"What do you think will happen if you actually GET $15/hr?"
"Do you expect your employer to keep his same prices and same amount of work force and just eat the labor cost?"
"What happens if you make $9 now, make $15 tomorrow, but tomorrow the prices of everything you buy suddenly doubled?"
Many will simply eat the cost, actually. The minimum-wage debate is more about politics than economics. There's not as many minimum wage workers as people think, so for very little economic cost, you can increase the quality of life for the lowest paid workers in our society.
A few businesses may be forced to change, but those are the ones that run razor-thin margins.
> What happens if you make $9 now, make $15 tomorrow, but tomorrow the prices of everything you buy suddenly doubled?"
Nothing will double in price. Given the amount of minimum wage workers that actually exist in the US, prices shouldn't increase by more than 5%. Anything more would just be opportunistic gouging.
The minimum-wage debate is more about politics
than economics
3.3 million is about 2% of the workforce of the US. The point I'm making, is that the economic cost of the price increase (which is the argument made against minimum wage increases) is far less than the tangible quality-of-life benefits to those 3.3 million workers.
I'm for raising the minimum wage BTW. Because the pros (better life for those workers) far outweigh the cons, especially from an economic standpoint.
Different countries handle the issue of high minimum wage differently. Some countries have very thorough enforcement and drive the cost of everything through the roof, but end up with a more egalitarian society (I think Norway, where a beer costs as much as a large meal in neighbouring countries, counts). Singapore chooses not to have a minimum wage and to make it easy to import manual labour legally, and affords these labourers the same legal protection afforded any other resident. China uses the hukou system [2] to regulate the influx of unskilled labourers into more prosperous regions.
The US simply turns a blind eye to the rule of law when it comes to unqualified labour, which allows businesses to keep their costs low, and politicians to save face and pretend they did something "for the workers", whilst a side effect is increasing the stress on the legal unskilled residents which might even be a positive for politicians as they love a good crisis.
Conclusion: legal unskilled workers should fight for the law to be enforced, not for minimum wage to be legally increased. It would both remove competition and drive up demand for their unskilled work, and since there is no population explosion in the United States and legal immigration is incredibly regulated, should result in a natural rise of wages matching the higher cost of living in locations like Seattle.
[1] http://en.wikipedia.org/wiki/Illegal_immigrant_population_of...
[2] http://en.wikipedia.org/wiki/Hukou_system
[3] http://poverty.ucdavis.edu/faq/what-are-characteristics-mini...
I do enjoy travelling down there to Montana - ski tickets are cheaper, gas is cheaper, and good beer is much, much cheaper (I seriously love the micro-brew scene in the US. Canada has a good micro-brewing scene too, but not to the same degree).
I'd guess the much smaller market (35m inhabitants vs 320m - Australia has 22m), the weather, the distance from production centres and major ports, and so on would impact prices as well.
As for beer it might be taxes, which Wikipedia says are amongst the highest in the world.
It was a little tongue-in-cheek, however I still am surprised that there are so many illegal immigrants in the US...
No, I'm more surprised that the US is so bad at dealing with illegal immigration. Do they tacitly accept it?
Some industry players benefit from having low-skilled workers that are demotivated to complain to government of labor violations, etc., so there is some of that.
OTOH, a bigger issue is that, while most people would agree that illegal immigration, per se, is bad, there is no census on how to deal with the issue.
There are groups that oppose not only illegal immigration, but are strongly concerned with controlling the level of immigration (and often with managing its origin), so that they see the solution in enforcement measures (though even groups in this category often don't agree on which enforcement measures.)
Then there are groups that are less concerned with the level of immigration than with illegality itself, and so would favor new avenues of legal immigration, or increased quotas within existing avenues, etc.
And there are additional disagreements over approaches to dealing with the existing population that is present without proper immigration status beyond the different views on "going forward" policy.
I thought the (excellent) movie "Act of Valor" pointed out the other way this issue could be resolved. In the movie, terrorists use the people smuggling networks to allow suicide bombers into the US, targeting a few stadiums in Southern cities. This is not the first time enemies of the US try to smuggle people in illegally - the Soviets and the Cubans especially sent many agents that way, as well as infiltrating US criminal organisations (see for example Oleg Kalugin's biography [1] which explores the links between the Soviets and the Italian mafia).
