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> Companies that employ workers below subsistence wages are actually being indirectly subsidized collectively by every single taxpayer. This is a very common a

by darawk 6y ago

> Companies that employ workers below subsistence wages are actually being indirectly subsidized collectively by every single taxpayer. This is a very common and very wrong interpretation. Taxpayers aren't subsidizing the company. Taxpayers are subsidizing themselves. In a competitive market (which all low wages jobs are in) the employer will simply pass on those savings to the consumer. Uber passes them on to riders, Walmart passes them on to shoppers, etc. There is no subsidy to the corporation. The subsidy is to society at large, which is exactly appropriate for tax money to fund. Uber isn't going to experience margin compression in Seattle as a result of this. All they're going to do is raise their prices. The equilibrium effect of that is two-fold: 1. Fewer rides 2. More cost to Uber's customers Uber will make less money, but only as a result of the loss of volume. They will not be making more or less money per ride. There will just be fewer rides. That's it.

beowulfey 6y ago
While true so long as this is only happening in Seattle, if this kind of legislation were to spread Uber would definitely start seeing margin compression.
BMSmnqXAE4yfe1 6y ago
Uber's cost per ride is exactly zero. So they WILL make more per ride. Of course, there will be fewer rides, as more people will choose car or public transportation. They will probably lose overall.
massysett 6y ago
What is there always this assumption in wage law debates that employers have unilateral ability to “just raise their prices” and “pass costs on to the consumer”? There are plenty of other possibilities. It is also possible that the company will suffer reduced profits. Indeed, if the marketplace truly is competitive, the employer takes the price the marketplace offers. The employer can’t simply arbitrarily set prices any more than a corn farmer can show up at the grain elevator and demand a price for his corn. Economists like to talk about the invisible hand of the free market setting prices, but somehow when the minimum wage is being debated many economists toss the invisible hand into the trash heap and start saying that businesses can set whatever price they want and for some reason the market will simply bear it. I’m not saying minimum wage laws are a good idea, but economists have no credibility when they won’t even allow for the possibility that wage laws might reduce corporate profits rather than leading to increased prices.
- qwytw 6y ago
  Companies which employ large numbers of unqualified/minimum wage workers are usually in industries which are highly competitive. Walmart’s profit margin is less than 3%, most fast food restaurant franchisees probably don’t have margins much above 5% and Uber is yet to have any profits... So there isn’t much room for them there. They either can increase their prices or increase their worker productivity by hiring less people and investing more into increasing efficiency/automation. Both of which would not be beneficial to consumers and unqualified workers in the short term. And this is not something that hasn't been tried in practice yet. Just look at European countries like the Netherlands, Belgium, Germany, France, Spain etc. They have significantly higher minimum wages (relatively to their GDP or median household income) than the US and consumer goods and services are in general much more expensive (relatively) there than in the US.
  - Closi 6y ago
    > Most fast food restaurant franchisees probably don’t have margins much above 5% If we follow your train of thought, we shouldn't see employers paying minimum wage with higher margins because those higher margins would have transpired to lower prices for consumers. McDonalds corporate profit margin is 20%! People might say, "Well most margin comes from franchise fees and McDonalds doesn't directly own most restaurants or own that cost base" - but while some franchisees earn 12%+ profit, they don't even have a mechanism where they are even ALLOWED to reduce prices so how exactly are higher profits supposed to get passed back as lower prices? The reality is that if a companies goal is to profit-maximise, "cost plus margin" is not a particularly effective strategy. From an economics perspective, you would work out what your demand curve is, plot that against your cost base to produce a profit figure for each point on the demand curve, and pick where maximises profit. In reality this will be less of a formal process, but this is the microeconomic theory.
    - erik_seaberg 6y ago
      I've seen claims that McDonald's makes more on owning prime real estate than on selling food for pennies.
tekknik 6y ago
> This is a very common and very wrong interpretation. Do you have anything to back up this wrong claim? It very much seems like this is a matter of perspective. > Taxpayers aren't subsidizing the company. Taxpayers are subsidizing themselves. Again this seems like perspective. The taxpayers as a group may be subsidizing themselves but the individual making enough to support themselves would be subsidizing others. So from their perspective they are paying for a company’s unwillingness or inability to pay a living wage.
- darawk 6y ago
  > Do you have anything to back up this wrong claim? It very much seems like this is a matter of perspective. It's pretty straightforward economics, and the rest of my comment explains it, I think. > Again this seems like perspective. The taxpayers as a group may be subsidizing themselves but the individual making enough to support themselves would be subsidizing others. So from their perspective they are paying for a company’s unwillingness or inability to pay a living wage. The question is: where does the economic benefit of the subsidy flow? And the answer to that is primarily back to consumers, not to companies. It flows to companies primarily in the sense that it allows some companies to exist that wouldn't otherwise exist. But it's not clear exactly how making them not exist would benefit anyone.
  - tekknik 6y ago
    But then this overrides a central theme to capitalism . If a business cannot turn a profit including all of its costs then it should not exist. Forcing its continued existence must be accompanied by some collective good in order to be fair to all tax payers, otherwise it just ends up being an unfair cost. For example, why should tax payers not using a hobby store subsidize hobby store employees? It removes efficiency.
    - darawk 6y ago
      Right, but arbitrarily declaring that a specific wage level is the true one does not make something a cost to the business. We, collectively, decide that people should not make less than X. That does not make each person's labor worth X in a free market, and it does not make X the 'true' cost of paying a person. If we, as a society, decide that people should make at least X, then we, as a society, should subsidize wages below X until it is X. The gap between the free market value of someone's labor and a 'living wage' is not an externality. It is not a secret cost that businesses are shirking. It is a social obligation that we made up because we want our citizens to have a certain standard of living, and that's fine, but we should all pay that together. Companies should pay people what their labor is worth, and we should all make up the difference together, if that's what we believe is right.

by darawk 6y ago

beowulfey 6y ago

While true so long as this is only happening in Seattle, if this kind of legislation were to spread Uber would definitely start seeing margin compression.

