WARNING** The looming consequences of a minimum wage increase…

Summary

• The anticipated increase in the minimum wage to $15 an hour by 2025, incrementally rising from the current $7.25, will impact businesses of all types, not just those with hourly workers.
• Higher minimum wages will require businesses to increase salaries for exempt employees or pay overtime, which will affect labor costs across the board.
• California's hike to a $15 minimum wage is prompting businesses to move out of the state, seeking more cost-effective operating environments.
• Arguments in favor of the wage increase include that it keeps up with the cost of living, encourages spending, and may reduce government welfare dependency. However, I'm skeptical that the current economic environment makes these outcomes likely.
• Cons of the increase include the risk of more layoffs, hiring slowdowns, and businesses avoiding hiring entry-level workers who are not considered worth the new minimum wage.
• The wage increase can result in employers seeking cost-saving options such as investing in technology, outsourcing overseas, and hiring contractors.
• I predict that the minimum wage increase will not resolve issues related to the standard of living but will lead to a cycle of price increases and continual adjustments.
• I advise business owners to invest in technology, consider project-based and contract work, and explore hiring talent overseas to prepare for the coming changes and maintain profitability.
• Though raising the minimum wage has good intentions, it may not have the desired long-term impact, and more focus should be given to addressing the root causes of economic issues.

Video

How To Take Action

I would suggest that small businesses, entrepreneurs, and those interested in personal growth start by carefully examining their labor costs and how they might increase with the rising minimum wage. Look for opportunities where you can incorporate technology to automate simple tasks. This can cut down on labor costs in the long run. For example, if you own a café, maybe there's a way to use an app for ordering that reduces the need for cashiers.

Next, it's smart to explore project-based or contract work. This can mean instead of hiring someone for full-time work, you bring people in only when you need them to complete certain projects. This flexibility could save you money because you're only paying for the work you need.

Also, consider looking for talent overseas. Sometimes, you can find skilled workers at a lower cost than in your local market. Do some research and find out what kind of work you can outsource and how to do it. But remember, even finding overseas workers is becoming more competitive, so it's good to act quickly.

To prepare for the coming changes, you really want to start strategizing now. Think about whether you can offer different services that might bring in more money or if there are different business models that might work better with higher labor costs.

And most importantly, focus on the value that you and your employees bring to the table. The goal should be to improve skills and productivity so that everyone is worth the higher wage invested in them.

Remember, the increase in minimum wage is not just a challenge, but also a chance to innovate and make your business stronger. It's about being proactive and thinking creatively to keep your business thriving in a changing economic climate.

Quotes by Leila Hormozi

"The goal of my channel is really to get you from wherever you're at in your business to between 3 and 10 million in revenue for free"

– Leila Hormozi

"I think that a lot of this could be prevented if we hadn't encouraged spending when people weren't actually making money and we were just pouring money into the economy"

– Leila Hormozi

"I think what most people don't realize is that then people are just going to look overseas, they're going to look at contractors, and they're going to look at technology"

– Leila Hormozi

"I would be investing in that technology, looking at those trends right now"

– Leila Hormozi

"I think that the intention might be good but intention does not equate to impact"

