# Is indexing minimum wage to inflation a good or bad idea? **URL:** \ **Category:** Great Debates\ **Created:** [August 31, 2016, 2:21pm UTC](https://boards.straightdope.com/t/is-indexing-minimum-wage-to-inflation-a-good-or-bad-idea/764565 "2016-08-31T14:21:24Z")\ **Posts on this page:** 6\ **Page:** 6
**Author:** ![Slash1972](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/slash1972/32/6461_2.png) [@Slash1972](https://boards.straightdope.com/u/Slash1972)\ **Post date:** [September 11, 2016, 6:15am UTC](https://boards.straightdope.com/t/is-indexing-minimum-wage-to-inflation-a-good-or-bad-idea/764565/101 "2016-09-11T06:15:35Z")
> [@Voyager](#): > > See post 90. I used to have to justify my group’s budget by saying how much we were saving the company from our work. I was pretty good at it, having been trained by a master, and it was very convincing, and it was all bullshit. We got budget because we did help our internal customers, and because they got a budget from on high to fund us, and not funding us would be more trouble than giving us the money. > How would you measure how many customers go away if the lines get long because the new guy at a low salary is slow? How do you measure how many never come back because the new guy screwed up an order? > Measuring salary is easy. I understand what you are saying, but there are people in this very thread that say “If we had given that guy a $0.50/hr raise, we would have made more money” Are you saying they are just talking bullshit? ---
**Author:** ![k9bfriender](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/k9bfriender/32/3283_2.png) [@k9bfriender](https://boards.straightdope.com/u/k9bfriender)\ **Post date:** [September 11, 2016, 4:01pm UTC](https://boards.straightdope.com/t/is-indexing-minimum-wage-to-inflation-a-good-or-bad-idea/764565/102 "2016-09-11T16:01:32Z")
> [@D\_Anconia](#): > > Management does much more than that. Who is going to finance new machinery for the production line, or even build a new factory? > > Who is going to do the advertising, to create demand for the widgets that the “productive” employees are making? > > Who is going to pay the company’s bills, including the payroll itself? > > It’s not the “productive” factory workers themselves, it takes management. I did address the need for upper management for those exact reasons. PR, HR, and supply line management. I am not saying that upper management has no value, I am saying that it is over valued. Is the value added of an upper level manager really 5-10 times that of the person actually producing the good or service that brings in revenue? As you get higher, the salaries get higher. CEO’s often times make many hundreds of times more than the people that actually produce the things that are paying his salary. > [@](#): > > That’s the very definition of a corporation. It is called fiduciary duty. Fiduciary duty has been debated quite a bit as to how much the corp has to follow the shareholder’s interest, but yeah, that’s the problem. And the problem is not that the shareholders get a profit, that’s doable. The problem is that the shareholders want short term profit, and they want increasing profit. That’s not sustainable. > [@Slash1972](#): > > I understand what you are saying, but there are people in this very thread that say “If we had given that guy a $0.50/hr raise, we would have made more money” > > Are you saying they are just talking bullshit? The point is, you can show how much money you saved by cutting wages. It is harder to show how much money you made by increasing them. For instance upthread, someone was saying that they could not hire a phd engineer for 70k. I disagree. I am sure that they could find someone with a a phd in electrical engineering willing to work for 70k, or even 50k. They may have graduated last in their class, been let go from their last job for insubordination or substance abuse issues, but I pretty much guarantee that if your only qualification is that they have a phd in electrical engineering, I can find someone willing to work for less. The question is, do you want to hire a phd electrical engineer willing to work for that little? Same with lower wage employees. When you got someone making your cheeseburger, are you happy to know that they were willing to make it for less than anyone else? Short term, cutting wages will usually increase your profit. Short term, giving raises will rarely see an increase in net profit. Long term is different. If you invest in the equity of your company, then it makes more money. It becomes more profitable. Having higher paid, better trained, more motivated employees will make you more profit in the long run. Back to shareholders and fiduciary duty, I am a firm believer in having a much higher tax rate for short term capital gains and dividends, and I would consider long term to be more in the 10 year+ range than 1 year. I would also drop a very long term capital gains tax at 20+ years to essentially 0%. If you have a company that pays its employees well, gives a good retirement package and benefits, then that investment in employee capital can pay off, the same as purchasing good equipment rather than the cheapest you can find. The problem here is that when people start looking short term, they see how profitable this company is, and they see collections of equity that have been built up in the company as liquidatable assets that they can use to boost their short term profits, you start down an unfortunate path. Those equities were there for a reason. By cutting them, you are cutting your potential for long term profit and growth, so when you find yourself unprofitable 2 years down the line, time for more cuts. This continues until the company hits the bottom, it can’t pay its employees any less, it can’t get rid of any more employees without severely impacting production, and its good or service has lost its brand name capital, yet its investors are still demanding more profit. This is because investors demand short term results. If a stock is not performing as well as they