In the real world, no criminal organisation would be mad enough to let that happen (much as gangs in Mexico try to avoid killing gringos) because it would mean a promotion from "criminal organisation" to "effective terrorist organisation" and we saw after 9/11 how the American public reacts to that. So long as you're "just" smuggling drugs and people, it's "just" the DEA and ATF and the odd border agent.
If they did facilitate terrorist attacks, you can bet there'd be an enormous appropriation and militarization of the border, coupled with a systematic destruction of virtually all smuggling networks on Mexican soil and maybe temporary occupation of the territory south of the border. Panama was invaded for less.
But this is not going to happen just because a few people go on strike, especially when the majority of manual labour (11m vs 3m) appears to be illegal already without much outcry from the public which tacitly understands that this is key to cheap food and service.
[1] http://www.amazon.com/First-Directorate-Intelligence-Espiona...
Another issue I thought of is this. If min wage workers all suddenly have wage increases by law, then businesses like fast food chains might just replace many them with machines. I mean, you already know your McDonald's burger is disgusting, so probably wont mind if it gets pooped out of a dispenser like pudding. So, this policy may simply lead to layoffs.
Like McDonald's is currently piloting in France where you order your food from a touch-screen kiosk instead of a cashier.[1]
[1] http://www.cnet.com/news/mcdonalds-hires-7000-touch-screen-c...
Outside of that though, raising prices immediately hurts sales, but worse customer service due to the restaurant being chronically short-staffed takes longer to hurt sales. Being chronically short-staffed also makes for a worse working environment which leads to employee turnover, which is more costly in the long run, but when you're struggling to make rent this month, the long term costs may not be as apparent.
Finally, if it's a small restaurant where the owner also helps with the day-to-day operations of restaurant (maybe they're even the chef), it mean's they'll have to work even harder. The owner may just find it worth the cost to have an extra employee and be able to work just a little bit less.
So if you increase his labor costs from 20% to 30%, you just wiped out his return. If you double it to 40% like a $15 increase would do, then he's got to either automate or cut to the bone.
And yes I realize I'm conflating figures from the 80s to today, but the percentages still hold.
I'd generally expect a restaurant to do twice as much in sales (or more) in a year compared to the initial cost, and be able to recuperate the initial investment in 5-10 years (one of the more recent restaurateurs I worked for paid back his investors in 3 years, and has a second location 5 years in).
But even using his sub-par numbers, $750K a year since the 80's means he's already recuperated his costs and made some serious profits since. What more does he expect? He could close them all tomorrow and be ahead. If anything, this anecdote does show just how greedy some people are.
Also, he had a lot of longer term employees who were making more than min wage, but still would benefit if it was raised. So it became more economical to let them go, despite the loss of their higher productivity.
Also, you can't just think in terms of the hourly rate. Increases in the hourly rate also affect worker's comp rates, Social Security contributions, etc. So an $8 increase would probably be at least a $10 cost increase to the owner.
The issue isn't that owners will fare worse, but that raising the min wage while it makes us feel good won't necessarily help lower income workers. Doubling the salary of an entry level position will only reduce the number of entry level positions. And as I'm sure your experience in fast food illustrated, there's some people who aren't even worth paying min wage. Except for a few management folks, it shouldn't be a long term job or career.
I used to love flying flight sims back in the Falcon 4.0 days, and I expected flight sims to progress as hardware advanced. Nowadays the flight sim market is DOA, despite my demand.
Sounds like you just worked for an asshole. Also sounds like you guys eventually adapted to the wage hikes (I'm assuming he's still in business?).
Of course no one's happy when things become more expensive. Here they just announced a new tax on gas (making it as expensive as before the price of oil went to shit), and a new tax on booze. Guess what - people still drive, and drink beer (hopefully not at same time).
Now imagine the flow-on effect to the rest of the economy if people in those horrible jobs had some kind of living wage. I suspect not only would these workers be $6/h better off, I'd probably be better off too.
These people should be focused on how they can increase their long term earning potential instead of helping to further squeeze out the middle class.
