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Varchild2008 (84.49)

In Depth Analysis of Minimum Wage Law in Michigan

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January 30, 2010 – Comments (5)

Using my home state of MICHIGAN.. I will show you how much of a difference it made when in the span of 4 years Michigan raised their minimum wage dramatically year after year.

In the end... I hope to persuade you that minimum wage laws are indeed a massive problem in our economy 

(NOTE: The type of business I will write about happens to have currently a 38% tax cut deal today....But I am not considering that in these calculations because non-media companys don't have this deal and this did not exist back in 2005-2007):

It is October 1st 2005 and you have just finished development of a small, 2-D video game.  You have about $50,000 in cash in your savings account.  Michigan is in a recession and so you found a brilliantly cheap rental for office space in a local office building to set up your Video Games business at $250 per month. 

Since you have ZERO marketing experience and your Web Design skills are poor you plan on hiring a Marketing Major with Web Design Talent for your company.  You send out an application seeking to hire someone for minimum wage.... $5.15 / hour.  Luck would have it in less than a month's time you find a perfect candidate whose willing to work for minimum wage given the promise of immediate pay raises if and when your sales of your video game start to take off.

You also made the agreement with the new hire that he/she would have part property rights for the game making the minimum wage offer even more tolerable.

Your goal for the Game is simple.... It's a POGO style game you plan to find a number of willing hosting company's to agree to buy an indefinite license of your game for their website.  The willing video game hosting sites would benefit in advertisement revenues as more video gamers play the game they licensed from you.

So you must get a lot of publicity and generate a fan base ahead of time to convince web hosts that your game is worth the license fee.  You plan to charge $5,000 for any web host to license your game indefinitely (doing it per year nets you only $500 per year at best and that's not enough to keep your business afloat.  So you giving your license to companys for indefinite use).

So getting your game on as many HOSTING sites as possible is your primary goal and your secondary goal is to keep developing more video games for more licensing revenue.
As your game ideas get more complicated, you'll need to hire more employees to program and do artwork and sound/music for your future titles. 

So you need to generate some cash beyond the $50,000 you have in your savings account!

Here's your expenditures by the end of YEAR 1:

Labor Cost for 1 employee for 1 year:  $19,776
Office Rental Space for 1 year:           $12,000
Marketing/Advertisement Costs:         $2,500
Total Expenditures:                           $34,276

Here's what you earned during your first year:
4 Web Hosting Agreements Signed:  $ 20,000

Your company's first year in business generates a LOSS of $14,276.
You now have $   35,274 left.

UH OH!!!!!!!!!    MINIMUM WAGE LAWS!!!!!!

October 1st, 2006 you now have to pay your single employee $6.95 / hour.

Labor Cost for 1 employee for 1 year:  $26,688
Office Rental Space for 1 year:           $12,000
Marketing/Advertisement Costs:         $2,500
Total Expenditures:                           $41,188

Luckilly you land another 4 hosting company's agreeing to license your game and you finish development of a 2nd video game....but only get the first 4 company's to agree to license that.

4 New Web Hosting Agreements Signed:       $20,000
4 Web Hosting Agreements for the New title:  $20,000

Your company's second year in business generates another LOSS!!! this time: $1,188.
Now you have left: $34,086

To top it off... you don't know how to get yourself in the black without hiring an additional employee in the third year to help with game development.  You need another property to sell or you are going to suffer another loss next year! So...  You hire a 2nd employee in your third year.

UH OH!!!!!!!!!    MINIMUM WAGE LAWS!!!!!!

You have to pay your 2 employees this year:  $7.15/hour

Labor Cost for 2 employees for 1 year:  $54,912
Office Rental Space for 1 year:           $12,000
Marketing/Advertisement Costs:         $2,500
Total Expenditures:                           $69,412

Luckilly you land another 4 hosting company's agreeing to license your 2 games and you finish development of a 3rd video game....but only get the first 4 company's to agree to license that.

4 New Web Hosting Agreements Signed for 2 game titles:       $40,000
4 Web Hosting Agreements for the New title:  $20,000

Your company's third year in business generates another LOSS!!! this time: $9,412
Now you have left: $24,674

And now you face extremely LOW employee morale because you promised wage increases for the 1st employee and the 2nd.... and after 3 years in business of not generating a profit you were unable to deliver on that promise.  Minimum Wage increases are not seen by employees as "Wage Increases" because you didn't increase the wage.... you were forced to increase the wage by the State.