– Leila Hormozi

Full Transcript

is layla hormozy i'm co-ceo of acquisition.com which is a portfolio of companies that's about 85 million per year in revenue and the goal of my channel is really to get you from wherever you're at in your business to between 3 and 10 million in revenue for free that being said topic of the day is something that's been really uh kind of re-emerged in like the business world right now probably because of the absurd increase in gas prices which is the minimum wage increase that is kind of looming in the background that was talked about in 2021 and basically what that is if you don't know is right now the minimum wage is 7.25 and it's set to be 15 an hour in 2025 incrementally increasing until that point and so that being said the minimum wage has increased 22 times since 1938. um so this is frequent what does it mean is kind of the question i think obviously everybody knows that anyone that has hourly employees their margins are going to suffer but i think a lot of people that don't have our only employees wonder how this is going to affect them and so just to kind of explain if there's higher state minimum wages than the minimum salary for an employee to be exempt is going to change because what this means is that employees will most likely also have to increase salaries to exempt employees or reclassify them as non-exempt and pay overtime premiums and so what that means essentially is that as you move this up in order for that next level of an employee in your company to actually be classified as that exempt then that means that they have to increase their salary and so it seems like we're just increasing hourly but we're increasing the literal minimum wage which then bumps everything else up and so i don't think that people think about that but that is actually one of the consequences of this so it affects you no matter what kind of business you have because you're gonna have to pay more salaries so that they can not be classified that way so that being said um california actually already did this they already raised their minimum wage or it's about to hit at 15 an hour and you're seeing this is a trend across a lot of specifically more liberal states or more um democratic states they're trying to push for this and with this you actually see uh i don't really think it's done well for california because a lot of businesses are moving out of california it's like their worst year since like 18 i can't remember with people business amount of businesses that moved out for that reason you know i specifically see it i live in las vegas and i can tell you every new person is from california and it's because they have a business they don't want to deal with that and so that being said what i kind of want to break down are you know the arguments to why this is good the argument's why this is bad and then what it means for you as a business owner and what you can do about it right because i think a lot of people like well then you can't stop this but what can i do if i am somebody who this is going to completely ruin my margin as business and so we'll talk about that so the argument for this being a good thing is essentially that you know the cost of living has increased nobody can deny that the price of gas the cost of housing is increased 11 it makes sense that wages go up i don't necessarily disagree with this in isolation without any context though i don't agree with it so that being said in isolation i agree with the theory in context of what's happening in the world i don't agree with doing it right now but that being said what they're saying is that you want to make sure that workers pay keeps up with inflation yadda yadda that part makes sense just in contact with everything that's happening it does not second is that this encourages spending which i think again is normally a good thing i just don't know if right now with the environment that we're in it's a good thing so again that's the argument that's made is that it's a good thing it's good to encourage spending right now in the environment but i think that a lot of this could be prevented if we hadn't encouraged spending when people weren't actually making money and we were just pouring money into the economy so that doesn't really make much sense to me either to have that argument but that's what it is and then the last one which again i understand the like in isolation this makes sense which is that you could reduce the amount of government assistance programs and people on those they're guessing by about like 1.3 million people less would be on government assistance if we made this change the irony of this is that the prediction is that we will have 1.4 million layoffs and so it doesn't really seem like it's a pro to do that that being said i don't obviously agree with this and i don't agree with this because i think that it's not the root cause issue i think that this like increasing the minimum wage is just like it's a symptom of a greater issue and we need to solve that issue rather than trying to solve the symptoms because the more time that we spend trying to solve the symptoms the more we up this economy and so that's how i feel right now that being said what are the cons to this right well the con i just stated the first one which is actually the prediction there's going to be more layoffs and historically speaking if you look at the employee hiring cycle and layoffs every time you do a minimum wage increase uh the hiring cycle slows down and the layoffs increase and so this is just something that's happened nearly every time you've increased minimum wage it's because it encourages employees to invest in technology and other resources rather than hiring people they're not looking at this as a business owner what a business owner like this and says what is my most costly resource what's my most costly overhead it is typically labor and so now they're saying we're going to make your biggest piece of overhead even more expensive in fact we're going to double it now the employers are going to say well i got to figure out a different way to accom you know solve this problem so i think what most people don't realize is that then people are just going to look overseas they're going to look at contractors and they're going to look at technology and so i actually see that as not doing what people would like it to do people are going to hire less people they're going to find alternatives and with the way technology is going nowadays that is much more likely than it was in the past and so i think that this is much more likely to be harmful than helpful this time specifically than it would have been in the past the third thing uh the reason that i would say this is not good is because businesses aren't going to hire people who are not who they don't deem skilled enough at 15 an hour so what the government wants is that the person that you were hiring at 725 you're not going to hire that same person just pay them 15. business owners don't think that way you probably know that if you're watching this channel and if you're not you're an employee this is how they think they're like i'm not hiring someone worth seven dollars an hour now because you're making me pay 15 regardless of inflation regardless like mentally speaking like if you study psychology you would understand this makes sense they are not going to hire that same person they're going to hire someone who they think is more skilled to be worth that 15 an hour and so what i actually think is gonna happen is that people that are were being paid seven dollars an hour are just not going to get jobs and so you're now creating more opportunity for people who are worth 15 an hour that could be a pro that's pretty much the only thing i see as a pro is for those people who are worth 15 an hour you probably have more opportunities that job um but for those that are worth seven or worth 10 or 12 where are they going to go if they're not worth if an employer can't say that i'm going to get a positive return on my investment from this employee which guess what that's the way business works you have to make a profit on the employees in your business otherwise the business doesn't