BMSmnqXAE4yfe1 6y ago

Uber's cost per ride is exactly zero. So they WILL make more per ride. Of course, there will be fewer rides, as more people will choose car or public transportation. They will probably lose overall.

massysett 6y ago

What is there always this assumption in wage law debates that employers have unilateral ability to “just raise their prices” and “pass costs on to the consumer”? There are plenty of other possibilities. It is also possible that the company will suffer reduced profits. Indeed, if the marketplace truly is competitive, the employer takes the price the marketplace offers. The employer can’t simply arbitrarily set prices any more than a corn farmer can show up at the grain elevator and demand a price for his corn. Economists like to talk about the invisible hand of the free market setting prices, but somehow when the minimum wage is being debated many economists toss the invisible hand into the trash heap and start saying that businesses can set whatever price they want and for some reason the market will simply bear it. I’m not saying minimum wage laws are a good idea, but economists have no credibility when they won’t even allow for the possibility that wage laws might reduce corporate profits rather than leading to increased prices.

qwytw 6y ago
Companies which employ large numbers of unqualified/minimum wage workers are usually in industries which are highly competitive. Walmart’s profit margin is less than 3%, most fast food restaurant franchisees probably don’t have margins much above 5% and Uber is yet to have any profits... So there isn’t much room for them there. They either can increase their prices or increase their worker productivity by hiring less people and investing more into increasing efficiency/automation. Both of which would not be beneficial to consumers and unqualified workers in the short term. And this is not something that hasn't been tried in practice yet. Just look at European countries like the Netherlands, Belgium, Germany, France, Spain etc. They have significantly higher minimum wages (relatively to their GDP or median household income) than the US and consumer goods and services are in general much more expensive (relatively) there than in the US.
- Closi 6y ago
  > Most fast food restaurant franchisees probably don’t have margins much above 5% If we follow your train of thought, we shouldn't see employers paying minimum wage with higher margins because those higher margins would have transpired to lower prices for consumers. McDonalds corporate profit margin is 20%! People might say, "Well most margin comes from franchise fees and McDonalds doesn't directly own most restaurants or own that cost base" - but while some franchisees earn 12%+ profit, they don't even have a mechanism where they are even ALLOWED to reduce prices so how exactly are higher profits supposed to get passed back as lower prices? The reality is that if a companies goal is to profit-maximise, "cost plus margin" is not a particularly effective strategy. From an economics perspective, you would work out what your demand curve is, plot that against your cost base to produce a profit figure for each point on the demand curve, and pick where maximises profit. In reality this will be less of a formal process, but this is the microeconomic theory.
  - erik_seaberg 6y ago
    I've seen claims that McDonald's makes more on owning prime real estate than on selling food for pennies.

tekknik 6y ago

> This is a very common and very wrong interpretation. Do you have anything to back up this wrong claim? It very much seems like this is a matter of perspective. > Taxpayers aren't subsidizing the company. Taxpayers are subsidizing themselves. Again this seems like perspective. The taxpayers as a group may be subsidizing themselves but the individual making enough to support themselves would be subsidizing others. So from their perspective they are paying for a company’s unwillingness or inability to pay a living wage.

darawk 6y ago
> Do you have anything to back up this wrong claim? It very much seems like this is a matter of perspective. It's pretty straightforward economics, and the rest of my comment explains it, I think. > Again this seems like perspective. The taxpayers as a group may be subsidizing themselves but the individual making enough to support themselves would be subsidizing others. So from their perspective they are paying for a company’s unwillingness or inability to pay a living wage. The question is: where does the economic benefit of the subsidy flow? And the answer to that is primarily back to consumers, not to companies. It flows to companies primarily in the sense that it allows some companies to exist that wouldn't otherwise exist. But it's not clear exactly how making them not exist would benefit anyone.
- tekknik 6y ago
  But then this overrides a central theme to capitalism . If a business cannot turn a profit including all of its costs then it should not exist. Forcing its continued existence must be accompanied by some collective good in order to be fair to all tax payers, otherwise it just ends up being an unfair cost. For example, why should tax payers not using a hobby store subsidize hobby store employees? It removes efficiency.
  - darawk 6y ago
    Right, but arbitrarily declaring that a specific wage level is the true one does not make something a cost to the business. We, collectively, decide that people should not make less than X. That does not make each person's labor worth X in a free market, and it does not make X the 'true' cost of paying a person. If we, as a society, decide that people should make at least X, then we, as a society, should subsidize wages below X until it is X. The gap between the free market value of someone's labor and a 'living wage' is not an externality. It is not a secret cost that businesses are shirking. It is a social obligation that we made up because we want our citizens to have a certain standard of living, and that's fine, but we should all pay that together. Companies should pay people what their labor is worth, and we should all make up the difference together, if that's what we believe is right.