Had  Michigan not raised wages by FORCE... your company could have been raising wages and liftng the spirits of your employees over the years.

So in the fourth year you only manage to convince 1 employee to stay with your company.
You'll have to hire another employee....To top it off it will take 2 years to finish development of your 4th video game title with just yourself + 1 employee doing the work on a sequal to your 1st title...in which video gamers are demanding better graphics, better gameplay, and so on.

UH OH!!!!!!!!!    MINIMUM WAGE LAWS!!!!!!

You have to pay your 2 employees this year:  $7.40/hour

Labor Cost for 2 employees for 1 year:  $56,832
Office Rental Space for 1 year:           $12,000
Marketing/Advertisement Costs:         $2,500
Total Expenditures:                           $71,332

Luckilly you land another 4 hosting company's agreeing to license your 3 games:

4 New Web Hosting Agreements Signed for 3 game titles:  $60,000

Had you completed the more complicated...technologically superior 4th video game you might have come away with a profit this year.... unfortunately, that title could not be developed without forking over an additonal $28,416 for hiring another employee.  That's money you simply do not have!!

You started the year with $24,674.  A far cry from being able to hire anyone.
So...In your 4th year you suffer another LOSS:  $11,332.

Look folks... It is simple math....  The difference in expenditures in 4 years time from FORCED Minimum Wage Increases by the State of Michigan requires that you generate enough profit to offset a LOSS of:

$8,640

And how exactly does a business PLAN to expect to lose $8,640 in 4 short years time from minimum wage increases?  No one can predict WHEN the increases occur and how much they will be increased to.  State Congress in Michigan did not assign October 1st of every year to raise minimum wage.

Minimum Wage was raised on a:  October 1st,  July 1st, July 1st

So there was less than a year's time before the 2nd wage hike occured and I did NOT factor that problem into the math here.

5 Comments – Post Your Own

#1) On January 30, 2010 at 12:16 PM, Varchild2008 (84.49) wrote:

NOW!!

DO THE MATH AT $5.15/hour   for all 4 straight years in my scenario....  

What do you end up with folks??? 

$$$$$$$$$$$$$$$$$$$$$$PROFIT$$$$$$$$$$$$$$$$$$$$$$$

by the 2nd year in business!

Even in the 3rd year hiring a new employee....at $5.15 you have over $5,000 profit... of which you could have used to raise the pay of your employees...anyhow.... I mean.. that plus the previous year's profit could have been used to hike the wages of your employees....

Instead.... You have lost morale and have to re-hire someone cause no one thinks that a company relying solely on minimum wage laws to provide better pay is worth working for.

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#2) On January 30, 2010 at 12:20 PM, Varchild2008 (84.49) wrote:

http://www.michigantownships.org/minwage.asp

The link above is where I got my minimum wage info.

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#3) On January 30, 2010 at 12:40 PM, Varchild2008 (84.49) wrote:

*grumble*

I screwed up the monthly rental fee...  Just take the $12,000 a year as the figure...  Not the $250 per month fee.

After all.. rental for an office room.... does not factor in many other costs that I did not include...  

I.E. buying computer equipment for your new hire(s) would be a cost I left out of the rental fee per month for example.

So go with $12,000 a year not $250 per month.
My bad.

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#4) On January 30, 2010 at 12:48 PM, Varchild2008 (84.49) wrote:

Michigan at least have what is know as:

Unfurnished Office Space for Rent... 

So $250 per month.... which would be a ridiculously fantastic price for an unfurnished room....

Means you need to furnish it with Lamps....Chairs...Desks....
Fans to circulate the air....etc. etc.

I fully expect $2,000 per year in furnishing + computer equipment supplies per year....  

+ tack on personal expenses cause your $50,000 is your ENTIRE life savings.... so your business AND your personal life are withdrawing cash.... 

Can't get much cheaper than $300 per month rental in an apartment in Michigan and then there is FOOD + Clothing...
Easily $6,750 per year expected.

An wallah.. you get $12,000 per year.

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#5) On January 30, 2010 at 12:57 PM, Varchild2008 (84.49) wrote:

Rental Office Space breakout could be:

$250 per month office rent        =   $3,000
$250 per month apartment       =   $3,000
supplies/furnishings/Car Maint. =  $2,000
FOOD + Clothing  + Entertain. =  $3,800  
WEB DOMAIN + HOSTING     =  $200

TOTAL COST:  $12,000

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