Tag: economics

Role of the Health Club in the Community

On By seancovellIn business, fitness, Health and Wellness, Philosophy, Politics, ScienceLeave a comment

Role of the Health Club in the Community

The health club, or gym, serves an important role in individual’s lives, but also for the community as a whole.  Gyms provide a common place where the goal for everyone is the same—to learn the body through physical exercise and improve one’s health.  The health club is a tool for self-discovery and self-improvement. The health club is an air-conditioned environment for health-oriented individuals to assemble and exchange knowledge, ideas, and stories, and freely engage with other people from a diverse group of economic, social classes and backgrounds.  The ability to freely exercise and train around others with similar goals has been a staple of a healthy society dating back to ancient Greece and the first Gymnasiums and Olympic Games. Nowadays, we teach our children from a very young age how important physical exercise and health is. There is a reason why high school gyms across the country have their own workout rooms. The gym gives anyone an outlet for extra energy and aggression. Without the gym, many people have no identity. For me, it was the gym that helped me develop a sense of who I was and what my body could do.  At age 19 I was diagnosed with Ankylosing Spondylitis, a reactive-arthritis condition in my spine.  The thought of a future with incredible pain and physical limitation had a severely negative impact on my idea of who I was, my identity as a young man.  The gym helped me realize a much different future, one without the pain and physical limitations I thought were inevitable.

For decades in the United States, publications have ranked the healthiest cities in America, based on factors such as the overall health of its population, attitude toward overall wellness, and access to local wellness businesses (gyms, spas)[1]. The health of the community is the safety of the community. Now, most of that has been taken away. Gyms have been closed for months; parks are marked off with caution tape; basketball hoops have been removed from public courts. It is no surprise to us why we have been seeing an increase in anger, violence and destruction in our communities.

Recently, throughout the course of the lockdown, we have received countless messages from clients recounting their mental stress, some with severe depression, and relating to us that the gym is the only outlet they have for stress-relief and mental health[2].  The fitness community has lost several athletes to suicide very recently, and the suicide rate in the areas where we operate has spiked significantly in Northern California.  Exercise has also been shown in numerous clinical studies to be an effective (for some the most effective) form of relief from depression and anxiety[3]. This is something that individuals instinctually know—when we exercise, we feel better.

In addition, the CDC recommends 150 minutes of “vigorous” exercise weekly as essential for health.  It’s very clear now, that Covid-19 has been particularly damaging and deadly in people with high blood pressure, diabetes and obesity. These co-morbidity factors are all metabolic disorders, which exercise has been shown to be effective in reducing and eliminating[4],[5].  The inability of the public to exercise has and will exacerbate these underlying conditions.  Moreover, physical exercise and its role in strengthening immune systems cannot be overlooked.  Strengthening of the collective immune system of a community is crucial in preventing the spread of communicable diseases among that population.

The damage of this lockdown to the fitness industry has been absolutely devastating and destructive. By declaring the industry non-essential, despite the long and storied role of the importance of the health club to society and despite the understanding that exercise is essential for a healthy and fulfilled life, people are now afraid to frequent businesses that have been negatively portrayed by politicians and the media.

Once restrictions are put in place on health clubs, there will be significant demand destruction—current economic factors compounded with the media narrative that businesses that house large groups of people are unsafe to the public during this era[6],[7]—more so than what we have already experienced. Given the current economic situation and the fact that gyms have been closed for so long, the industry is suffering as it is. (For example, the amount of pending cancelations year over year for June is already at 30% increase in our business. Our first and second quarters of 2020 have been obliterated, and we will absolutely be unable to recoup the loss in revenue for the rest of the year. We estimate a 20%-25% decline in revenue year over year.) There is a great deal of uncertainty in the fitness industry at this moment in time. National-level firms have already declared they have filed, or are preparing to file, for bankruptcy[8],[9] as their boards’ analysts foresee significant economic damages and a loss of demand in the fitness industry after the lockdown.

