The Nahployment 'Crisis'

I got this from Googling, “the price of a Big Mac in DC”.

If you’ve ever dreamed of traveling the world, now is the time to do it! If you’re sticking to travel within the US, Washington DC has the nation’s most expensive McDonald’s beef at $5.35, while a trip to Mississippi could get you a Big Mac for as little as $3.91.

I can’t imagine paying that amount for, what is admittedly my opinion, such a ratty food item. However, DC is a very expensive place to live, so perhaps people don’t consider that unacceptable there. Again, all things are relative.

As far as my hypotheticals not lining up with reality, I think the jury is still out on that. I don’t think any one particular example, either for or against, is proof of anything at this juncture. Let’s see how it plays out on a large scale.

With due respect, though, you didn’t answer the question, which was:

Yes, businesses have tight margins, that’s usually how business work, but it’s interesting how it’s only employee pay that seems to get so many people all riled up. We just accept that business have to deal with rising costs in other areas; rent goes up, materials go up, the government imposes health and safety laws, so on and so forth. The right wingers only spew venom when someone suggests employees get paid a little more.

And what does it mean that they “can’t pass additional costs onto their customers”? They do that with every other cost, in every industry. If everyone has to raise prices to pay the workers more, then there’s really no impact on their market share, is there?

If the government added new taxes (like a carbon tax), that would be added to the price. If the government added new regulations that increased the costs of regulatory compliance (like paying recycling fees), that would be added to the price. If heating costs went up (because oil went to almost $200/barrel), that would be added to the price.

Those are all real examples that have happened in living memory, but somehow labor costs are different?

Well, sometimes they do, and sometimes they don’t. Depends what the cost is and what the industry is. Is it a direct cost or an indirect cost? What are the market conditions? How many competitors are there?

The idea a business just instantly passes on a cost to the customer is, if you think about it, obviously quite preposterous; were it true, a business wouldn’t care about costs at all, since they could simply pass the cost on. They do care about costs, because they CAN’T just pass the cost on without some consequence - the extent of which depends on what business we are talking about and what product or service they are selling. If you add a carbon tax to a product that has considerable elasticity of demand or lower-carbon alternatives, then, no, those costs can’t be easily passed on.

A fast food joint can’t just pass on 100% of its higher labor cost in the form of more expensive hamburgers, no. It can pass on some, but the fact is that if you jack up the price of a Whopper, sales will go down a little. That’s how a free market works. People will eat fewer Whoppers and Burger King will make less money, unless they somehow have been underpricing their “food” all this time. What I find puzzling is that so many people only seem to care about this fact when it comes to labor cost.

The way I see it, and admittedly I’m no genius or anything, but a higher minimum wage WILL affect the market a little, and people will just have to suck it up. That’s how it is. The burger joint will be affected by it, and cannot just blindly pass on the entire cost without affecting sales; that is beyond any doubt or question. But why should fast food joints run a jurisdiction’s social and labor policies? It’s not like anyone is seriously arguing for a $75 fast food minimum wage that would put every fast food restaurant out of business. They’re arguing for a labor protection measure that absolutely will cost them a little money but balancing out these needs and priorities is part of what a civilized country does. We ask fast food joints, and every other business, to pay taxes, obey environmental protection laws, incur health and safety costs, files legal paperwork, have a parking lot that meets municipal codes, construct the business to accommodate the disabled, display product information in certain ways, and a million other things. These impositions all cost money you can’t just easily pass on to the customer but they’re accepted costs of doing business that we as a society have decided have to be imposed, and an open, pluralistic, free market country will usually do so in a reasonable, measured way. A few bucks more an hour for workers is reasonable and measured.

The learning curve isn’t steep, but it certainly is there in a more asymptotic fashion. Someone who has been there for a year is better than someone who has been there for a month. Someone whose been there for 2 years is usually even better.

Lots of little things that take a while to pick up on, to train muscle memory, to learn little things that take a couple seconds off a task.

Someone can learn to do most of the jobs in a day, but there is quite a bit of equity in experience.

And that’s a plus, too. Most people quit in their first month or so. It’s not infrequent that they get their first paycheck and are never seen again. If you fire someone who is reliable at $20 an hour, then it may take months and a dozen or more people before you find someone you can rely on again, especially at a lower wage.

There is also the fact that paying someone $20 an hour is much more of an incentive to be reliable than paying MW.

I worked at a place that paid MW, and told us flat out that they didn’t give raises. So, I didn’t give a fuck. I showed up late, I didn’t work all that hard, I called off if I felt like taking my dog to the park rather than going to work. Jobs that I got paid a more reasonable wage I took more seriously.

I spent a fair amount of time in many levels of food service, fast food included. What you say here is not the case, most of the people are full time. There are part time employees, mostly teenagers or people looking for a bit of extra money, but most of the employees are in the upper 30 hour a week area.

