https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_...
An enterprise which cannot pay the full cost of its inputs isn't an economically viable activity. It's a charity benefiting its owner.
(1) insufficient wages (per Adam Smith) as set by private enterprise
(2) private enterprise usage of services/infrastructure as provided by government above and beyond their share of taxes
So, between Walmart (or MacDonald's, etc.) and such employees, who is the beneficiary of charity here (at least in the Adam Smith sense)?
Now, if they were directly contributing to an increase in public funding, then we might wish to discourage that. But if they wouldn't hire the worker, they would necessarily be paid less or not at all (else they would quit; abstracting away from inefficiencies which may make this inaccurate). So Walmart's decision to offer a wage that's the best the worker will get, yet is not livable by itself, still benefits the government, because otherwise the entire cost falls on the government. Mandating a minimum wage, and letting those workers become unemployed, just makes things worse.
Of course, this assumes that increasing the minimum wage leads to a decrease in jobs, which is itself controversial.
I'm not sure what you mean by "My point was the reverse" - "public good" is not charity I guess?
I'm trying to wrap my head around how a less-than-living wage is a necessity for certain kinds of industry to function profitably, and that, furthermore, indirect government subsidies to them via handouts are essential enablers. Is it that consumers perpetually undervalue the products of retailers and restaurants? Or is it that without the subsidies many retailers and restaurants would face much "pent-up demand" (as economists may call it)?
Frankly, for money to have any meaning to it, this situation must somehow have a cash-flow that at minimum breaks even. I.e., if these industries are gainful, that gain should somehow be reflected in the tax revenue back to government, the compensations to executives, the dividends to shareholders, etc. Which means if this is a good deal for the government, does it at least breakeven on the handouts it has made? Not sure if that is happening - there's certainly plenty of think-tank whitepapers available that declare social programs as unsustainable (e.g. http://budget.house.gov/uploadedfiles/rectortestimony0417201...).
But here are some fun factoids: From http://www.marketwatch.com, I get for McDonald's a net income about $5 billion on revenue over $25 billion; for Walmart it's a net of $15 billion on revenue over $480 billion. marketwatch.com also shows revenue per employee of $60,507 for McDonald's, and $209,622 for Walmart. So there's money to be made in cheap food and cheap goods. So, let's see, a $5/hr increase for a 35 hr workweek and 50 workweeks in a year comes to a $8,750 hit to the revenue per employee amount. So maybe a 14% increase in the price of fast-food burgers and 4% increase in white socks?
So in light of growing government deficits, growing corporate profits (well, we'll see about 2016 - http://www.bea.gov/newsreleases/national/gdp/2016/gdp4q15_3r...), and reasonable (whitepaper-ishly anyway) suggestions on the unsustainability of the "public goods" collectively known as the "Welfare State", in this discussion on whether wages need to have some sort of mandatory minimum - well, what are we to make of this? Too many economically useless people?
And of course, doubling prices makes less sales, so doesn't double revenue, it might even reduce revenue.
Re reverse: you said "above taxes paid" for roads, which I didn't mean to imply.
Regarding your "break even" idea: suppose the most someone's labor is worth is $22500 a year. Suppose the minimum required to live is $30000. The government has decided that nobody should starve, and so any outcomes where this person starves are not to be considered. There are two options: allow them to work for $22500 or less, whatever the market will pay, and pay $7500 from welfare, or forbid them from working, and pay them $30000. I don't see how the second is preferable to the first.
So if you believe that raising minimum wage hurts jobs (an empirical question that has economists on both sides), then you shouldn't support.
The other model you could have is:
Value of labor is $30000, but there's so much labor available that the market will only pay $22500. Then, mandating a minimum wage does raise the amount paid, although it can still have negative effects elsewhere.
Probably both models are correct for different jobs, and the question is which one is more often correct. I'm also neglecting inflation, part time, disincentives to work, and so on.
As I understand it deficits have been shrinking. Where are you getting the growing stat from?
I wonder if we're starting to talk past one another. I'm just a layperson here, but I believe I got the meaning of revenue (http://www.investopedia.com/terms/r/revenue.asp) and net income (http://www.investopedia.com/terms/n/netincome.asp) right. So, revenue is all the money coming in, and revenue per employee really is all money coming in divided by the number of employees. If more money is needed to cover a wage increase, one needs an increase in revenue. Apparently, profit is sometimes synonymous with net income, and sometimes it means what's left of net income after taxes and dividends are paid. In any case, it is not impossible for profit to stay about the same while revenue is increased; that all is dependent on where you're at on your supply-and-demand curve on whether sales are terribly affected by a price increase. E.g., remember when gasoline approached $3.50/gal (http://www.statista.com/statistics/204740/retail-price-of-ga... didn't effect sales by much (http://www.statista.com/statistics/189424/us-alternative-and...). I'm willing to bet that burgers and white socks will move about the same.