Given that we have made very minimal income for the past 11 weeks, and our current losses (estimated at this point in time to be over $1 million) due to the forced shutdown, any further restrictions placed on businesses will make it increasingly difficult for health clubs to survive. Increased regulations will result in increased payroll cost in order to have additional staff members monitoring social distancing and ensuring everyone is sanitizing, per the recommendations by the CDC.

Any further restrictions beyond the original social distancing guidelines and the sanitization and disinfecting of surfaces would cause undo harm, and simply make it unsustainable to continue;

Capacity Restrictions–To put an additional capacity restriction on health clubs would be extremely detrimental to our business. By curtailing the number of people allowed inside the facility, we are losing a significant amount of revenue. We have already increased our expenditure toward payroll to comply with the social distancing and sanitization requirements. As tenants, we have to pay for the entire space; increased social distancing reduces the number of members that we can serve, and of course results in less revenue, while simultaneously increasing payroll costs in order to comply with new regulations. Social distancing itself reduces class size when participants move in a greater area of space (yoga, kickboxing, cross training, etc.). Some members only join health clubs because of the group fitness classes. They enjoy the variety and the social aspect of the classes.

Masks—Staff, and members, have expressed concerns with wearing masks for extended periods of time, especially in a fitness environment where our bodies are expelling CO2 at a rapid rate. Wearing a mask while working out could potentially lead to overheating or fainting.

Appointment System—This can be inconvenient for people to plan in advance. Oftentimes people need to work out at a spur of the moment to improve their mood.

Temperature Screenings—These are not always accurate and it will cost our business money for supplies and training for our staff. Additionally, inaccurate readings could cause customers to become angry, leading to unnecessary conflict between employees and customers. We value the safety of our employees.

The health club (gym) is fundamental to the fitness, health and safety of a community. Our aim is to help as many people as possible become stronger and healthier. We are concerned that a significant increase in restrictions upon businesses such as ours, will reduce our ability to serve the community to our full potential. It is imperative that we open these pillars of community fully, so our community population can become healthier and happier.

Respectfully,

Sean Covell

CEO, Fitness System Health Clubs

 

EXHIBIT A:

Direct Messages to the Fitness System/Sean Covell Instagram/Facebook Pages

 

 

[1] https://www.businessinsider.com/healthiest-cities-to-live-us-exercise-sleep-wellness-2020-1

[2] See Exhibit A

[3] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1470658/

[4] https://www.ncbi.nlm.nih.gov/books/NBK278961/

[5] https://www.ncbi.nlm.nih.gov/books/NBK549946/

[6] hhttps://www.nytimes.com/2020/05/13/well/move/coronavirus-gym-safety.html

[7] https://www.healthline.com/health-news/heres-why-covid-19-can-spread-so-easily-at-gyms-and-fitness-classes

[8] https://www.usatoday.com/story/money/2020/05/30/24-hour-fitness-reportedly-prep-bankruptcy-filing-gyms-reopen/5291159002/

[9] https://www.cbsnews.com/news/golds-gym-files-bankruptcy-chapter-11-coronavirus-pandemic/

 

A Warning

On By seancovellIn UncategorizedLeave a comment

How the Economy Works

Americans are not taught enough at young age about how money and the economy works. It’s an uncomfortable subject and most believe it’s impolite to talk about money. So, we go on through life not fully understanding the subject of finance or how succeed in accumulating wealth. Most of what I know, I had to learn through trial and error as well as reading about how ultra wealthy people think and act. Unfortunately, despite volumes of literature having been written about the subject, most people consider economics a boring and complicated issue that should be left to the experts. I feel the need to dispel some myths about economics so a better understanding can be reached about where we stand economically today.

Myth 1. The economy is complicated. This is false. An economy is simply the sum total of all the transactions that take place in a given market. Everything can be boiled down the basics, the broad economy is nothing more than individuals trading goods and services for something they deem more valuable than what they are trading. If people are spending less, the economy slows. If people spend more, it expands.