In any case, I fail to see where on that sign it specifies “full time”.

That’s because the employers that can hardly find workers to fill their slots are not offering good paying jobs.

?? As best as I can make out, what you’re saying here is that in your opinion the low-end Big Mac price in Mississippi (namely $3.91) is reasonable, but the high-end Big Mac price in DC (namely $5.35) is so unacceptably excessive that you “can’t imagine paying” it?

Even ignoring basic regional cost-of-living differences between Mississippi and DC, I’m baffled by the notion that anybody with anything like a middle-class income would really consider a difference of one dollar and forty-four cents in the price of a fast-food hamburger-sandwich thingy to be a hard-and-fast dealbreaker.

To me, if a food item is really too “ratty” to pay $5.35 for, then it’s not worth paying $3.91 for either. Conversely, if I’m willing to buy it for $3.91 then I won’t grouse about it costing $5.35 instead.

Maybe if I were eating Big Macs every single day, I might care about the extra $500 or so annually that the higher price would be costing me. But as a once-in-a-blue-moon indulgence, ISTM that the extra $1.44 is a laughably trivial difference. It’s certainly not enough to make me think that McDonald’s “can’t afford” to pay its workers $15 instead of $8 per hour.

Well yeah. But what I’m talking about is that it seems like if you are having to take a minimum wage job for whatever reason, you’re not in a position not to take it seriously.

Maybe that knife cuts both ways; employers view minimum wage employees as fungible, and minimum wage employees view minimum wage jobs as equally fungible, so they don’t bother putting in any real effort, knowing they can get hired somewhere else without much trouble.

And it ignores the big sticking point - DC already has a $15 hourly wage and the McDonalds in DC aren’t going out of business!

Maybe some people are turned off by the price point but many more people clearly aren’t turned off by it at all and keep those businesses profitable.

The hypothetical that people will stop shopping there is unnecessary. This is already reality and the doom and gloom predictions have failed to materialize. That’s why McDonald’s corporate doesn’t much care (assuming they have time to transition). They’ve already got the experimental results and realize it won’t kill their bottom line.

Eh, let’s run some #'s:

Assume a fast food restaurant, $1m in sales. Being the Henry Ford of fast food joints, they have one product… burgers… and they sell their burgers at a math-easy $5 a pop, meaning they move 200k burgers every year.

OK, so a simplified financial structure of a fast food restaurant is as follows:

With the above %'s, our restaurant, SDMBurgers, has the following cost structure:

Original
COGS $310,000
Wages $300,000
SG&A/OpEx $250,000
Gross profit $140,000
Sales $1,000,000

(I put sales on the bottom for reasons unknowable, sorry.)

So we are going to make some simplified assumptions regarding the payroll structure at SDMBurgers:

  1. Only 1 manager, and s/he gets 15% of payroll (currently $45k/year)
  2. All other employees are paid $8/hour, no overtime.
  3. I’m not adjusting for taxes, workers comp, etc. This is for a message board post, not my Ph.D.

So you are paying $255,000 for 31,875 hours of payroll, and a manager @ $45k.

Oh, no! A bunch of libtards raised the minimum wage from $8/hour to $15/hour, or 87%!!! How will that impact my business? I’m reading on Facebook that this is going to DOUBLE my hamburger prices!!!

Well, $15*31,875 = 478,125. Manager makes 15% of payroll, so his/her salary goes up to $84k. Total payroll is now $562,125, and now our financial structure… if we want to keep the same gross profit margin… looks like this:

Original Revised
COGS $310,000 $310,000
Wages $300,000 $562,125
SG&A/OpEx $250,000 $250,000
Gross profit $140,000 $158,000
Sales $1,000,000 $1,280,125

So:

  1. If the business needs to keep hamburgers at $5 per, and does not want to make any efficiency changes, they will need to sell an additional 56,025 burgers throughout the year, or an additional 156 burgers a day.
  2. If the business needs to keep volume the same, and does not want to make any efficiency changes, they will need to raise the price of their burgers to $6.40. (The above #'s reflect this approach, a nice way of saying I didn’t adjust COGS to show point #1, sorry.)

This is where the bootstrapping ingenuity of the American entrepreneur will come into play. The business can make efficiency changes to their method of production. They can substitute ingredients, or do a better job on their sourcing. They may make the burger patties 7% smaller, place tomatoes on an “as asked for” basis, not be as generous in napkins and to-go condiments, more. They may even let 1 or two people go, reducing the number of hours paid for from 31,875 hours to 28,875 hours ($45k in savings), but revise procedures so that the remaining team is more productive per person. And they may raise the price of burgers.

