WARNING** The looming consequences of a minimum wage increase...
In this solo YouTube monologue, Leila Hormozi, co‑CEO of Acquisition.com, explains the federal plan to raise the U.S. minimum wage from $7.25 to $15 per hour by 2025 and examines how the change will ripple through businesses of all sizes. She outlines how higher state minimums raise the salary threshold for exempt employees, forcing many firms to either increase salaries, reclassify workers, or face overtime costs. Hormozi reviews the typical pro‑minimum‑wage arguments—cost‑of‑living adjustments, stimulus spending, and reduced reliance on government assistance—then systematically counters them with historical data showing layoffs, hiring slow‑downs, and a shift toward automation whenever wages rise. She argues the policy treats a symptom rather than the root cause of low living standards. Hormozi predicts that businesses will respond by raising prices, investing heavily in technology, moving to project‑based or contractor models, and increasingly outsourcing to overseas talent. She offers three concrete strategies for margin‑thin owners: (1) accelerate automation and AI tools, (2) transition to project‑based work, and (3) explore overseas hiring or PEO‑style arrangements. Throughout, she maintains that while the intention to raise wages is well‑meaning, the long‑term impact will likely be a vicious cycle of higher costs, price inflation, and reduced opportunities for low‑skill workers.
Chapters
What is up? Welcome to my channel. My name is Leila Hormozi. I'm co-CEO of Acquisition.com, which is a portfolio of companies with 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. 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 hourly employees wonder how this is going to affect them. And so just to kind of explain, if there's higher state minimum wages,, then the minimum salary for an employee to be exempt is going to change. Because what this means is that employers 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 salary so that they cannot be classified that way. So that being said, 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 as a trend across a lot of specifically more liberal states or more Democratic states. They're trying to push for this. And with this, you actually see, uh, you know, I don't really think it's done well for California because a lot of businesses are moving out of California. It was like their worst year since like— I can't remember what 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 arguments 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 a 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. Price of gas, the cost of housing has 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 to 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, yada yada. That part makes sense. Just in context of 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 have been 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 fuck 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 that 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 saying that's happened nearly every time we'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 would. A business owner looks at this and says, what is my most costly resource? What is 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, shit, I got to figure out a different way to, 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, or reason 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 $7.25, 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 $7 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 going to happen is that people that were being paid $7 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 at a job. But for those that are worth $7 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 and the business, it doesn't run. I think that they're just not going to hire those people. And so I find it's unfair that you can't allow someone to say, hey, I'll take a job for $10 an hour or $12 an hour because that's better than nothing. Instead, you're just saying your option is zero. Is 0 or 15. That's it. And you're not giving those options in between, which to me, again, I just don't think that that's helpful. I think people should at least have the option. Like, if they want to take a job where they make $10 an hour because they can't get a job at $15 an hour, then like let them take the job at $10 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 the 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 in 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 the standard of 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'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, outsourced 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 because it's going to be in 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 3 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 it was $3 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 come up with 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 in 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, Web3, 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 gonna pay someone by the hour, I'm gonna pay someone by project. And so it's gonna be 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, 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 are like, well, how do I do that? And 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 US. I think that that's gonna be exposed as an opportunity and it's gonna go away because more people in the US and more companies are gonna 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 and they're going to figure out how to do it themselves. And so it's basically, if I were a business with 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 of living is going to go up again. And so it's just this vicious cycle we have to continue 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 going to 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 would be looking at contractor work. And so I know that a lot 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 would be planning and figuring out with my business, how can I integrate that in so that I am, 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.
