Minimum wage hikes as good corporate strategy

[Dreamer Tatum]

If I'm on the board of a fast food enterprise, or a finance company, or a cell phone provider, I would support a coordinated effort to increase the wages of hourly employees to at least $15/hr, minimum. Releasing that purchasing power into the hands of consumers should increase quantities demanded of my product, so while I'm paying a lot more out, I can compete for revenue instead of cost. It's simply the smart thing to do.

[Bunnahabhain]

1. What if your business exports?

If your market is exogenous all this would do is make your product less competitive and you would lose business probably necessitating a reduction in work force and there would be a lowering of GDP.

And btw, any board that gets itself involved in operations to the point they are setting wages? You do not want to be part of that board nor do you want to answer to that board.

[Dreamer Tatum]

2. You're assuming production costs get passed on to pricing.

I don't think that necessarily follows.

You don't think unilaterally doubling wages for businesses like McDonald's would require board signoff?

[Bunnahabhain]

3. Yes, it necessarily follows

If your business is export in nature raising wages definitionally raises your costs. Raising your costs in the global market (vs. domestic) will automatically make you less competitive.

As to board sign off at McD's:

1) about 85% of the stores are franchise owned. They can do whatever the fuck they want with regard to how much they pay their employees.

2) and for the corporate owned stores, no, it would not require board sign off. Do you have any idea how organizations are run? The BoD operates at the policy governance level and the strategic level. Operational decisions are left to...operations. In fact, if you sit on a board and they start to approve or disapprove direct operational things like wages, get the eff off that board fast! Also get a copy of the D&O policy to make sure your butt is covered.

FWIW, I currently sit on two boards and have sat on at least a dozen in my career. No, not huge companies like McDs but the principles are isomorphic.

[Dreamer Tatum]

4. Oy. By sitting on a board, it appears you mean plywood.

To which I say, congrats.

In the case that you are truly a board member, then I pity those businesses.

Yeah, increasing wages increases costs (I read that in the Journal of International NO SHIT). But it doesn't necessarily make the company less competitive. It may make it less PROFITABLE, which was the underpinning of my original point. If McDonald's requires its franchisees to pay a living wage as part of its agreement (because they can and do rule everything with an iron fist), THAT WOULD BE A MATERIAL CHANGE TO CORPORATE POLICY AND SHAREHOLDER VALUE WHICH, AS A FIDUCIARY MATTER, WOULD PROBABLY REQUIRE THAT THE BOARD HAVE A THINK ABOUT IT.

"Hi, I sit on the BoD of XYZ Hamburger Fabricators. Nice to meet you. What's that, you say? The CEO and EVP of Human Resources, together with the COO, the General Counsel, the CMO, and all the regional SVPs got together and decided to increase labor costs by double for 60% of our workforce? And it affects the cost line by a huge margin, but we can't pass price increases along? No, I hadn't heard of that at all. I've been too busy playing with this deck of pornographic playing cards. I'm just a board member...I don't have anything to do with decisions that affect, oh, THE INCOME STATEMENT, CASH FLOWS, or ANYTHING LIKE IT!"

[Bunnahabhain]

9. If you create silly things

You can talk yourself into thinking you've proven about anything.

Insult me all you want I actually have a clue and real life experience. Come back to me when you have both.

Edit: also forcing your franchisees to raise wages would not impact the cash flows to the corporation. Just FYI, franchisors get paid off the gross.

[ProfessorGAC]

27. You Just Made Dreamer's Point

Calls into question whether you have thought this through.

[Bunnahabhain]

32. Really?

All my explanation, application of economic concepts, and it appears I've not thought this through? That, in truth, this discussion has not been had thousands of times prior to this in every undergrad school of business and economics? I mean, this is really not a new conversation.

But on the Netwebs everyone is an expert and just thought something fresh up!

[PowerToThePeople]

5. Yea, more of the population living in poverty. n/t

[Dreamer Tatum]

6. Um...what? nt

[PowerToThePeople]

10. if you raise minimum wage

all it does is corall everyone to the lower extremes of the economic spectrum. More people living in poverty.

