are faced with in hiring new personnel. If you need a new trainee (apprentice), someone inexperienced but willing to start at the bottom to learn the business and you can afford to pay that person $4.00 per hour – you cannot. It is illegal. You may have the funds to pay your trainee (apprentice) $160 per week (based on 40 hours). If you choose to do this anyway, you will be subject to lawsuits (from the individual and the government), fines, harassment and possibly jail.
Why? Because the government has mandated that the value of an inexperienced worker is a minimum of $240 per week ($6 per hour x 40 hours). Suppose you own a small business, and you cannot afford to pay any more than $4 per hour? It does not matter. The government has mandated that you must value that employee at the amount per hour as dictated by minimum wage laws, regardless of that person’s market value, or your ability to pay, or how bad the person wants the job.
If the employer is in a position that he must have a trainee (apprentice), but cannot afford the minimum wage price as set by the government, then the employer must raise prices on his goods or services to be able to afford the additional $80 per week the government will require him to pay the trainee(apprentice). The unseen cost of minimum wage laws is an increase in cost of goods and services to all customers. What is a business owner to do if the market will not bear the price increase?
Businesses are in business to make a profit. Owners risk their time, their capital, and their lives to build their business. This is done to make more money, to create more capital, to succeed. If a business owner’s costs increase, then he must increase prices commensurately. If I own a business and the cost of my raw materials increase, then I must raise my prices to offset the underlying cost increases. Labor is no different than raw materials. If my labor costs go up (without an increase in productivity), then I must increase my prices to offset the underlying labor cost increases.
This is basic math. What our government’s wisdom has created is ever increasing prices as a result of ever increasing labor costs. These are labor costs as mandated by the government with no correlation to business expertise, business expense or profit capability. This reminds me of the old adage; “If minimum wage laws work, then why not make minimum wage $100 per hour? Then everyone would have plenty of money.”
It is a never ending circle. As minimum wage requirements increase, costs increase. As costs increase, prices increase, as prices increase, the government increases minimum wage requirements. As minimum wage requirements increase, costs increase. As costs increase…. and so on.
When business owners are forced to raise their expenses over and against market forces, prices have to go up in an amount comparable to the forced increase in expenses. This includes matching Social Security, Medicare insurance and government mandated payroll expenses. If the government forces a business to raise the pay of their employees by $1 per hour (plus the commensurate payroll expenses), and the business raises their prices an amount to offset that increase in expense, then how does the wage earner benefit from their increased wages? They don’t, unless it is a psychological benefit from “making more money”.
How does this affect internships and apprenticeships? The majority of the workers in this country work in small businesses. Regardless of how much press and notoriety the “businesses that are too big to fail” are getting – that does not change the fact that small businesses are our largest employers.
Small businesses are owned and operated by people just like you and me. These are mostly hard working, honest and diligent citizens. In order to grow and expand the business people have to be hired and trained. This is an expensive proposition for the small business owner. To train someone takes time away from what the business owner must do to make money… run the business. When an owner hires a new employee they are making a commitment to train and (in a sense) care for that person’s [financial] needs.
An inexperienced untrained employee is not worth as much to the business owner as an experienced trained employee. An experienced trained employee may well be worth far more than the federally mandated minimum wage. An inexperienced employee may not be worth an amount equal to the federally mandated minimum wage. When making a cost/benefits analysis of a new hire, an employer has to consider the burdensome minimum wage requirements of hiring an inexperienced employee.
As a result of the artificially high minimum cost of a new employee, many employers cannot afford to hire inexperienced workers and train them. Instead they seek out experienced workers only. They need an employee that can produce income immediately. This must be done because they cannot afford the high price the government has mandated for inexperienced, unskilled labor.
Stay Tuned for Part III: How Do We Retrieve the Value Of An Education?
With warmth and regards (as always),
Allen
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