Myth 2. Savings doesn’t matter. We are told to save money at a young age, but if you look at the pundits on television talk about the health of the economy, rarely do they refer to how much a family has stashed away for savings. Instead, they talk about consumer spending. Now, spending is an important indicator of economic health, but so is savings because savings is a measure or future investment and spending. If you are saving your money, it’s because you intend to spend it at a future date for something you need at that time. If you are not saving, you are limiting your ability to spend money in the future, instead opting to spend it now. Savings is one factor that leads to the creation of new capital investments and businesses. If the savings rate is low, this is an indicator the future business creation may slow.

Myth 3. All debt is bad. This is wrong and it keeps people from thinking and expanding in a big way. Most big companies use leverage, (debt) as a way to expand business and income. There are two types of debt, consumer and business. Consumer debt can be bad because generally we are using it to buy goods and services that do not produce future income. Business debt can be good if it is used to produce future income.

Myth 4. People spend based on how much money they have. This is wrong. The ability to spend and the total economy is based on two things; income and the credit (debt). You can buy things with cash, or with credit, which is a future promise that you will pay. The biggest indicator is how people will spend is based on their available credit. Unfortunately, people buy things based on what they believe their future income will be, not what they make now. So, they use credit to buy things that don’t produce income. Eventually when the bills come due, if their income has not gone up enough to cover the new debt plus interest, the person has to default on their credit payments. The company that holds the debt must now take a loss of income and subsequently reduce the amount of credit to consumers. If this happens on a large scale with many people, the reduction of credit will lead to less available purchasing power and less transactions in the economy. Less transactions leads to a slow down in the economy, job losses because companies are selling less and often a reduction in pricing of products.

Myth 5. Wealth is money. False. Wealth is an increase in production and output. If you have a farm and are able to collect twice as much crop as the year prior, you have increased your wealth. People think that the government can just print money to take care of all debt and economic problems. If this were true, we could just all quit our jobs and have the government give us money. Obviously, this cannot happen or basic services necessary to living would never get accomplished. Moreover, an increase in the money supply, if credit levels are still high, without a corresponding increase in the production of goods can lead to an inflation in pricing. In other words, the ability of your money to buy products and services is reduced as more money enters the economy.

Where We Stand Today

At the time of this writing, household debt and government debt has reached record levels. (1.06 trillion for consumer credit card debt, 1.5 trillion in student loans and a total of 18 trillion if we include personal mortgage debt). Government debt has also reached a record 20.6 trillion largely due to unfunded liabilities such as pensions, MediCare and Social Security. The average cash savings of the typical American family is less than $1000 dollar. Nearly 40 percent of families have no cash savings at all, meaning the ability for these families to make future purchases is significantly reduced unless their income expands greatly. Already, auto loan defaults, student loan defaults and credit card defaults are on the high and expected to reach higher levels. In my own businesses, I have seen more credit card declines every month. We have a serious debt problem happening right at the same time the stock market is at an all time high.

What It Means

The American consumer is tapped out as far as their available credit. This likely means that despite all time record level stock prices (which have very little to do with the real economy for most people) their ability to make future purchases will decline, leading to a slowing economy. Of course, no one can predict the future, but if the numbers are any indication, we are at the peak of the debt cycle and what follows will likely be more defaulting on debts and subsequently job loss and a retraction for many businesses. Be warned. Invest in yourself, your skills, your health and save the rest of your money so you can capitalize on lower prices during a downturn. Remember, people always sell things for less when they believe times are bad.

Sorry for the negative note. I’m just trying to be clear on what I see happening so I can help you and your family thrive! If you want a great YouTube video on some of these concepts, look up Ray Dalio’s video on “How The Economic Machine Works.” I promise you’ll learn something.

Don’t Major in Minor Things

On By seancovellIn business, fitness, Health and Wellness, UncategorizedLeave a comment

“I can’t get no satisfaction.”- The Rolling Stones

There is an area of my life where I am not satisfied. It’s true! Call me insatiable. Call me ungrateful. Call me whatever you like, just don’t call me comfortable, because I’m not. This area of my life nags at me for attention. It keeps me up at night. It forces my mind to work overtime on how to quash this unease. This dissatisfaction in my life has forced me to question why I have not paid more attention to it before. The answer I have arrived at is the purpose for this article.