And all the above is perfectly fine, is also what the business owner is paid to figure out. Objections to paying a minimum wage based upon raising the price of the product generally are made by people who haven’t actually run the numbers. Well, in this example, the business owner can improve operations, raise the price, or a combination of both, but what won’t happen is that the price of the burger will double because payroll doubles.

And, in the end, if you can’t make this work, everything dies, even your bad business model.

If someone is paying you the least they are allowed to do legally, it’s hard to take the job any more seriously than you legally have to.

I had no job prospects in 2010, spent most of the year unemployed. Finally landed a gig at Burger King at MW. (Ohio MW, which is a bit higher than fed.) I was still pretty much their best employee, but I would have been better if I was paid enough to give a shit.

There certainly is that. If you can get another job, it’s going to pay at least as much. And they treated us like shit, breaking all sorts of labor and employment laws. Stuff like scheduling in at 10, and then telling us to wait to clock in until we got busy, sometimes not till 12. They’d not let me count my register before or after my shift, then claim it was short, and give me the “opportunity” to make up for it out of my own wallet rather than write me up. Jobs that paid better generally didn’t treat their employees quite as badly.

One thing to add is that fast food employee labor is generally under 20%. And bumping up MW won’t raise the manager’s pay by nearly that as much as your figures use.

Doubling employee pay should, all other things being equal, raise the price of a burger by about 10%.

I was being generous in my numbers, assumptions, and citations, so, yes, to your point. For example, my cite for labor said ‘20-30%’, I chose the higher of the two figures. And yes, the mgr probably won’t go from $45k to $84k merely because of the hourly boost, but, again, wanted to be generous here.

Must not live in one of the Nordic countries or Italy. Anyhow, according to this map the US isn’t too far off the average of the EU and is on the high side. List of European countries by minimum wage - Wikipedia

So while I agree that the US system is out of whack it’s because of the high minimum wage not the lack of it. Having manufacturing and manufacturing expertise migrate out of country has far greater consequences to a nation’s strategic capabilities then a few extra consistently devaluing coins in one’s pocket.

It’s not just a matter of what the current minimum wage is, it’s also a question of how many people are actually working at those levels.

In 2019, almost half of American workers were in low-paying jobs.

Most of the 53 million Americans working in low-wage jobs are adults in their prime working years, or between about 25 to 54, they noted. Their median hourly wage is $10.22 per hour — that’s above the federal minimum wage of $7.25 an hour but well below what’s considered the living wage for many regions.

When so many jobs pay so poorly, you’ve got a big problem.

For what it’s worth, I appreciated the write up. I still think said business owners are justified in protesting on the basis that they don’t want to have to change - laziness - the correct response from the rest of society is, too bad.

I think foreign competition might be a more persuasive argument for many businesses, but not when it comes to businesses that rely on local consumption (as is the case with fast food). There are also some business models that operate with a fixed percentage of profits rather than flexible pricing (I’m thinking consultants or contracting), so there is an upper limit to how much employee benefits can be squeezed out of the 5-6% cut on someone else’s sales (assumed static) that your business takes in as gross revenue.

And some businesses are subject to price controls, for example physician services under Medicare.

~Max

Many years ago, I recall seeing Bono on some late night talk show where he was commenting on the difference between America and his native Ireland in terms of how they view wealth:

“In America, a man looks at a big mansion on a hill and says ‘Someday, I’ll have a house like that’. Back in Ireland, a man looks at a big mansion and says ‘Someday, I’m gonna GET that SOB!’”

And that’s how people are in this country, particularly conservatives. Americans are so enamored with wealth and privilege that money itself has become a virtue. It’s created this “pot of crabs” mentality where people making $17 an hour are outranged than minimum wage workers should have their pay bumped to $15 an hour or people unable to work for whatever reason should receive anything at all. Meanwhile, they are content with individuals or families having control over billions of dollars without having to pay equivalent taxes because they “earned it”.

Where does this guy’s salary fit in? If his salary is in the SG&A number, there could be some potential savings there. Pay the CEO minimum wage and the overhead goes down by quite a lot. It’s not like he’s integral to the success of the operation. He made this amount of money even when McDonald’s was losing money in 2020.

All pay is relative is it not? A $1 has no intrinsic value with regards to an exchange for a good or a service. You realize, by definition, 1/2 of folks are going to make less then the median? Framing this as a question of morality or virtue is misleading. There is nothing inherently moral or immoral with the laws of supply and demand and labor is subject to those laws regardless of the stated intent of voters or the politicians who pander to them.

If you really want people lives to improve then working on systems that incentivize the production and availability of goods and services is how you do so. Giving folks a bit of paper or a value in a database that is deliberately devalued through policies that are inflationary does not.

That’s not price control. That’s a limit to what the government is willing to spend. Physicians aren’t obligated to deal with Medicare.