would like, they drop it in favor of one that promises to deliver better returns right now. If investors had to hold onto their investments for 10-15, maybe even 20 years before it makes sense from a tax standpoint to cash in the investment, then shareholders would be clamoring for companies to do the exact opposite that they are doing now. They would be more concerned about a company’s future in 10-20 years, and push for long term investments at the expense of short term profits. This is the type of environment we we in for most of the 50’s until the 80’s. Top tax rates were 60%-90%+. In order to get long term gains rates, you had to hold onto the stock for at least 5 years, rather than just the 1 you do now. The last few decades has seen long term get paired down to a single year, top marginal tax rates reduced to less than 40%. This incentives people to take their money out of the equity of the company, and use it either for their personal use, or for other short term investments elsewhere. I paid myself only less than 14k last year. But I also bought about 50k in equipment. I havent bothered to calculate exactly how much I would have saved by paying my employees less, but it would have been at least a few thousand there too. I could have netted 60-70k for myself, but I would not be making more this year than I was last. If I was only concerned about short term profit, or if I had an investor that demanded quick returns, then I would not be growing as quickly (or at all) as I am. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 12, 2016, 5:13am UTC](https://boards.straightdope.com/t/is-indexing-minimum-wage-to-inflation-a-good-or-bad-idea/764565/103 "2016-09-12T05:13:06Z")
> [@Slash1972](#): > > I understand what you are saying, but there are people in this very thread that say “If we had given that guy a $0.50/hr raise, we would have made more money” > > Are you saying they are just talking bullshit? No, the very non-specific making more money is likely true. But such things are difficult or impossible to quantify to the finance people. If you give someone a raise which makes him not leave and disrupt your operation, you are not directly saving money but actually avoiding costs later. It an be justified using an insurance like model - but insurance is justified with lots of data, and we here are talking about one person. Insurance is justified by making sure that the cost of insurance (here the wage increase) is smaller than the probability of the bad event times the cost of the bad event. What’s the probability that someone you stiff leaves? Who knows - and that’s the problem. That is why so much management is still intuitive. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [September 12, 2016, 5:16am UTC](https://boards.straightdope.com/t/is-indexing-minimum-wage-to-inflation-a-good-or-bad-idea/764565/104 "2016-09-12T05:16:46Z")
> [@k9bfriender](#): > > The point is, you can show how much money you saved by cutting wages. It is harder to show how much money you made by increasing them. For instance upthread, someone was saying that they could not hire a phd engineer for 70k. I disagree. I am sure that they could find someone with a a phd in electrical engineering willing to work for 70k, or even 50k. They may have graduated last in their class, been let go from their last job for insubordination or substance abuse issues, but I pretty much guarantee that if your only qualification is that they have a phd in electrical engineering, I can find someone willing to work for less. The question is, do you want to hire a phd electrical engineer willing to work for that little? Same with lower wage employees. When you got someone making your cheeseburger, are you happy to know that they were willing to make it for less than anyone else? Heh. To demonstrate the truth of this point, when I posted a job slot on Linkedin literally under a minute later I got a resume from exactly this kind of person. He had a long history of 9 month to 1.5 year job tenure. I’m not sure my company would have gone as low as $70K, but he would have taken it. Needless to say, I said thanks but no thanks. And I’m not kidding about the one minute interval. I was astounded. ---
**Author:** ![Budget\_Player\_Cadet](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/budget_player_cadet/32/205_2.png) [@Budget\_Player\_Cadet](https://boards.straightdope.com/u/Budget_Player_Cadet)\ **Post date:** [September 12, 2016, 8:00am UTC](https://boards.straightdope.com/t/is-indexing-minimum-wage-to-inflation-a-good-or-bad-idea/764565/105 "2016-09-12T08:00:31Z")
Has anyone paged **AskThePizzaGuy** to the thread yet? This is right in his wheelhouse, and he has an excellent thread about the minimum wage in the pit, [found here](http://boards.straightdope.com/sdmb/showthread.php?t=796360). Here is, in my eyes, a very relevant bit of information: > [@](#): > > Do you seriously expect me to believe that when a multi-billion dollar corporation experiences a situation where it is required to pay its employees more, it’s going to take that money out of its PROFITS, YOU JACKASS!?!? > Bad news, guys. Obama mandated a $10 minimum wage. We can’t afford that shit, so we’re packing it in. > > We’re packing it up! > > We’re pissing off home! > > We are bravely throwing in the fucking sponge!There’s just no possible solution to this mess. It’s the end of capitalism as we know it. The liberals have won. It’s simple math, right, you progressive dumbasses. If Profit Per Employee is just over $6K, and you give employees a raise of more than $6K, the company goes out of business. It’s called subtraction. You subtract the raise from the company profits. It couldn’t be simpler. > > You can’t argue with math! > > Yeah, what would a business like that do, anyway? They’d just resign, obviously. There’s no possible path forward. None at all. \*\*Labor amounts to 100% of Wal-Mart’s operating expenses (wink) and the price point of the products at Wal-Mart is already too damned high (wink). You couldn’t increase the amount of money the