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Labor: Friend or Foe to the Small Business Owner?

Sep 08, 2020


As we celebrate Labor Day in 2020, I reflected on how this holiday came to be. As I started doing research on labor movements throughout the last century, it was obvious that trends in the labor can be quite helpful and harmful for us small business owners in the next century. Today’s blog post is a history lesson of the U.S. labor movements and a close examination of current trends that are important for small business owners.

History of Labor

In the late 1800’s and early 1900’s we experienced the industrial age where most farmers became employed by miners, oil exploration companies, or manufacturers. This shift in labor allowed large monopolies to literally own the lower-class workforce.

By 1900, America was responsible for one half of the world’s manufacturing, but only 45% of American workers lived above the poverty line. Local labor unions decided to connect with other unions to start forming larger unions to combat poor working conditions, and low pay. This coalition was able to get a few states to enact legislation to celebrate the workers through a holiday that we now know as Labor Day.  The federal government made Labor Day an official holiday in 1894.

Our industrial revolution had more fits and starts in the early part of the 20th century. Labor rights and labor unions were instrumental in protecting most Americans during this time. By 1954, private sector union membership had peaked with 32% of all private-sector workers belonging to a labor union. Since this time, private-sector labor union membership has dropped to 6% (2019) of all private-sector workers.

You can ask why private-sector union membership has dropped… but I think it’s obvious to anyone paying attention. Corporate greed trumped union greed.  Let me explain. Large U.S. corporations were quite successful in lobbying for abolishment of import taxes calling it “free trade”. They shipped most skilled and unskilled labor overseas to compete with other global corporate giants. High corporate and marginal tax rates fueled this move.

In the meantime, we rightly deregulated our phone systems, natural gas utilities, airline travel and many other services in the 1970’s. With deregulated services, consumers paid much lower rates. With the increased competitive pressure, service providers in this deregulated environment couldn’t afford higher union salaries.

The Public Sector

At the same time private-sector union membership was dropping, public sector unions were expanding. Public-sector labor unions grew membership from 10% in 1960 to 33% in 2019.

There are three strongholds that unions still have in the U.S.. The U.S. Postal Service, public school teachers, police and regulated private-sector utilities. Yes, there are still private-sector trade unions in construction trades, but they are dwindling.

Small Businesses & Labor

I’m a small business coach and so you can ask, “Jeff, why are you spending so much time talking about the history of labor unions?”

It may interest you to know that there are 14.6 million union members (7 million of which are in the private sector) and close to 28 million small business owners or self-employed individuals in the United States.  Even though there are many more business owners than union members, us small business owners have very little say in workplace policies compared with labor union influence. Here are a few examples:

Minimum Wage

The current federal minimum wage is $7.25 per hour. The highest state mandated minimum wage is $14 per hour in Washington DC. Many other states have targeted a minimum wage of $15 per hour in the next 10-years. On the surface, this sounds like a great deal for labor. Right? I mean they will get more money and supposedly be able to afford a better standard of living. Unfortunately, what this really means is that the poverty rate will increase with the minimum wage. This means that the buying power of a minimum wage earner diminishes at an equal rate as the minimum wage increase.

Why should small business owners oppose minimum wage increases? First, as the minimum wage goes, so goes inflation and so goes the wages of all your other workers. This isn’t a problem if you can command higher prices for your products and services. Unfortunately, most consumers remember the old price and are reluctant to purchase your products and services at a higher price. Multi-national companies figure out ways to ship the jobs overseas and reduce their production costs. Not so easy for the small business owner who provides local service with local employees.

Unionization

As you’ve already learned, unions are not so popular in the U.S. economy’s private sector. They have forced jobs overseas and most large groups of employees believe their true leverage is working for a large competitor of their current employer. Unions have found a stronghold in the public sector but are also looking strongly at trying to increase membership by advocating unionization with smaller employers they feel cannot easily move their workforce overseas.  If your business becomes a union company while your competitor remains non-union, it can negatively impact your business.  The best thing you can do, if your employees are considering unionization is to communicate the pros and cons of such a move. More employees are understanding that the viability of their employer is important to their job security. And the viability of you as an employer is diminished with unionization.

Regulations

Our government has a role of regulating business to protect consumers and employees of businesses. While this is a noble task, since small business owners have a disproportionate representation when these regulations are made, they will be harmed by well-meaning regulations without even being aware they are subject to the new regulations. There has been a focus on trying to keep these regulatory requirements on employers with greater than 50-employees. Be aware when you cross these thresholds, because obeying the regulatory requirements will cost you money, time and affect your business in ways you may not be able to anticipate.

Taxes

With the addition of regulations and the fact that public unions are driving up the cost of public services, someone will have to pay.  While large multinational corporations are dodging taxes abroad, and the threshold for receiving free government services is always rising, most of this added tax burden will be paid by the small business owner.

The Bright Side

Enough gloom and doom about regulations and higher taxes. This is a great time to start or grow your small business. Probably better than any time in our history.

First, there’s an extremely low threshold to start your own business. In fact, the small business landscape is so good that many stay-at-home moms, and skilled employees are trying their hand at starting and growing their own business.