I can make the similar much healthier, tastier, and cheaper than they can.
Assuming I were to prepare a home cooked meal from scratch, the chances I would get away with less than 1h of labor (including driving to markets, shopping, and preparation) alone justifies eating out (at a restaurant, forget Macdonalds).
Certainly eating home-cooked food is healthier. And it's probably more delicious. And cooking can be enjoyable, but not as a daily grind. But don't make the cost argument unless your time is free.
I'm not in the upper, or middle economic class. And making our own food is how we save a great deal of money, and also eating much healthier. We probably could eat on $50/wk for both my wife and I. But it would be junk food and bad calories and malnutrition.
Last night, we had shrimp, tilapia, roasted veggies, and a capezzi salad. That would have been ~$40 each out on the town. It cost us $10 for both of us combined. And it was a half hour work for one of us. We can't even work a half hour on no minutes notice.
Instead let's compare on cost only...
When I originally posted I did not mention the dollar value menu, that is what was immediately posted as a response by someone else. But since it is the lowest common denominator and the representation of McDonalds has cheap food... Let's try to approximate how much it costs in money only to make a "dollar burger".
The dollar burger has only 1.5 ounces of meat.
Today when I checked my local grocer 80% lean ground was $2.48 a pound. So that should make about 12 dollar burgers.
~21 cents per burger for hamburger
Hamburger buns were 68 cents for an eight pack; that's 8.5 cents per burger.
It was $2.50 for an 8 pack of presliced cheese These were much thicker higher quality cheese, and unsliced cheese can be bought far cheaper... But we splurged so that's another 32 cents per burger.
88 cents for a head of lettuce which will easily make 20+ dollar burgers so that's 4.4 cents per burger
So we add this up and we are now at a burger that costs 57.4 cents to make. We still need to add a sprinkle of onion crumbs as well as a squirt of mustard and ketchup; I think we can safely assume that is going to cost less than the remaining 42.6 cents.
So yes; in fact I can make an equivalent burger for less than it costs at McDonalds. If I was going to get a sandwich at McDonalds more likely I would end up with something that doesn't totally suck, like the Big Mac, which averages $4.79 in the US. For $4.79 I can make one hell of a burger.
That said, they are looking for a $15/hour rate. Since federal minimum wage is $7.25 an hour we are talking a potential wage cost doubling. I doubt that will only result in a 5% cost increase and that it will be much more.
Also, I'm not saying that all sales will stop, but that they will decrease. That is the substitute goods effect. McDonalds food is an inferior good. As it's prices raise more people will move away from them to substitute goods.
"I doubt that will only result in a 5% cost increase and that it will be much more."
Well -- make your case.
A Bloomberg reporter guesstimates that doubling salary costs at fast food franchises would increase prices by 25%.
http://www.bloomberg.com/bw/articles/2013-08-02/this-is-what...
But that's pretty much a worst case scenario (assumes that everyone working there is minimum wage -- in fact from the figures I see, no-one at Macdonalds earns the Federal minimum wage).
I suspect if you did the analyses what you'd see is something like this:
1) Increasing the minimum wage would have flow-on effects to other salaries causing wage increases across the board.
2) There would be price rises generated by increased labor costs, and also by more money being in the economy (this would improve GDP, but that's not a useful measure).
3) It would have a significant stimulus effect (low income people tend to spend more than save, so giving them more money has a high multiplier effect -- it's really the best kind of stimulus). This would reduce unemployment.
4) A lot of people who have multiple jobs to survive would be able to give up some of them, which would reduce unemployment.
5) Some companies would make do with fewer employees, which would increase unemployment.
6) My guess is 3 + 4 would overwhelm 5. Combined with 2, this would raise interest rates.
Seems like a pretty desirable outcome all round.
"These people" -- what, people with awful jobs?
"further squeeze out the middle class" -- how is this squeezing out the middle class?
Low end salaries in the US are a tragedy of the commons. Because people can cobble together subsistence services when collecting a "salary" (e.g. by going to the ER for medical care or collecting food stamps to eat) companies are able to get people to work for them for artificially low prices. Effectively, taxpayers are subsidizing Walmart and Macdonalds for paying people too little.