The reason I believe that many experience dissatisfaction, sadness and a feeling of lack in their lives is because they focus on things that don’t matter rather than designing a life. In other words, if life was a university, they are majoring in minor things. Many are well versed in sports statistics, celebrity gossip, the new flavor of Ben and Jerry’s ice cream and so on. I’d liken this type of trivia to pouring trash into your mind. The mind’s capacity for knowledge is so great, yet we fill it with information and stories that keep us from achieving our true potential. I think we are guilty of this to a certain degree. Why? I would suggest the answer lies in our human desire to seek out pleasure and avoid pain. Trivia is fun, it’s exciting, it’s good in conversation. However, the pleasure gained from it is fleeting.

Disciplined thought and action on the other hand, will lead to long term pleasure and avoidance of many day to day pains that plague us. However, it’s not sexy. Talking about your disciplined routines and life goals at a party or family event will likely get you awkward stares, and rolling eyes. Thus, we go back to majoring in minor things–to avoid the social pain we might face. We all have the desire to be liked by others and our ability to do so determines a great deal of success. However, in our desire to be liked by others, the danger of being distracted by things that don’t matter becomes very real.

If you are not where you would like to be physically, financially, emotionally, it’s because you are not making that area of your life a priority–A MUST, if you will. You always get your MUSTS in life. You find a way to make them happen. But, if you are focusing on other areas instead, you are essentially HOPING for change without making those areas a priority above all else. So, be careful what information you pour into you mind. Choose you majors well and take massive action be sure that you are getting what you determine you MUST have. If it must happen, you will find a way. I have decided to refocus attention on those areas I believe are lacking. I hope you find the will to do the same.

In health,

Sean

7 Qualities of a Leader

On By seancovellIn business, fitness, Health and Wellness, Politics, UncategorizedLeave a comment

Everyone wants to make more money, but few are willing to take on the responsibilities and execute the duties associated with bringing more value to the marketplace. Value is really what we are talking about when we talk about money. Now, everyone has value. As a person, a husband, a wife, you name it. But in terms of income, value to the marketplace is what determines your pay. Sure, you may be able to fool or scam some people short term and make a bunch of cash, but you can’t fool all the people all of the time as the saying goes. Eventually, the laws of compensation will catch up with everyone and everything in this universe. That said, here are the Seven Qualities that will ensure your income rises regardless of the economic climate. They just also happen to be the Seven Qualities of Leaders.