[Dreamer Tatum]

11. That makes exactly zero practical, logical, or empirical sense. nt

[PowerToThePeople]

12. I am sorry that you do not understand

Why do you think raising the minimum wage will improve standards of living for the minimum wage earners?

[Dreamer Tatum]

13. Did your mind really let you type those words?

If so, I would take off the stupid Burger King mask and go get a brain scan.

[PowerToThePeople]

14. My brain works just fine.

Numbers and math are my thing. I have more than a pretty good handle on how it works.

I have a better Idea than 15$ an hour.

I say minimum wage should be 2million$/year.

[Dreamer Tatum]

19. When does high school start up where you are? nt

[ProfessorGAC]

28. Didn't Take Any Logic Classes Though

Clearly.

[PowerToThePeople]

31. What makes you claim that?

Bring it.

[taught_me_patience]

7. And all those making $15/hr now have to be raised to $20/hr

I hope you don't mind paying $5/cup of coffee and $7 Lattes.

[Dreamer Tatum]

8. Why are you so sure that would happen?

I don't see it. I think if prices go up at all it would be a small fraction of the factor cost increase, with the rest eating into margin.

[Bunnahabhain]

15. You only seem to see one side of an equation

and it's always the side you feel will support your predetermined position.

In your OP you state raising wages will increase consumer demand. Then in this post you say prices will not rise. Please share with the class how you feel demand will increase but prices will not. Unless you reject the empirical observations of centuries you have to admit that moving the aggregate demand right will raise prices. Margins will not be impacted as you seem to feel as a higher quantity of goods will be demanded at each price point once the demand curve shifts right. You might also find places like McDs do less business as inferior goods will get pushed out for superior goods as consumers have higher disposable income. This will of course lead to a contraction in the market for McD products and possible loss of jobs at McDs.

[Dreamer Tatum]

17. The key is WHY prices will increase.

You are describing, correctly, demand-pull inflation, which is at least consistent with an expanding economy. Cost-push inflation needn't be associated in any increase in demand, however, which is not as desirable (in my opinion).

You correctly note that product differentiation complicates everything.

[Bunnahabhain]

20. LOL

Of course I "correctly noted" things. It's not occurred to you I might actually have some education/knowledge on topics I chose to discuss?

And of course cost-push inflation "needn't be" associated with any increase in demand. In fact, if the money supply is held stable, demand should fall for other items (as the supply of money is stable/limited), thus dropping their prices.

All of this does not negate that fact that, as I pointed out earlier, you argue contradicting positions in this thread.

[Dreamer Tatum]

21. "Of course" you're correct?

Wow, with an ego like that, maybe you DO sit on a couple of BoDs.

[Bunnahabhain]

24. "Of course" you were being condescending...

I mean, this is not graduate level economics, and you felt it necessary to inform me I was correct in applying the correct concepts? Maybe you did not mean to be condescending (although judging by your previous and current insults to me that's really reaching) but that's how you came off. I replied in an appropriate manner.

And you have yet to address that fact that you argue contradicting positions depending on what conclusion you want to support. Yeah, I'm not letting that drop.

[Dreamer Tatum]

26. What you call "contradicting positions"

other people call "considering multiple viewpoints." Since you are an accomplished Boardsman, your point of view is clear, however. More for you, less for them.

[Bunnahabhain]

29. Keep up the insults

It only makes you look foolish as I calmly and politely turn your comments inside out for all to see you are just a poser. You do know non-profits have boards, right? That it is quite possible part of the civic duties I feel is incumbent on me to perform is stewardship of local non-profits, such as abused women's shelters, care of the indigent, and literacy?

To the point: bullshit on "multiple viewpoints" in this case. You tried to tell us raising wages would increase demand and not increase prices (margins would just shrink) then agreed if aggregate disposable income increased the aggregate demand curve would shift right thus...raising prices.

You cannot maintain that raising wages will and will not raise prices.