This is not the same as, for example, providing decent welfare or unemployment benefits that go away when you have a job. That drives up salaries because it makes having a shitty job seem worse than just collecting welfare. Instead we have income-based support that cuts in even for people who are working.
The middle class are being squeezed by medical costs which are in large part driven by the US healthcare situation. If our health costs were under control, the "middle class" would have enjoyed healthy salary increases over the last decade.
People with completed unskilled jobs that could be performed by a twelve year old if labor laws allowed. An unfortunately high number of unskilled, unmotivated people take jobs at places like McDonalds with no ambition to do anything better.
Raising the minimum wage ONLY raises the minimum wage in terms of earning, so yes it squeezes the middle class as their earning comes closer to the minimum wage. Raising the minimum wage results in inflation and raising costs; this directly impacts the middle class.
Quite frankly many of these are also providing services that just aren't necessary; they are purely convenience. People only have so much money to spend, so raising prices results in fewer sales as some people will switch to substitute goods. In the example I'm working with here, buying groceries and cooking at home is a cheaper substitute good for McDonalds; as the cost of McDonalds raises more people will substitute this with cooking at home.
This is just the basics of supply and demand. So yes, "these people", anyone with a low paying unskilled job should be doing anything in their power to develop needed and in demand jobs so they can raise their earning potential. Aside from the few that move up to managerial roles at a place like McDonalds there is no earning potential. These are the types of places where you get hired with no prior job experience or skills. They are not now, nor have they been in my lifetime, sustainable careers.
anyone with a low paying unskilled job should be doing anything in their power to develop needed and in demand jobs so they can raise their earning potential
Guess what, taking classes or developing a new skill often costs money, even with the internet, community college subsidies and so on. If you only pay people barely enough to live, then there's nothing left over for them to invest in career development.
Economics wil then raise its ugly fuzzy head and the balance between automation and human labor will shift, there will be more machines doing work. People already making $15/hour will eat less fast food since it is more expensive, people who have had their wages double will probably eat more fast food since they have more money. Total consumption could go either way. Total employment could go either way, it depends.
One possible outcome is that revenue gets shifted to lower paid workers who spend it, creating more jobs and a larger economy. Capital investors will get less, but they already have so much capital piled up that there is a glut and they have difficulty getting people to rent it from them (~3% prime rates).
What actually happens? That is the realm of gamblers.
␄
† http://smallbusiness.chron.com/common-food-labor-cost-percen...
An even easier and more insightful way is to carve up a Big Mac. In the US, the average price for a Big Mac is $4.79.
Overhead: 30% or $1.44 Food Cost: 25% or $1.20 Labor: 25% or $1.20 Franchise Royalties: 13% or $.62 Profit: 7% or $.34
Now a Big Mac isn't as profitable as fries or soda, but those percentages are across the entire menu. Not a lot of profit for a burger...
I think a lot of devs here are not seeing the overall economics of the fastfood world, and perhaps feeling a bit of guilt due to the difference in their salaries versus the fastfood workers...
30% food cost
30% labor
30% overhead
10% profit (ideally)
McDonald's had a 'bad' 3rd quarter last year, which means they only made $1B in profit. It was down from 1.5B the previous year.
http://www.forbes.com/sites/laurengensler/2014/10/21/mcdonal...
These companies can afford to pay their workers a living wage. It's not a question of whether workers "deserve" one hourly rate or another. The question is whether the working class will continue to tolerate it.
Big number fallacy... you see a big number and it doesn't occur to you to check against the other big numbers that may be involved. Wikipedia has 36,000 franchises worldwide. Assume we're paying about 100 person hours/day for a franchise, assume 360 days in a year, and you get... about 1.3 billion paid hours. (And I suspect I'm being generously conservative with 100 personhours/day for an average franchise, especially when you account for the whole thing, like the shipping and accounting and such.)
So, all else being equal (which it never is, but roll with it), and had they paid everyone another $1/hour, they'd be making a loss.