    1. VISION—To ensure more income for yourself and to be a great leader, you must have the capacity to see what is not yet there. You must have vision. You must tap into creativity—the energy source that brings life to all new things. Yes, you must see things as they are, but not worse than what they are. THEN, you must have vision for what could be better. After that, massive action is necessary to see your vision become a reality.
    2. COURAGE—This, in my opinion, is the most important trait to have. Without courage, nothing happens. Fear will always cloud your thinking and get in the way of your success. An example of courage in the marketplace is making cold calls to prospects or asking existing clients for referrals. That takes courage. Simply showing up to work and going through the motions takes no courage. In other words, to utilize courage, you must be willing to be uncomfortable—that’s the only way you can grow. All growth comes from a period of discomfort, and making more money requires doing what others are not willing to do.
    3. INTEGRITY—No one will follow a person without integrity for a sustained period of time. Being a person of ethics and values—having a code and living by it—will cause others to trust you and trust your judgment because they believe that you have their best interest at heart. This matters a great deal in every relationship, including those in the marketplace.
    4. HUMILITY—Having a modest view of your own importance as it relates to others is vital for any leader. Of course you are important, but no more important than anyone else as far as they are concerned. Understand that everyone is the star of his or her own movie! You are merely the cameo appearance. So, if you want to succeed in being a leader and making increased income, check your ego at the door. If others see you as being a person who lacks the humility to accept the importance of others, you may do well, but it will not last. People like to follow others they respect. And employers love to pay respectable people more.
    5. STRATEGIC PLANNING—This quality is so needed today, I could write hundreds of pages about the subject. The bottom line here is that the tactical work of doing the job as it is required and the strategic work of planning the future work that must be done for increased levels of success are two very, very different things. Most believe that by showing up and doing the job as required is enough to be compensated more (because there exist so many people who can’t even do that!). The truth, however, is very different. The truth is that in today’s marketplace, strategic planning is required to ensure that you become irreplaceable. Look at great leaders in history—they all had the capacity for strategic planning: Disney, Jobs, Washington, Churchill, Marshall, and Khan—all of these people were incredible planners and that’s why their names will be cemented in history.
    6. FOCUS ON STRENGTHS AND USING THEM—Great leaders focus on their own strengths as well as the strengths of others and plan a way to best employ those strengths. In other words, they don’t complain that “everyone around here is stupid” or “I’m the only one who really works hard.” Those are limiting beliefs that will ensure you never get to where you want to be. Those who focus on the tools they have and how they can possibly be used to accomplish a goal will usually figure out a way to get it done, even if they are lacking a certain tool or trait. This is due to the fact that they are more mindful than those who only see faults in others.
    7. FOCUS ON RESULTS—At the end of the day, RESULTS RULE. PERIOD. END OF STORY! If workplace morale is down, month over month or year over year revenues are down, or there exists an exponential increase in the costs associated with doing business or some other massive problem, you must figure out what is not working right. What needs to be optimized? What needs to be innovated? Who do you need around you to accomplish your goal? Who is not a right fit? What must happen to make your world incredible both at work and outside of it? Results rule. Do not keep going down the same road because you’re used to it. What if a giant tree or sinkhole was blocking the road? Would you still consider the route? Of course not. A great leader would formulate a new plan of action and then implement it to get the desired result. Change your approach until the result you want is reached.

 

There they are: seven qualities of a leader. Remember though, it’s not enough to understand something intellectually. You must embody it. You must live it and keep on living it so that others will follow you and help you achieve your desires!

Finding Balance

On By seancovellIn business, Health and Wellness, UncategorizedLeave a comment

Finding Balance

What follows is a journal entry written to myself. If there is any value in it whatsoever for you, I’m grateful for that.

A fulfilling life is all about finding balance. So many of us live at the extremes of life, letting those emotions affect us negatively. Balance ensures mindfulness and control. Truly, the only thing we really have control over is our philosophy towards life, so let me suggest that you evaluate whether your personal philosophy contains balance in the extremes. Over-caution must be balanced with recklessness. Fear must be balanced with courage. Stress must be balanced out with contentment and joy. You must be determined to achieve something while also being mindful of why you do what you do. You must balance the desires and goals that drive you with gratitude and appreciation for what you already have. You must balance aggression with compassion. You must balance indifference with strong passions. You must balance strength with vulnerability. You must balance studying with teaching. You must balance good times with bad times.

You must balance the importance of what you are engaged in with the thought that “we are but a speck in the universe, spinning around and one day we will all be gone.” You must balance desires with restraint. You must balance the love you give unconditionally among all you love. You must balance earning with investing. Saving with spending. You must balance learning one side of an argument with the other (s). You must balance imposing your will with accepting others’ will. You must balance reading with writing. You must balance the idea that all lives are incredibly important with the idea that we are all fated with a death sentence. You must balance caring with not caring. You must balance giving with allowing yourself to receive. You must balance focusing on the future while remembering the past. You must balance what you know with what you don’t know. You must balance confidence with humility. You must balance the light with the dark. You must balance happiness with sadness. Sorrow and despair with hope, so that neither affect you adversely.

But, above all- you must balance emotion with reason.

Who Will Make It This Year?