>As I understand it deficits have been shrinking
I get where you're coming from, in the past few years deficits have decreased, and considering the mess that revealed itself months before President Obama's inauguration, one would certainly hope dramatic decreases would come and soon. However, I've been around long enough (ok, alive in the 1970's) to remember when deficits began to be so on the minds of people generally and be a general concern. Check out https://www.whitehouse.gov/omb/budget/Historicals, and http://mediamatters.org/research/2015/10/19/new-data-debunks.... Aside from several good years in the Clinton administration, it's been mostly deficits at substantial or significant levels. Pick a reasonable window of time between now and 10 years or 20 years or 30 years ago, and fit a trend line. You'll find the trend is still highly suggestive of increasing deficits (no matter if Obamacare makes these future increases smaller, https://www.cbo.gov/publication/50252 and https://www.cbo.gov/publication/49892 and https://www.cbo.gov/sites/default/files/51118-2016-03-Budget...).
>Regarding your "break even" idea
Yep, it's just my conjecture. But your counterpoint conveniently side steps on just how the government produces the $7500 in your example. Raising taxes? Issuing more Treasury bonds? Perhaps you could elaborate on this?
If that's the case, then Walmart could double their profit now by raising prices. I doubt this.
If you assume revenue goes up without an increase in costs, then yes, but there's little reason to assume that. Walmart carries millions of products, and to assume they can raise the price and not lose sales is wrong.
> But your counterpoint conveniently side steps on just how the government produces the $7500 in your example. Raising taxes?
I had in mind using taxes. I didn't discuss a shift in policy which requires a change in revenue, I was describing the end result. Government raises funds and spends it.
T-bonds are just spending future tax money.
>If you assume revenue goes up without an increase in costs, then yes, but there's little reason to assume that.
Well, let's review, and please check out my math below. I did some more googling and copy-pasted what I found.
(copy-paste:) Revenue is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold.
Hence revenue is an amount independent of costs. Two ways to raise revenue, by definition, is to raise prices or increase sales.
(copy-paste:) Profit is a financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business.
Hence profit (and not revenue) is the amount that is dependent on costs. Note that net income is often considered the same as profit.
Raising wages raises costs. Without a respective increase in revenue, profit is impacted.
(copy-paste:) Profit margin represents the percentage of revenue that a company keeps as profit after accounting for fixed and variable costs. It is calculated by dividing net income by revenue. The profit margin is mainly used for internal comparisons, because acceptable profit margins vary between industries.
For Walmart, quarterly profit margin is about 3.5% (https://ycharts.com/companies/MCD/profit_margin).
For McDonalds, about 19% (https://ycharts.com/companies/MCD/profit_margin).
So I was suggesting that increased labor costs could be balanced with increased revenue brought about by increased prices. For example, a 4% increase on a 10-pack of white socks that was $7.50 at Walmart is now $7.80. A 14% increase on a Big Mac that was $4.00 (http://www.fastfoodmenuprices.com/mcdonalds-prices/) is now $4.56. With some market research maybe we can figure out how many fewer socks and burgers get sold. But hey, at $4.56 a Big Mac it's still cheaper in the US than in Sweden and Norway (http://www.economist.com/content/big-mac-index).
An alternative to price increases is to accept a lower profit margin. Let M=Profit Margin, R=Revenue, C=Costs; hence M = (R - C)/R, straight from the definition of Profit Margin. We can show with some algebra that we can take R and C on a per-employee basis and M = (R - C)/R still works with per-employee numbers. Also, M = 1 - C/R. Via algebra, we can find the per-employee costs: C = R(1 - M).
Let W be whatever increase in labor costs to be considered (per employee).
Let C1 = C + W, the new cost from the increase in costs from labor.
Let M1 be the new profit margin after the more expensive labor takes it hit. Again via algebra, M1 = M - (W/R).
To keep the math easy, we'll consider a W where the hourly cost of labor increases $1 for the year (per employee): $1/hr 35 hr/wk * 50 wk = $1750. Now, a $5/hr increase to the employee would mean $5 plus FICA taxes etc. to the employer. So let's then consider a total increase of $6/hr of labor costs too.
For Walmart, then, every dollar to labor is a $1750/$209,622 hit to the profit margin, or barely one basis point (0.835 bps).
For McDonalds, it's $1750/$60,507, or 2.89 bps.
So if Walmart doesn't want to budge from their spot on their supply-and-demand curve (whatever that may be), i.e. doesn't change prices, then in absorbing an additional $6/hr labor cost would mean settling for a profit margin of 3.45% (=3.5 - 6 * 0.835 / 100).