[Dreamer Tatum]

34. I will defend myself just once more

and then leave you to your non-profit, which, prior to your arrival, may well have been a for-profit:

RAISING WAGES PROBABLY INCREASE PRICES. STIPULATED.

That isn't NECESSARILY due to firms passing along labor costs, and in any case the DEGREE to which prices
increase depends on the effect on consumer incomes and a host of other things you can find in your econ
text.

In any event, I struggle to square record corporate profits with the claim that companies are too poor to do
anything but pass labor costs along in prices. That may be true of the coffee shop owner who replied below,
but you will have to explain to me why WalMart can't kick in a few more bucks to their workers.

[PowerToThePeople]

39. because they won't

have you worked in a Corporate business before? Margins do NOT go down. Only up. If they go down, the business lays off workers, slashes benefits, moves operations overseas, etc. etc. If Margins do not go up, business shuts down, assets sold off. Final payout dividend goes to investors. Done.

edit- and this is why capitalism's failure as currently practiced in the USA is guaranteed.

[taught_me_patience]

16. Because I own a coffee shop

and pays baristas $9-$15/hr. Labor is the largest cost for this type of business (outside of cogs).

Here is a rough cost breakdown for a coffee shop that jams (could not do much more biz without hiring more baristas):

COGS: 35%
Labor: 35%
Rent: 8%
Electricity, Insurance, Advert, cleaning, etc: 7%

Net profit: 15% (without interest expenses)

Where is the room to eat into margin?

[Dreamer Tatum]

18. So corporate profits AREN'T at an alltime high, then?

I am sure there are businesses that can ill afford to increase wages without increasing prices. Never did I claim otherwise.

[napoleon_in_rags]

30. That's not really true.

Haven't you seen the productivity vs. wages chart?

And the economy is not doing that well. There's a strong argument to be made for returning wages up to the level matching productivity, so consumers can actually buy the things being produced as a way to turn up the economy.

[PowerToThePeople]

35. I agree with this.

But, only raising minimum wage will not solve the issue. All that does is push more of the population to the lowest end of the economic spectrum. Now, if ALL wages are increased in order to closely track productivity, then we are getting somewhere.

I do not want to end up with a two tiered society, CEOs/Bankers and minimum wage employees. I would rather keep some semblance of a middle class in existence to stand against the plutocrats.

[napoleon_in_rags]

36. What we're talking about is the illusion of a middle class right now.

First, less and less are in it, second, the value of their wages has gone down substantially. So we're talking about a good section of the middle class who really is working class. Then, you've got who used to be the working class working full time jobs, and needing welfare to survive. So we're already talking about a world where we've merged the full time worker class with the un-working welfare class. The fact is raising them out of this status doesn't damage the middle class, it just reminds that section of the middle class who's just staying off welfare, that they aren't really middle class anymore. It may be hard, but I think its the right thing to do.

[PowerToThePeople]

38. So, instead of working class, they should now be minimum wage?

I do not agree one bit with this. I agree that wage stagnation has hammered the middle class. But, making all working class all minimum wage is just putting a bullet in their head. Killing the working class does not help them.

What you are asking, is for the people that are struggling most in society to sacrifice even more. I suggest we look to the other end of the economic spectrum if you need a sacrifice.

[napoleon_in_rags]

40. No, its about separating working and welfare classes. Common sense stuff.

Okay, just to mix it up I will go a little Republican. While searching for a figures to back up my argument, I came across this (right leaning, but thought provoking) article:
http://www.bizpacreview.com/2012/12/08/money-spent-on-welfare-recipients-exceeds-average-u-s-income-10673

According to a recently released Senate Budget Committee report, the total in benefits received — money, food stamps, housing, child care and the administrative costs to implement these programs — comes to a whopping $168 per day. If they were earning this sum, just like our average household breadwinner above — 40 hours a week for 50 weeks a year — their hourly wage would amount to almost $31 per hour.

