When pay is not primary.

IMAGINE YOU and some of your work mates lost your jobs today. As you commiserated around the bar and in the midst of your anger, maybe you'd say, "Wait a minute. We don't need to start looking in the want ads for a new job because we can start our own business. We can compete with the S.O.B.s who laid us off."

After all, you'd reason, your group has the most important ingredient: market intelligence. You know how your industry works. You know the customers. You know the best people to hire.

In fact, your little barroom group has about everything you need to start your own business. Maybe you don't have much money, but you figure you could work out of your homes for a while and everyone in your group has enough savings to get by for a few months. And while you can't afford to pay salaries, you can promise that all early employees will get a share of ownership of the new company. And that eventually would be valuable if your start-up company is successful. So you're set to go.

"Wait a minute," someone says. "We can't do that. We've got to pay at least minimum wage."

Indeed, minimum wage in California is $6.75 an hour. The federal minimum wage is $5.15 an hour. As an employer, you'd have payroll taxes on top of that. What's more, there's a move in Sacramento to boost the state's minimum wage to $7.75 an hour and then index it to inflation. (For more, see the new Regulation Watch column on Page 7.)

So, if you and your newly unemployed colleagues put pencil to cocktail napkin you may well conclude that, no, you can't afford to start your own business, thanks to the minimum wage law. Instead, you go back to commiserating with your mates and you start scanning the want ads for a job.

That scenario is a bit simplified. There may be a loophole that would let you evade the minimum wage law, although there may not. Nonetheless, the point is valid: Untold numbers of great little businesses are stopped before they're started.

In the debate over whether to raise the minimum wage in California, several points will get made. Proponents will argue that it's nearly impossible for a single wage earner to support a family on minimum wage. But opponents will counter that business owners faced with a requirement to pay higher wages often employ fewer workers. Or they send their work offshore.

Both sides make valid points. But the argument that tends to get overlooked--and one that' s quite important--is how the minimum wage tamps down on entrepreneurship. Many jobs just don't get created because of it.

Minimum-wage proponents seem to believe that pay is the primary and motivating force for all workers. It is for most, but not all.

In fact, pay may be secondary or even unimportant for retirees looking for something rewarding to do, housewives gearing up for a return to the workplace, students looking for real-world experience for their resume--or a cadre of just-dismissed workers who are itching to start a business to compete with their former boss.

Unfortunately, minimum wage laws basically prohibit such would-be workers from getting the experience they seek. And the laws keep many would-be entrepreneurs from starting businesses that could lead to permanent jobs that pay a lot more than minimum wage.

Charles Crumpley is editor of the Business Journal He can be reached at ccrumpley@labusiness journal.com