On By seancovellIn business, Health and Wellness, PoliticsLeave a comment

The globalized marketplace has changed so much that millions of workers and business owners are struggling to keep up with the changing times. The marketplace now consists of billions of workers, many of whom are able to telecommute, and work in multiple countries from anywhere in the world. Employers seek out skills from not only their local community, but from around the globe. Millions of workers still struggle with this fact and have been slow to adapt. Worse, with rising debt across the globe, nations are forced to extract more wealth from producers, making it even more difficult to prosper. Inflation of the money supply only amplifies the problems. The U.S. dollar is worth only 3% of what it was back in 1913. So what needs to happen? Who will make it in the coming years and decades? Here are my predictions about who will thrive in the new economy.

-Business owners who are intent on taking their customers to the next level. Also, employees who will take their companies to the next level will thrive. As the competition for great labor increases, employers will look to hire only those that can further their businesses. They will not spend time training average employees.

-Those who do not have to be told (or reminded) to perform tasks required of their job. Those who perform at a high level are those who do not need to be told what to do after they have been trained. They instinctively know what is right for them and the marketplace.

-Those who would wake up early, work late and grind out hard work rather than party with friends. So many people believe their job is not part of their “real life,” so they don’t play full out and make excuses for why they don’t succeed. I’m here to tell you that as long as you’re working, your job is part of your “real life,” so show up early, stay late and outperform those around you.

-People dedicated to self-improvement. The marketplace is not welcoming of stagnation. Only people who want to go to the next level will make it.

-People who get obsessed with delivering value to others. Those who love their clients, coworkers and purpose will thrive.

-Individuals who work harder than they get paid for. If your boss says work starts at 9am, those who show up at 8:45 will find they still have a place in the business when and if cuts to labor are necessary. Those who show up late will be cut without hesitation.

-People who seek out opportunities—to invest, to grow, to have more responsibilities. Those who are okay with the status quo will be left choking on dust of self-pity and regret.

-Those who read daily to improve their skill set, enhance creativity and build the discipline of study will do well.

-Those who sleep when they are done, not when they are tired. I find that many people today would rather sleep, drink and party than go out and take action. Rest is fine, when you are done. Rest is not the reason you were put here on Earth. Although it feels good to stay in bed, what does it say about you if that is your favorite thing to do? Not much.

-Those who hold self-reliance in high regard. The highest form of success is truly self-reliance. It’s a lost art today, but it must be instilled into everyone that they must produce in the world so that others and themselves may benefit. The real way to love your fellow man is to work hard to enhance their life by performing in the marketplace.

-Those who play full out, with massive energy and positive attitude. These are things that all employers, lovers and partners are looking for.

-People who pride themselves on doing better and adapting themselves every single day. Our globalized marketplace changes so often and sometimes without notice, only those who seek to do better every single day will be able to adapt quickly enough to succeed.

-Those who do not complain about what is happening in their life, but instead work daily to improve upon the things they can change.

-People who smile and show up well dressed and ready to work. Rolling out of bed, looking like a slob will not have a place in the new economy. Unless you are a genius hacker or coder, I suggest you shower, put on decent clothes and make it a point to smile. I’ve never seen someone not get the job for dressing too nice.

-Those who surround themselves with people who are better than they are at something. I believe firmly that you become the sum of the five people you most associate with. Could it be that it’s time to be a bit more discerning about who you spend time with?

-Lastly, those who are obsessed and have a purpose. Only those with some form of obsession towards improving themselves and hitting goals will make it in the new economy. Those who are indifferent, would rather hang out with friends, be distracted and watch TV will be left behind. They will always wonder why others are doing well while they struggle.

That’s my list. Maybe it’s time to evaluate where you are. As a business owner, I know that I do. I never stop thinking about how I can evolve. I suggest you do the same.

In liberty and health,
Sean

Child or Adult?