have profit the business it doesn't run i think that they're just not going to hire those people and so i find it it's unfair that you can't allow someone to say hey i'll take a job for ten dollars an hour or twelve dollars an hour because that's better than nothing instead you're just saying your option is zero is zero or fifteen that's it and you're not giving those options in between which to me again i just don't think that's helpful i think people should at least have the option like if they want to take a job where they make ten dollars an hour because they can't get a job at fifteen dollars an hour then like let them take the job at ten dollars an hour i don't understand why you wouldn't so that is why i don't think this is necessarily a good decision now what would i say i think is going to happen over the next few years and how you can apply this to your business is i think what's going to happen and i'm not going to predict what's going to happen with wages or with economy or anything because like i have no effing clue but what i do predict is like the human behavior because they're anticipating this is going to happen right which is i think businesses will just continue like i said my last video to raise prices because the cost of labor is going to increase and that's just going to create this vicious cycle and so i don't think that increasing the minimum wage is going to help in any way not saying people shouldn't be compensated with standard living i'm just saying this isn't going to get us out of this cycle it's only going to perpetuate the cycle so i think that it's going to be irrelevant it's not going to make a difference to anyone at all i think it's kind of like it's all this effort and activity in the government and it's not going to produce anything that would be my first thing i would say is probably likely to happen the second is that people are going to invest in technology outsource work and contract work because they can pay them less than 15 an hour and then technology they're going to automate other people's work with it if you look at like some of the biggest investments in big tech right now it's in automating human work and it's mostly those people that are hourly and so i think it's just going to accelerate that cycle it's going to be happening even faster business being higher demand and more resources are going to go towards it more investors are going to invest in these kinds of things because business owners are always going to try and find an arbitrage between what the employee is paid and what they are making on that employee from the labor and then really the question is what do you do if you are a business that does have hourly employees or is going to be affected by this which most people especially if you have low profit margins this is going to affect you i would say you really have three options the first is obviously investing in technology you know there are a lot of people i have a friend for example who his business the last business he had had about 70 people in it and he said my next initiative is that my next business i will need until we get to i think there's three million per year i want to have zero employees and so far he's making it work and the reason is is that it's all the technologies being built into the business which is absolutely feasible i think more people are going to challenge themselves to think that way and they're going to be able to accomplish solutions to essentially eliminate these kind of workers if you look right now they have tons of different options for this even with creative work that's paid by the hour like copywriting for example there's all sorts of technology coming out that's ai copywriting and i can tell you i've used some of it and it's better than a lot of people i've hired so i think those options are gonna become more relevant there's gonna be more funding put towards those companies and more people are going to be investing them faster and it's going to just accelerate that trend in the workplace the second thing is that i think that people are going to do more project-based work if you look at like the blockchain web 3 and where things are going over there a lot of the work is paid by project and i think that that trend could seep over into the normal world of work where employers say i'm not going to pay someone by the hour i'm going to pay someone by project and so it's giving me more contractor work which allows them to like net net pay less than they would for that hourly employee that would be doing that job and then the third thing is that i think that i would be looking at overseas if you look at some of the businesses that are doing really well right now um and i think they're going to continue to do really well in the short term and then eventually be out of business which are the ones that are taking talent from overseas and essentially putting a nice fat margin in there and then selling them to people over here right they're essentially being like a peo and those businesses i think are going to boom because like i would say go look and try and see if you can outsource the work to people that are overseas i think that's a great idea to do now the thing that i think is a lot of people like well how do i do that so they go to these companies that are essentially making a profit on taking that employment over here doing all the complicated legal and logistics to employ someone from overseas and then you know essentially rent them out to a company in the u.s i think that that's going to be exposed as an opportunity and it's going to go away because more people in the u.s and more companies are going to need to they're going to have to survive by hiring people from overseas and they're going to figure out this middleman they're going to kick that middleman out there figure out how to do themselves and so it's basically if i were a business of smaller margins i would be investing in that technology looking at those trends right now i would be looking at what could be project work versus hourly work and i would also be looking at how i could attract overseas talent because it honestly even with overseas talent is becoming rare to be able to find people that are very talented overseas because the smart companies that are innovative are already going and sourcing talent there and so that being said i don't believe that this is going to solve any of the issues with the standard of living like if we just pay people more then we're just going to raise prices and then the standard living is going to go up again and so just this vicious cycle to do over and over again it doesn't make any sense to me i just feel like it's a moot point it's a lot of activity it's not going to cause any difference in the labor market or for anyone that you know for the very very short term i think it'll be a relief for people and then they're going to go back under that poverty line that would be what i would say is probably going to happen and i think for employers they're just gonna continue to look for that work and so that's what i would be doing you know i would be looking at overseas technology and i'd be looking at contractor work and so i know that a lot of people in trying to pass laws like this i think the intention is good it's like let's pay people more rah-rah let's raise the minimum wage do good for everybody and i think everyone wants to be the guy that you know there are more people that are paid minimum wage than not so they want to be liked by all and i think that the intention might be good but intention does not equate to impact and so i don't think that it's going to have a positive impact at all in the long run if we are spending this much time on these kinds of things it would be better spent trying to solve the root cause of this issue so that being said i hope this is useful to you again if you're a business owner technology contract work overseas work that's where i would be looking and that's where i'd be planning and figuring out with my business how can i integrate that in so i am um i am prepared for 2025 when it comes so that being said i hope this video was useful for you and i will see you on the next one