And now McDonalds, for them it would be 18.8% (=19 - 6 * 2.89 / 100).
So how'd I do?
209k is revenue. Profit per employee is that times profit margin, which is around 7k. 6 times that $1750 figure is well above profit.
Or just take the 2 million employees they have, multiply by 8 thousand, and get 16 billion, more than their profit.
Redoing the math: Walmart, PM = -1.51% (=3.5 - 6 * 0.835); McDonalds, PM = 1.66% (=19 - 6 * 2.89). Clearly not tenable.
For the giggles, I then went I calc'd on price increases (putting aside supply-and-demand considerations) to cover $6/hr increase. PM and Markups came to 3.3% and 5% for Walmart; 16.2% and 17.4% for McDonalds. These are gross overestimations to be sure, since the approach is akin to giving every employee a huge wage boost, but really we need to know what proportion of employees would get the increase to meet some minimum wage level. Study at https://www.purdue.edu/newsroom/releases/2015/Q3/study-raisi... puts it around 4.3% for restaurants.
Anyway, plenty of good opinions on what we might see: http://www.usnews.com/news/articles/2015-12-22/minimum-wage-..., http://www.frbsf.org/economic-research/publications/economic..., http://evans.uw.edu/centers-and-projects/minimum-wage-study.
OK, this horse has been flogged pretty good.
And yes, this will automatically be around as much as the average company pays in taxes. If the total spent is equal to the total collected in taxes, then the average company has as much spent on it as it pays in taxes. The differentiation among companies/individuals is government picking winners and losers. Just like the fact that the wealthy pay more in taxes and the poor receive more means the government is picking certain individuals to have more spent on them. There's nothing wrong with that, of course, it's just what society decides.
"Taxes" is just the revenue column for society's ledger.
You're missing the point.
I also didn't make my point very well:
For the last 40 years, society's tax burden had steadily shifted from corporate profits to labor. In other words, people now subsidize business.
Now that corporations are people (too), it's unfair to exclude them from the opportunity to subsidize business.
Yes, and if the societal benefit to sociatal spending was less than the cost of revenue, then it's a net loss to society to have such a thing.
Meanwhile, I'm still chewing on two other notions.
"Taxes" is the government's way to stimulate demand for money. Kinda flips the model on its head, reversing the flow of information, which is not yet intuitive for me.
Taxes and procurement are just means to transfer wealth.
<quote>
Of the Expense of Public Works and Public Institutions
The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain. The performance of this duty requires, too, very different degrees of expense in the different periods of society.
After the public institutions and public works necessary for the defence of the society, and for the administration of justice, both of which have already been mentioned, the other works and institutions of this kind are chiefly those for facilitating the commerce of the society, and those for promoting the instruction of the people. The institutions for instruction are of two kinds: those for the education of youth, and those for the instruction of people of all ages. The consideration of the manner in which the expense of those different sorts of public, works and institutions may be most properly defrayed will divide this third part of the present chapter into three different articles.
...
That the erection and maintenance of the public works which facilitate the commerce of any country, such as good roads, bridges, navigable canals, harbours, etc., must require very different degrees of expense in the different periods of society is evident without any proof.
</quote>
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book V, Of the Revenue of the Sovereign or Commonwealth. Chapter 1: Of the Expences of the Sovereign or Commonwealth
https://en.m.wikisource.org/wiki/The_Wealth_of_Nations/Book_...
I'm kind of a big fan of people reading Smith, actually reading and reading him, not simply seeing someone else's interpretation (my own included). It's a bit of a big deal.
https://www.reddit.com/r/dredmorbius/comments/4cyroa/adam_sm...
What is the difference between roads and welfare, in your understanding?
I'd suggest reconsidering your scheduling priorities.
Think about high school kids trying to get a summer job. They don't need to survive on this wage, they simply need something productive to do over the summer.
Should my business be required to shell out $15/hr for a high school kid, when the value of his/her labor is way less than that?
I pulled my (small) suburban cities budget which is a many hundred page long PDF and parks and rec runs 40-something neighborhood city playground type parks and 2 pools on 2.3 million total per year. Of which staggeringly only 1.5 mil are wages (we live in a rough climate, maintenance costs are high, over $100K spend on electric bills alone, etc).
On the revenue side the two public pools combined pulled in about 1/3 of a million from fees collected at the door. Its pretty cheap compared to commercial entertainment (movie, restaurant, etc), they could certainly charge more without excluding too many people, given how much it costs to live here.
I know from experience that they have a couple kid lifeguards at each pool all the time so lets say 10 total staff at all instants (LOL no) at $15/hr for 10 or so hours per day (LOL no not open that much), open about 100 days a year (LOL no they'd be ice skating in the spring on the pool if that were the case), if I multiplied this out correctly in my head, at $15/hr, the kid lifeguards cost $150K/yr while bringing in $340K of revenue. Note that I don't have the misfortune of living in CA, so the actual cost of a seasons lifeguards at the two pools is more like $80K.