On By seancovellIn Health and Wellness, PoliticsLeave a comment

Are you an adult or a child? This topic has been discussed much in the media with regards to the current state of millennials. According to Goldman Sachs research, over 30% of millennials (born between 1980 and 2000) live with their parents. The average age of marriage for the generation is 30, compared with age 23 in 1970. Fewer millennials have licenses and cars compared to previous generations. These are all major economic changes that will affect the economy in a major way. And while the law states that a certain age makes someone an adult, in reality, I believe that most people, not just millennials, lack the maturity to be considered such. Here are 20 ways to know that you’ve graduated from childhood into adulthood.

  1. You take responsibility for everything that happens in your life. It’s the highest level of maturity.
  2. You focus on the present and future much more than the past.
  3. You have stopped blaming your parents and upbringing for where you are in life now.
  4. You no longer blame others for the emotions you allow yourself to feel.
  5. You understand that you own your own body and must take responsibility for it and what it produces.
  6. You realize that your primary responsibility is to take care of yourself. That responsibility does not belong to another individual.
  7. You understand that people have different identities and that your values are not theirs.
  8. You stop focusing on trying to change others before yourself.
  9. You realize that everyone is working in their own self-interest, but even the honeybee, which does the same, brings life to the many plants while it serves its own needs. This is a positive thing.
  10. You take care of your physical health and work to improve it daily.
  11. You avoid making excuses about why you “should” do something but “can’t”.
  12. You only associate with those who bring value to your life.
  13. You are working on refining your philosophy daily.
  14. You look for opportunities instead of problems.
  15. You never beg for anything or ask anything of another without offering something in exchange.
  16. You are constantly looking for ways to add value to others through the marketplace.
  17. You have the desire to grow yourself so you can serve the ones you love.
  18. You keep your word and pay your debts.
  19. You do what you believe is right, not because someone is telling you it is.
  20. You have decided to live a great life that you have designed because you are the architect of your life.

 

An Open Letter to Democrats & the Supporters of the $15 Minimum Wage

On By seancovellIn Politics, Uncategorized1 Comment

By Sean Covell

CEO Fitness System

Bachelor Degree UC San Diego

As an employer and resident in California, I have had to hold my nose for the past decade as it becomes increasingly difficult to do business in the Golden State. While California has many things going for it–beaches, Hollywood, Silicon Valley–it does not have a friendly business climate. This state ranks 32nd on Forbes’ Best States For Business in 2015. The $15 dollar an hour minimum wage law, recently passed by the California Legislature (a gang of people dedicated to fundamentally altering the role government has with its citizens and non-citizens lives) and Governor Jerry Brown, will cause California to be ranked dead last.

My goal is to have as many politicians read this as possible and knowing that most politicians have an aversion to reading (especially their own legislation), I’m going to keep this brief. What follows are eight reasons why the new minimum wage law is damaging to the freedoms and pocketbooks of all citizens.

             The minimum wage artificially increases the price of labor. That’s right, labor has a price and the higher that price becomes, the result will be less overall labor participation. This is basic supply and demand. Most economics professors would agree. The tragedy is that workforce participation is already at a 32-year-low! What will it become after the $15 minimum wage? It will be even lower. Some economists may dispute this, but the honest ones will admit that, all things being equal, there would be more labor participation without a minimum wage. This cannot be refuted. It’s a simple truth. If the price of labor is lower, more people can be hired. The other real irony is that government loves to artificially increase the price of things it doesn’t like through fees, fines and taxes as to reduce their use– cigarettes, alcohol, big screen TVs and heavy vehicles are all subject. I guess the government doesn’t much like laborers either.

            The cost of living will necessarily be higher. A big argument from proponents of this law is that while the cost of food, tuition, rents and other consumable goods has increased, wages have not. Leaving aside all the other reasons why this could be–tax policy, subsidies for tuition and rents, people dropping out of the workforce and electing to receive welfare, inflated stock and real estate prices, inflation of the money supply– this is a classic example of the seen versus the unseen. What is seen is that prices have gone up. What is unseen is that government policy has contributed to this. What is also unseen is that forcing employers to pay more for labor will result in them having to raise prices to cover the costs. This will adversely affect the consumer. Ironically, it will mostly affect the very people this law aims to help, the minimum wage employee. They will not be able to absorb the inflated prices as well as other income groups. So while they may get a pay bump, they will not come out ahead.