While there is plenty of opportunity, the landscape is shifting fast and small entrepreneurs must be diligent to take advantage of this amazing time and opportunity. As labor unions diminish in the private sector and the regulated and public sector opt out of union control, this opportunity will explode.

Service Businesses

There are some amazing opportunities to serve local home and business owners with the services they will always need. HVAC repair, plumbing, electric repairs, construction, restaurants, and other services. While franchises and franchise owners have made some headway in this area, most of these services are still dominated by locally owned businesses. If you own one of these businesses, make sure people can easily find you on Google and you can provide quick and convenient service that can be purchased online.

Consulting Businesses

The information available on the internet has exploded. Anyone can do a Google search and find almost any information they want. This explosion has caused two other challenges that consultants can leverage: 1) application of information; and 2) clarifying information. Consultants are masters at both tasks. As a business coach, I happen to be in this category of small business owner. If you can create a training system, or system that helps others who are trying to join the small business revolution, your consulting business should and will grow.

The Digital Giants

There’s a love-hate relationship with many of our digital giants. When I talk about digital giants, I mean Facebook, Google, Amazon, Microsoft, Apple, Samsung, Sony, eBay, Comcast, Cisco, and any wireless phone company. On one hand, us small business owners love the tools these giants provide that open new business opportunities and allow us to streamline our business. On the other hand, we see the monopolistic tendencies of these digital giants that can restrict availability of various digital products and services. Whether you love them or hate them, these digital giants are here for the foreseeable future… so you need to at least be aware of how their products can benefit your small business.

Deregulated & Privatized Industries

In the 1970’s and 1980’s we had a deregulation effort that revolutionized many of our overpriced industries. Think about it. A long-distance call in the 1970’s would cost upwards of $2 per minute for an international call. Today, we can connect with someone internationally on a digital phone for next to nothing.

The one utility that can still be deregulated is electricity. It is deregulated in some states. When electric deregulation takes hold nation-wide, there will be an explosion of metering technology, billing technology and even site generation technology. This combined with a move to green energy presents a bundle of opportunities for small entrepreneurs.

The public sector has its place in many areas. However, the mail service and our public education systems are under major scrutiny as I write this blog post. With the COVID-19 pandemic and associated lockdowns, parents are discovering alternative ways to educate their kids that don’t require the expensive infrastructure of a public-school facility. Both college and K-12 levels of education can see a great revolution in the next decade. This revolution presents an amazing opportunity for entrepreneurial educators.

As far as the mail service goes, many love the U.S. post office, but it’s crashing under it’s own financial weight. For an institution that’s supposed to be financially self-supported, it is losing $8-Billion per year. What opportunity does this present for small businesses? It’s hard to know… the USPS could decide to outsource its delivery, it could use consultants to help it get it’s fiscal house in order, or the USPS could be completely outsourced to franchise owners like Mail Boxes Etc. or FedEx or UPS. If you own a small business that heavily relies on USPS, you may consider how delivery price increases may affect your business.

The Internet

The internet has been a major factor in small business growth since the late 1990’s. And yet, some small business owners act like it can be ignored. Here are the Internet opportunities you can’t be ignoring if you want to be a successful small business owner in the 21st century.

Digital Marketing

If you’re a local business, you must have a prolific Google business page and great search engine optimization (SEO) so that people can find you on the internet. It doesn’t matter if you are a restaurant, a plumber, or a flower shop. If someone can’t find you on Google, you don’t exist.

If you sell electronic products or ship your products locally or globally, you must create a digital presence and understand how to advertise your business on the appropriate social media platforms.

Delivery & Takeout

If the COVID-19 pandemic has taught us one thing in 2020, it’s that we can accomplish a lot of work from the comfort of our home. More and more people want the convenience to get the stuff they order at home within no more than 2-days. If you’re a retailer, open an Amazon store. If you own a restaurant, make it easy for customers to order takeout or get delivery.

There are many other opportunities being opened by technology. I encourage you to think outside the box when it comes to growing your small business.

What to Do

Labor has been and will always be a highly valuable part of our economy. Strong work ethic and highly skilled workers should be rewarded at every opportunity.  Here’s a list of items you can do as a small business owner to attract great employees and thrive in the upcoming years.

  1. Treat your employees as good as you can. Be respectful and encourage them whenever they do good work.
  2. Develop and train your staff to be better and earn more as they become more valuable to your company.
  3. Strongly consider rewarding your employees with ownership when they have demonstrated the maturity lead.
  4. Understand and comply with regulatory requirements.
  5. Vote for politicians who support small businesses and are not taking money from labor unions.
  6. Streamline and automate as many of your processes as possible to reduce dependence on excess labor. Especially, tasks that currently require minimum wage employees.

Small business owners have been around since the founding of the United States. Early in its history, small business owners were black-smiths, small general store owners, and taverns. Unlike the monopolies and oligarchs, small business owners are forced to treat their workers fairly for fear of losing them to another business who offers their employees a better deal.

While there have been advocates for labor movements, us small business owners will probably never get recognized by our own national holiday.  In the meantime, celebrate Labor Day and take the day off… you’ve worked harder than most will ever know with no overtime pay or minimum wage.

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