company takes in to compensate for the additional expense, by raising prices, the consumer can’t fucking bear it. \*\*NOPE! GOTTA TAKE IT ALL OUT OF PROFITS!!! > > \*\*So labor at the company I worked for was about 25% of the price point. That’s including management and their big salaries. Well, big for the managers above me, anyway. > \*\* > \*\*So, if the wages of everyone in the company were to LITERALLY DOUBLE, the price point of the product would have increased by 25%. The workers would have been earning between $16 and $20 per hour. The salaried managers would have been earning close to $100,000 per year. And the price of the pizza would have jumped from an enormously insane $10 to an even enormously more insane $12.50. > \*\* > People can’t pay that much for a pizza! Let’s see what the prices of pizzas are. Huh, that’s strange. Seems like some businesses operate at $20 a pie, in the nicer places. Nicer pizzas, ofc. Some other businesses offer buffet pizza for what amounts to like $5 a pie. These are smaller pies, ofc, and lower quality. > > Seems like $12.50 wouldn’t make that much of a fucking difference. Sure, the people who order pizza every single day because they don’t have a car and can’t be arsed to walk to the store or get a ride from their friends and therefore have no groceries, and spend all their money on pot and never tip the pizza delivery guy, maybe those daily pizza shoppers will stop ordering, and what a SHAME that would be. I’m tearing up as we speak. But the economy would survive. > > \*\*And what else? Suddenly all the low wage workers have enough money that THEY can afford to order pizza. Suddenly, all the low wage workers all across the country are… spending… money. Increasing demand. Businesses get more income. > \*\* > Hell, even if they didn’t, they already covered their asses by raising the price of the fucking pizza. They are now earning exactly the same as they were before. The company, that is. The employees and managers of the company are earning twice as much. Owners get the same, employees get more. So what’s the problem? > > Whose jobs are being cut? And why would they be cut? > > Are you saying that if the employees of Wal-Mart and McDonald’s and Pizza Hut and Burger King and Wendy’s and Costco and 7 Eleven all across the country suddenly had more money, local businesses wouldn’t suddenly get a shit-ton more customers? 100% of that money will just not be a part of the economy anymore? It will all just go into savings. Stocks and bonds, right? Mutual funds? Or maybe they’d pay off their student loans, they’d pay their rent on time, they’d pay all their utility bills, they’d buy more things for themselves, they’d actually go on vacation, all these things are just fucking terrible for the ECONOMY, right? > > When the government mandated employers offer health care, it was gloom and doom time in Pizzaland. Well, my manager said, looks like all of your hours are gonna be cut to 20 hours a week, so we can avoid having to cover your healthcare. > > \*\*And as I’m hearing these words escape my boss’s lips, and I look around, I realize we’ve been trying to fill driver, manager, and crew positions to acceptable levels for FIVE YEARS, during a RECESSION, and the employees that do show up are begged to work 50 hours a week or more to cover all the bases, because it’s fucking hard to find someone who is responsible who is willing to do the job for the shit pay we offer. Even in a market saturated with fucking unemployed and hungry people. Our turnover was 300%. That means we went through three entire crews in a single year, and our employees were always under-trained, and we were always under-staffed. The few people who were WILLING to work 50+ hours a week pretty much had to do so every week. So we’re gonna cut everyone’s hours to 20 hours a week, eh? How’s that gonna fucking work, you morons? Explain this shit to me like I’m five. > \*\* > And lo and behold, it never happened. Hell, the price of the pizza didn’t even change that much. Did you notice pizza suddenly doubling in price recently? No? Then STFU with that noise. > > If Wal-Mart is forced to pay its employees more, you know what they’re gonna do? Pay its employees more. And continue being the largest employer. And continue turning a profit. > > \*\*Because these companies are not stupid, and they know to charge 5 cents more per can of creamed corn, and consumers are still going to EAT FOOD when the price raises so little that they didn’t even notice it. > > Oh no, our grocery bill is now $120 instead of $110. Whatever shall I do about this horrific problem, now that my income has nearly DOUBLED? > \*\* Emphasis mine. ---
**Author:** ![Ruken](https://avatars.discourse-cdn.com/v4/letter/r/f475e1/32.png) [@Ruken](https://boards.straightdope.com/u/Ruken)\ **Post date:** [September 12, 2016, 10:05am UTC](https://boards.straightdope.com/t/is-indexing-minimum-wage-to-inflation-a-good-or-bad-idea/764565/106 "2016-09-12T10:05:56Z")
> [@Budget\_Player\_Cadet](#): > > Has anyone paged **AskThePizzaGuy** to the thread yet? This is right in his wheelhouse, and he has an excellent thread about the minimum wage in the pit, [found here](http://boards.straightdope.com/sdmb/showthread.php?t=796360). Here is, in my eyes, a very relevant bit of information: That’s probably in the Pit because we like facts and citations here. Care to offer any? Never mind that it’s helpful to address actual arguments that have been made here. Let’s supposee his 9% increase in groceries is real. That apparently doesn’t matter because wages will go up. But he’s increasing wages for households that predominantly can already afford those groceries just fine. And increasing prices for the folks who are actually poor who don’t work full time or at all. Now that doesn’t mean an increase is actually bad, in part because I don’t think prices would necessarily rise that much, but a bad argument is a bad argument. [Previous page](https://boards.straightdope.com/t/is-indexing-minimum-wage-to-inflation-a-good-or-bad-idea/764565.md?page=5)