When you work within the business bookkeeping industry you’re working with businesses on a day-to-day basis and in the modern economy, it’s common knowledge that many businesses do not always pay their employees above minimum wage depending on the different states and laws that apply within that state. With many of them lobbying politically to make sure the minimum wage stays the same. This seems like a no-brainer. Less paid in wages = more money for the business and the shareholders. Right? Yet more and more major companies go bankrupt every day.
It was Henry Ford who eventually figured this out. By paying his employees more, he was guaranteeing that they’d come back around and spend their money on his products. This recycled the revenue stream guaranteeing he wouldn’t be losing as much money to wages, with the rest of the profits still coming in from regular citizens.
As businesses kept lowering and lowering the pay rate they did not think through the consequences. What was going to happen when their employees couldn’t even afford their products?
When you consider that nearly every major corporation in the world uses this tactic, the impacts become quite noticeable. There’s not enough money for those working lower wages to purchase non-essential goods.
Since these companies began losing money, they began the layoffs and mediocre raises.
This is where the gig economy, where we are heading now, comes in. Companies no longer need to contract their employees, so they hire them only when needed. Always searching for a new job, hopping career to career, trying to make it last as long as possible.
Now, they blame the “Millennials.” These no good kids never picked themselves up by their boot-straps and spent their money on our products! That must be why we’re all still losing money! But alas, no. The “Millennials,” a derogatory term applied to the youth who were growing up when 2000 hit, never really had any money of their own. They were the first to see the gig economy in action.
They never had a chance to recirculate into luxury goods. They can’t buy diamonds or new cars because it’s a huge risk. What happens if they lose their current gig? So, instead, they save the money when they can, and the rest is spent on essentials.
The process of this siphoning will continue onwards, causing this to become more prevalent as long as these companies do not treat their employees well. Eventually, it will have to come to an ugly end as more companies go bankrupt from the lack of recycling their income.
As a business bookkeeping firm, we can help keep your business from falling into the gig economy cycle. Click here for your financial health check today!
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