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?
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.
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.
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.
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.
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.
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. Here is, in my eyes, a very relevant bit of information:
Emphasis mine.
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.