            The minimum wage unfairly targets low-skilled and entry-level employees. The minimum wage on its face is really an unemployment law. It states that an employer like myself cannot hire anyone under the price the government sets. Therefore, anyone who could have been hired for $14 dollars an hour or less cannot be legally hired. Thus, unless they are deemed to be at least producing more than $15 an hour in revenue, they cannot be hired. The reality is that not all entry-level jobs produce the same amount of revenue. As a result, those who would have been hired for, say $12 or $10 or even less will have no job. Unemployment will rise among the groups that currently make minimum wage.

            It violates private and mutually beneficial contracts. If I want to wash windows for $5 an hour and an employer agrees to pay that $5 an hour in return for services rendered, why does the government get to tell me that’s not legal? In this instance, the government is violating basic agreements that allow the free market to function. The state is now a hindrance to free market exchanges and productivity. So what am I to do? If I cannot produce at least $15 an hour in value I must go to the state to receive welfare. This places the burden on the taxpayers across all income groups.

            The minimum wage unfairly targets smaller businesses. While politicians love to express their love for small business the truth is they much prefer large businesses to contribute to their campaigns. And while people think some chain restaurants and other businesses are large, in reality many are franchisees (small businesses that pay a fee for the Taco Bell or McDonalds name). These businesses, like my own, offer flexible hours and the opportunity to gain skills in the marketplace for entry-level workers and people who would simply like another part-time job. The net revenues of these business is not such that they can afford large salaries, high hourly wages or other perks afforded to state employees and employees of larger businesses. The employees and employers who will suffer are the local mom-and-pop-shop and the kid next door. They will be the ones to be out of business or out of a job.

            Price controls do not work. Look throughout history to regimes that have tried to impose price controls. They have always failed with many unintended consequences. Only entrepreneurs in the marketplace, with market indicators, can properly price goods and services. They are also the only ones who can truly determine how much someone should be paid in the enterprise that they built. Every time price controls show up, a black market pops up. This is the real economy.

            The cost to employers will be higher across the board. Few remember that what an employee is paid in their paycheck and what the employer must pay to employ that person are very different. The employer cost is much higher. In fact, the burden for almost everything from taxes to child support falls to the employer. When the minimum wage goes up, the employer cost for taxes, unemployment insurance and disability will increase as well. Moreover, workers compensation insurance is billed by the total dollar amount of wages worked by all employees in a tax year. This is yet another cost increase for the employer. Furthermore, and perhaps the biggest problem with this law, is that employees who now make $15 per hour or above will demand more money because they have a more refined skill set. How is it fair for an unskilled worker to make $15 when someone who has worked at a business for years makes the same? It’s not. And employers will be forced to increase wages across the board. Some businesses, because of market forces, cannot just go raise prices to cover the increased costs. The result? Less employers. Less employers=less employees=more people on government assistance. Simple.

            There is no requirement for increased productivity. Money is not wealth and it’s not what makes the economy run. If money was wealth, the government could just print us all money and we would be very wealthy. The problem here is obvious. More money in circulation will not result in more production. Increased wealth comes from an increase of productivity (output) and value in the marketplace. From an early age we are told to go to school and graduate so that we can learn more skills and produce more in the marketplace. Want a raise? Become more valuable to the marketplace! Refine your skills. Learn something new and apply it. The government and supporters of the $15 minimum wage do not believe this. They think workers deserve to make more by fiat. So they petition to government to make it so. Does the employer receive more value for the additional wages paid? No. Does the customer receive any more for the higher prices paid? No.

And there you have it. Eight examples of the “tyranny of good intentions.” This is what government does best. It only focuses on what it sees instead of the consequences of action. Let me be very clear: I believe that everyone should be paid more in every country across the world. I believe this can only come through adding value to the marketplace and increasing productivity. I do not know for sure how this will all play out long term. I do know that as an employer and entrepreneur, other states are looking much more “golden” than California.