Originally published August 28 2015
American CEO who raised wages of all workers to $70,000 now learning a harsh lesson in economic reality
by J. D. Heyes
(NaturalNews) Perhaps because he was swept up on the progressive Left's demand for higher minimum wages or perhaps because he is genuine about his intent to take care of his employees – or perhaps both – Dan Price, the 31-year-old CEO of Seattle-based credit card processing firm Gravity he founded has just learned a harsh lesson from Economics 101: You cannot pay your help more than your company can afford, no matter your motivation.
As noted by Zero Hedge, Price recently made a poorly thought out decision to begin paying all of his employees a minimum salary of $70,000 after talking with a friend who admitted having trouble making student loan payments, paying for rent and other basic needs on $40K a year.
Now, according to The New York Times, Price said he was not attempting to inject himself into "the current political clamor over low wages or the growing gap between rich and poor." He says he was truly only interested in improving the lives of the 120 employees who work for him. So, after reviewing some literature on the issue, he came to the conclusion that $70K was a level at which workers begin to experience "an enormous difference in [their] emotional well-being."
As you might imagine in today's politically correct environment, Price's decision was a hit, primarily with the progressive Left which has yet to understand a basic economic fact that hiking minimum wages causes net job losses and, thus, more poverty. And other problems as well.
Reality of economics
As the Times noted:
Talk show hosts lined up to interview Mr. Price. Job seekers by the thousands sent in resumes. He was called a "thought leader." Harvard business professors flew out to conduct a case study. Third graders wrote him thank-you notes. Single women wanted to date him.
But then the reality of economics set in – and the reality of unintended consequences. First, the company began to get much more attention than Price anticipated, and while the attention was at once thrilling, at the same time it became exhausting and a major distraction. The pressure to make his decision work was on.
However, not everyone was pleased with his decision. Some customers, upset by what they viewed as a political statement, pulled their business. Others who were anticipating fee increases (to cover the additional salary costs) left as well, despite assurances that no increases were pending.
Though dozens of new clients who were inspired by Price's decision were also signing up, those accounts won't begin to pay off for a year or more. In the meantime, though, Price has had to hire dozens of new employees to handle the extra work, and all at the higher, inflated wage. And even they may not be enough; he is currently struggling to figure out just how many more he might need and all without really knowing how long the sign-up rate will continue.
'No margin of error'
Speaking of employees, two of his most valued workers have quit – in part by their opinion that it was not fair to suddenly double the pay of new hires while many of the longest-serving employees got small or no raises at all. In addition, some friends and associates in the tight-knit Seattle entrepreneurial network were upset by his arbitrary pay hike because they felt it made them look like pikers in front of their employees for not following suit.
And there is this: Gravity's co-founder, Lucas Price, Dan's older brother, has filed suit citing longstanding differences, a suit that is liable to tap out the company's dwindling finances.
"We don't have a margin of error to pay those legal fees," Dan Price told the Times.
In the end, business leaders – some of them his clients – and former employees who helped Price build his business were dismayed and not a little worried about the precedence he was setting. At one point Price told the Times he would rather businesses raise wages on their own to avoid government regulation, but that's naive, considering that companies have been raising employee salaries for decades and progressives in government have never stopped pushing for ever higher "minimum" wages.
In the end, small businesses in Seattle, whose socialist City Council members have passed rules requiring they pay a $15 minimum wage by 2018, are already worried about how they will afford it. Price's stunt has done little to assuage those concerns.
Read interesting articles about the current living wage in America at Wages.news
Sources:
ZeroHedge.com
NYTimes.com
Money.CNN.com
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