You can't just see big profit numbers and go "Oh, they've got money, surely they can pay better!" Capitalism is very efficient (in the conventional sense of the term of "using inputs well") and very competitive, in that McDonalds can't just charge 50% more and nobody changes their buying habits, and it's actually really good at shaving profit margins down to a surprisingly small level, contrary to the numerically-illiterate rhetoric often flung at it.
A lot of big corporations make billions a year, but it turns out that when you do the analysis in percentages, they're typically making waaaay less than you think. For instance, here's the 10 most profitable companies in 2013: http://www.usatoday.com/story/money/business/2013/01/20/10-p... By #10, "Wal-Mart" (how convenient, a favored bête noire of the labor community), you've got a company pulling in $467 billion in revenue, to make a "mere" $16 billion earnings. That's a 3.4% of their revenue! Yes, it would be a big pile if you just handed it to me personally, but it means that a 4% fuckup at a high enough level would be enough to fry their entire profit.
(Do you do your job with 4% tolerance?)
And those are the 10 most profitable, not even the "average" companies.
There both is, and is not, a lot of money in the system. Start trying to "distribute" the "excess" out and suddenly it looks a lot less "excess".
Further, bear in mind this is simple math. You can't argue away the math.
- $1B profit is only for a quarter, not for an entire year, for which you've attempted to roughly calculate labor costs.
- $15 minimum wage is only in the US, not worldwide. Although McDonalds does pay its workers more than $15 in some parts of the world, and somehow manages to stay in business despite the ruthless efficiency of capitalism http://www.businessinsider.com/denmark-mcdonalds-pays-20-hou...
- It's a mistake to talk about profits as a percentage of revenue because the profit is distributed to very few hands. You scoff at "a big pile if you just handed it to me personally", but McDonald's board of directors is 14 people.
Fair. $4/hour then, which is still less than we're talking about. I rather suspect I'm lowballing the labor by about 2x, also, if not more, but I'll stick with my numbers below.
"$15 minimum wage is only in the US, not worldwide. Although McDonalds does pay its workers more than $15 in some parts of the world, and somehow manages to stay in business despite the ruthless efficiency of capitalism "
I very deliberately did not try to calculate the price of raising minimum wage, because I do not have that data. I very deliberately calculated what they even theoretically could pay additionally across the board, because I think even at ~4$/hour, people are still going to be surprised at how small that number is! I do not think that when people think "Oh, big companies are just using people as wage slaves and sucking oodles of value out of everyone's pockets" that they're thinking "McDonalds is making about $4/hour/person." I think people think that McDonalds is making at least $dozens/hour/person, but there's no way that's the case.
Also, McDonalds has a lot of people who get more than minimum wage. They've got stacks of professionals, accountants, managers business people, etc. But, contra what LesZedCB asserts, you can't make up for it by just taking it out of their paycheck, because then those people will on the margins go work for someone else... plus these are still generally speaking middle class people (not even upper middle class here, I'm sure!), not people getting "rich". And if you do just try to take it out of a few execs hands, well, we're back to the problem where even all of McDonalds profits being reallocated back to the workers doesn't do as much as people think.
There is no scenario where McDonalds can pay enough to make a front-line order taker a "middle class" job.
"It's a mistake to talk about profits as a percentage of revenue because the profit is distributed to very few hands."
The board of directors do not just walk off with the profits. That's not how this works, and it's the sort of criticism that makes this sort of argument hard to take seriously. Where it does go is complicated, but theoretically it eventually ends up in the stockholders hands, and "the set of people who own McDonalds stock" is extremely widely distributed. The executives generally get a good chunk of stock and that's how they get the money, but in order to pay the executives "lots" it also means paying out to the rest of the stockholders "lots and lots and lots", and a lot of that stock is also ultimately going to middle class holders via various funds.
And again, my point is to work on recalibrating your understanding of just how much money "$1.5Billion" isn't, rather than argue for or against any particular policy. It isn't anywhere near as impressive as it sounds. It is not an infinite money fountain that can be easily "just" handed out to employees en masse and simply isn't Because Greed. And given the variance we experienced between quarters, it's a money fountain that can in the blink of an eye become Negative $1 Billion Dollars, even with labor costs where they are now. It's way more temperamental and way more fragile than it looks.