It really underscores the point I'm trying to make. Millions and millions of working people are being pushed down to a level of welfare dependency where they are costing everyone a hell of a lot, and are also de-incentivised to work at all, because they are making so little. Where if they just made a little bit more they would not be dependent at all.

And why? Its so the middle class can "pretend" they are better than minimum wage people, when their only making a little bit more, but they end up paying for with taxes the same people at a rate of $31 an hour? Just to feel superior? That's flat out crazy. The average household income in the US is like 70k. If your not even in that ballpark, you're not middle class. Accept it and move on.

[PowerToThePeople]

41. So, just give them the bird?

So, you will take millions of people that have worked hard to elevate themselves to 40k a year and say "You now make minimum wage." I do not think that will fly.

I suggest you look elsewhere for ways to deflate the dollar so that working people have more purchasing power at their current income level. maybe evn make the middle class "middle" again.

[napoleon_in_rags]

42. Math time. 40k = $19.20 an hour.

The OP's desire to raise wages to $15 is appropriate for certain urban areas, like NYC, but in other areas, a living wage is about $12 or $11. Let's go with $12.

$12 is an annual salary of $24,000. If you're making $24,000 a year and you think you're middle class, you are wrong. If you read that article I linked to, he says correctly that the average wage is $24. That's what an RN makes, an ASE certified master mechanic etc. That's middle class pay. You may be middle class if your making less, like $18, but if you're making half that, you're not middle class. If you're afraid of losing your middle class status because a fast food worker makes that, you're in silly land, because you're not middle class. You're working class. Its okay.

And the main thing is, the article I linked to makes the assertion that welfare recipients COST $31 an hour, from all taxpayers. So driving the working class into welfare, at the vast cost to every one so $12 an hour workers can maintain a delusional superiority complex is crazy.

[PowerToThePeople]

43. we are not getting anywhere here.

It was fun. We can agree to disagree. If hiking the minimum wage becomes a platform of this party, I will diverge from it the same way I have diverged from the war machine platform.

There are better ways to solve the issue other than creating a 2 class system. I would like a 1 class system, but that is not happening soon, so a 0 class system where there is a good distribution of income levels across the whole income spectrum. Not everyone at the bottom except the "owners of society."

[napoleon_in_rags]

44. Thanks for taking the time to debate with me, I enjoyed it.

Just one parting thought, on currency devaluation: Its a two way street: Remember when the old folks tell us of their $1.60 an hour minimum wage jobs? Adjusted for inflation they were making about $11 an hour. And now people making that feel wealthy, because others are so poor. We have to beware the thing being devalued is not our labor.

Thanks for talking, bye.

[Wounded Bear]

22. The only real downside of that, of course...

is that then people would make enough money to not have to eat that fast food shit.



I'm all for a raise in the min wage. But I'd probably hold to $10 or so for the first bite.

I see a lot of supply side woo economics being expressed here. The fact is that most 'board members' and CEO types don't have a mindset that thinks so far into the future.

[Dreamer Tatum]

25. I used to chuckle when people claimed DU was changing.

Yet here I am, one of the more pro-business DUers, supporting a doubling of the minimum wage, and all I get is shit on
by "board members."

[napoleon_in_rags]

33. Its a good strategy, and the more you get on board with it the more you profit.

As consumer purchasing power raises, so does profit. Its hard for one business to buck the trend, but once several do, the economy in an area can fire up off of increased consumer spending.

I think its a good long term strategy as well. The simple fact is I don't want to buy from companies that put their employees on welfare and send all their money to China, and a few super rich people who don't contribute to consumer spending. I want to buy from places good to their customers.

[leftstreet]

37. Why do that? Just open up new markets

That's what they traditionally consider a 'good corporate strategy'

[Victor_c3]

45. I say raise wages and use it as a publicity/advertisement thing

"we treat our employees better than our competitor" sort of thing.

If you saw a commercial that stated that Walmart paid their average hourly employee $12 an hour while Target paid their average employee $9.08 an hour, wouldn't you be more inclined to shop at Walmart? I know I would.