The cities very gross profit margin if by a miracle pools were free to build and maintain, just revenue divided by kid labor, is roughly $340K/$80K right now and if the min wage were $15 it would "collapse" to $340K/$150K which still ain't bad.
Honestly I suspect the pool spends more on chlorine and electricity than on the kids labor.
The capital cost is no laughing matter. The most recent ADA compliant complete remodel was something like $2M which for that one pool is roughly a decades revenue.
This quick analysis leads to the conclusion that open hours for the pool are insanely profitable, and the "pool biz" is overall dominated by capital costs. The kids pay is irrelevant.
HTH
[0] http://mobile.nytimes.com/2014/06/10/upshot/minimum-wage.htm...
Also alarming is that the unemployment rate for young black men (16-17) is 45% right now.
"People at or below the federal minimum are:
Disproportionately young: 50.4% are ages 16 to 24;
24% are teenagers (ages 16 to 19).
Mostly (77%) white; nearly half are white women.
Largely part-time workers (64% of the total)."
http://www.pewresearch.org/fact-tank/2014/09/08/who-makes-mi...
A high school kid making money regardless of his family's wealth is making money as a supplement to what the parents or guardians should already be receiving from the government or otherwise, assuming they aren't emancipated but that is a very special case. If the parents can't afford to meet the basic needs of their child despite how ever much welfare they receive then why should the state allow for a child to remain in that home?
There are frequently waiting lists, restrictions (my favorite is disability, where you are not allowed to work, but are given barely enough money for yourself to live on), and miles of red tape associated with government subsidies. There's also the very real cost to the pride of the entire family associated with these subsidies.
> why should the state allow for a child to remain in that home
Because moving a child is incredibly traumatic for the child and expensive for the state?
The teens most likely to work are not in school, and thus they actually need a living wage.
Youth enrolled in high school had an employment rate of 18 percent. This is down from 36 percent in 1995: http://www.childtrends.org/?indicators=youth-employment#stha...
And, again, the youth working while in school are more likely to come from lower socio-economic strata. They may in fact need that money.
And is that a good thing or something we should try to reverse? Employment has a ramp-up like anything else.
Trying to create a total order by comparing the two alternatives goes down a bad road. There's always someone in need, but if you try to optimize the entire economy around that one story, you will have a disaster.
Maybe it's best to just have more jobs, period, even with low pay? And then make up for needy cases some other way?
Why should that be anyone's responsibility but the company? Why should my tax dollars be used to subsidize some greedy business guy who can't be arsed to pay their employees enough to live on?
Yes. Otherwise why would you hire the someone who actually does need to live on that wage?
Minimum wage is stupid - if you need people to get a higher income than the value they can output, you need to supply that additional income through social grants. Forcing them out of work by allowing robots to undercut them is idiotic when they are willing to work.
Just so I can understand your argument better, can you elaborate this a bit more? How do you measure their output? How do you arrive at the dollar value?
This is what it means to run a business, to ask and answer that question and act upon the answer. If you answer correctly in a sufficient number of instances, your business succeeds and you are profitable. If you answer incorrectly in too many instances, your business fails.
A minimum wage puts a floor on labor costs and that will be an added constraint in the business model. For some business models, that added constraint may make the business unworkable. For others it may mean that prices need to be adjusted, or the number of workers and/or the type of worker hired needs to be changed. Perhaps it means changing the hours the business is open to manage staff costs. Maybe it means purchasing a machine to eliminate a worker because now the machine is cheaper than the worker whereas before that wasn't the case.
If you have an opportunity to talk to a small business owner that employees part-time, close to minimum wage workers, ask them what they have already done to adjust and what they intend to do. The affordable care act has already forced many employers to cut hours to their part-time workers to avoid the extra fees that kick in at 30 hours. Many employers will implement changes to their staffing long before the actual minimum wage change kicks in. This is called "running a business", which means planning ahead.
Empirically, it seems like the same is true at the bottom of the income distribution ([1], [2]): if you give someone food stamps or cash assistance, they're less likely to work for the same wage. Means-testing the benefits makes the effect stronger, since the phase-out of benefits is equivalent to an additional tax and high taxes also discourage work.
[1] https://www.economy.com/dismal/analysis/datapoints/253947/Go...
[2] https://www.cbo.gov/sites/default/files/112th-congress-2011-...
This would be the perfect system, but the current system is that the difference between the maximum employment wage (low) and minimum wage (high) is paid by the company, not the gov, causing unemployment.
A negative income tax is the preferable system here.