> Wikipedia [sic] has 36,000 franchises worldwide
McDonalds only has 14,339 franchises in the US [1] -- where the pay raise debate is happening.
> Assume we're paying about 100 person hours/day for a franchise, assume 360 days [sic] in a year, and you get... about 1.3 billion paid hours.
According to the parent comment, McDonald's made $1B in profit during the 3rd quarter alone. Correcting for both the number of franchises & the quarter vs the whole year of labor yields an estimated $7.64 in profit per hypothetical hourly employee (HHE). And keep in mind that it's down from $1.5B profit previously, which corresponds to an estimated $11.46 per HHE.
> That's a [sic] 3.4% of their revenue!
McDonald's has $7.95B of earnings on $27.44B in revenue [1]; about 29%. Even if their profit is only $4B annually ($1B in Q3 x 4 qtrs.), that's still 14.6%.
> Capitalism is very efficient...
People are not. And that's the point. People making minimum wage don't always have the flexibility to take risks that would allow them to advance. "A bird in the hand" and all that often means that a stable minimum wage job is more valuable than a risky opportunity to make more.
As I mentioned in another reply, the point was more to recalibrate understandings of the money size involved than to specifically speak to this discussion.
I'm not sure how you "corrected" for the number of franchises, then... if you did it by accounting all worldwide profit as for US franchises that is not a "correction". And regardless of the correction remember not to party too hard with "profit" amounts right now when McDonalds may very well go negative in the near future; the point I'm trying to make survives that, but it would make hash of yours. Profit is not guaranteed!
Somewhere online I saw a list of the profit margins of all the Fortune 100. Single-digit percentages were the norm. I was unable to google it up for this.
"> Capitalism is very efficient...
People are not. People making minimum wage don't always have the flexibility to take risks that would allow them to advance. "
That's a complete nonsequitor. And moreover it's a frankly stupid accusation of me you're trying to implicitly make. Give me the button to push to make everyone in the world effectively as rich as billionaires and somehow it all works out with no negative effects, and I'd push it in a heartbeat. I'd love to manifest Iain Bank's Culture. It sounds great.
But in the real world, we have to work with what resources we have, and we don't actually have anywhere near as many as people think. The rich may be rich, but divide their riches up somehow perfectly efficiently amongst everybody, and we all get a lot less than our generally-innumerate intuitions are telling us we would.
The corporation is not debating raising wages worldwide, only in the US. Their total corporate revenue (including international revenue) can be included in the calculation of whether it is "affordable". But only the workers in the US should be included in the calculation.
> Profit is not guaranteed!
The focal point of the discussion is that the current distribution of earnings marginalizes the hourly workforce. It does not have to be this way. The napkin math supports the idea that changing the proportions in the distribution could be reasonably accomplished. Furthermore, the napkin math ignores price increases, which would likely be part of any more sophisticated projections.
> That's a complete nonsequitor. And moreover it's a frankly stupid accusation of me you're trying to implicitly make.
People are not "efficient" in the economic sense. They do not make perfect decisions for themselves, even given perfect information. They will compete with each other irrationally, and even against their own best interests. The efficiency of capitalism exploits those traits. We ought to use reasonable policies and regulations to address that.
> The rich may be rich, but divide their riches up somehow perfectly efficiently amongst everybody, and we all get a lot less than our generally-innumerate intuitions are telling us we would.
I'm not arguing for carving up the wealth of the rich and redistributing it. But hourly workers should share in the gains wrought by their labor. As it stands, the top 1% takes an amazingly disproportionate share. [1]
[1] http://www.politifact.com/punditfact/statements/2014/jan/22/...
You're applying annual wage costs to quarterly profits.
The argument you are making is an extremely common argument from before the minimum wage was instituted decades ago where minimum wage was also (relatively, of course) significantly higher than it is right now. It turns out that people do like to spend money and when they have more of it, they spend more of it.
You're speculating, too.
Keeping that inflection point far away gives us time to solve other issues (like housing affordability) that will impact the minimum-wage class of workers extremely hard when they're automated out.
You mean a win for humanity. How can anyone be against automation?
Wages go up 66% and prices double in response? Not gonna happen, except in the greed fantasies of a few petit bourgeosie.