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This article unfortunately doesn't address the business side of the problem. Fast food restaurants, or place like "Dale's" mentioned in the article, make very

This article unfortunately doesn't address the business side of the problem. Fast food restaurants, or place like "Dale's" mentioned in the article, make very little profit. It is most likely below 10%. Here is an estimate: https://www.restaurant365.com/blog/what-is-the-average-profit-margin-for-a-restaurant/#:~:text=Although%20factors%20like%20franchise%20affiliation,rate%20due%20to%20faster%20service https://www.restaurant365.com/blog/what-is-the-average-profi.... A 10% profit is very modest. That's not the story of the "fat cats getting rich on the back of the workers" that the article is alluding to. The problem for the business is that the financial model is set by the fixed or imperative costs, i.e. the cost of rent, the cost of maintaining the capital equipment, the cost of cleaning to meet codes, insurance, etc. The cost of labor, for cooks, wait staff, etc. is often the biggest part of the expense budget for restaurants. With such a small profit margin, arbitrarily raising everyone's wages is likely going to kill the business. There is no room in the budget. The only choice is to either automate, which will reduce the labor requirements, or raise prices and hope that customers won't just go down the street. But they will, they will go down the street--until everyone's prices go up and there is nowhere else to go. And all of this is free market capitalism at work. It is a continuous process of reinvention. In short, I'm not saying that higher wages aren't necessary, I'm just saying that both sides of the equation need to be examined, i.e. the plight of the worker AND the plight of the business. And we need to understand that things will probably get ugly before they get better. Because that's how capitalism and free market economies work. But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem for some time now...

fshbbdssbbgdd 6y ago
I think the effects of price stickiness (on goods and labor) aren’t being adequately considered in these discussions. Yes, these restaurants could raise their wages to compete with unemployment, and many have. They’ll also need to raise their prices, which they have leeway to do, because everyone is facing the same costs. The problem occurs in a few months when the bonus unemployment runs out. Then there will be millions more people looking for work. At that point, expanding employers will be able to hire at lower wages again. They’ll also be able to offer goods at lower prices. Employers who stepped up to pay higher wages won’t be able to compete. They’ll need to cut prices and cut wages or lay people off. That will be painful, which makes holding out until wages lower more attractive. Employers can get around this by offering signing bonuses instead of higher wages, but they need to be large to compete with unemployment checks, and it may not make sense to do that for a few months of work. These conditions may present a unique opportunity for policymakers to increase employment by raising the minimum wage.
- deleted 6y ago
  [deleted]
- runako 6y ago
  > The problem occurs in a few months when the bonus unemployment runs out. Then there will be millions more people looking for work. Maybe this won't happen? Unemployment is officially at 6%. Better-capitalized firms have hired a ton of people over the last year. It's possible that marginal businesses like the weaker local restaurants mentioned in this thread will just have to adapt. Besides, given that their jobs are apparently so crappy that they are losing employees to the likes of McDonalds, certainly they have high turnover. If a labor glut happens, they can just lower wages and deal with the resulting turnover, which they already know how to handle.
- kukx 6y ago
  Rising the minimum wage is exactly the thing that should not be done, if one cares about the employment levels. It prices out the least qualified workforce of the market. To put it simply the less able/educated/experienced are not productive enough to cover own costs. So that no one wants to employ them and they are stuck. They start to rely on the government to provide them with resources and it means that have to vote for politicians that promise to keep the free money flowing. It creates a perverse relation between politicians and citizens, which may resemble a dealer addict situation.
  - 8note 6y ago
    Realistically, GDP has grown substantially with the owners receiving nearly all the benefits. Raising the minimum wage is unlikely to affect employment much because of just how profitable companies are today Mind you I think a better tslternative to a specific minimum wage is to have a guaranteed government job at a specific wage. That sets a bar that all labourers have an option, while some lower paying jobs can still exist if they're otherwise competitive in other experiences
    - saddlerustle 6y ago
      Corporate profits as a fraction of GDP hasn't changed much.
fma 6y ago
Yep - which is the appeal Universal Basic Income as Andrew Yang proposes...automation is inevitable, have it work for the people rather than increasing profits.
- madengr 6y ago
  Or stop producing as many people.
nitwit005 6y ago
> With such a small profit margin, arbitrarily raising everyone's wages is likely going to kill the business. There have been past minimum wage hikes, and that's not what has happened. The costs get passed onto consumers. Of course, there's presumably some hypothetical minimum wage that would be too high and destroy the industry, but the amounts being discussed in the US are below what other countries have already tried.
- nickff 6y ago
  Your second sentence is debatable, as it appears that many European countries have high enough minimum total compensations (including benefits and other indirect costs) that unemployment is relatively high, and it can be very tough to get on the economic ladder.
  - rbg246 6y ago
    But equally a poverty wage job doesn't get you on the ladder it makes you an indentured servant.
    - nickff 6y ago
      The company I work at has hired a number of employees whose only previous work was very low wage, and that (low wage) experience definitely weighed in their favor.
    - humanrebar 6y ago
      A verified history of showing up in time and not getting fired for theft or negligence is definitely valuable.
  - gilbetron 6y ago
    Which countries are suffering from this?
    - magila 6y ago
      France and Italy have long had chronically high unemployment, particularly among young adults who struggle to gain entry into the workforce due to the high cost floor on labor.
rbg246 6y ago
I don't think anyone is saying that these sorts of companies have lots of money. These business have a model that relies on poverty wages changing the minimum wage will disrupt these businesses greatly and I don't see a problem with that. You can't keep a broken thing going because of the businesses that will have to change their model. But sorry I also see your point there needs to be help to business to change their business.
- humanrebar 6y ago
  A teenager making change on bagel purchases isn't working for "poverty wages". And a business that providing tennagers jobs isn't being exploitive. I do think employers should be conscious about the kinds of lives they set their employees up for, though we can talk about that without overgeneralization.
  - dstaley 6y ago
    Two things: 1. According to the US Bureau of Labor Statistics, about half of people making minimum wage or less are older than 25 years old. 2. A single person working a full-time job (32 hours) at minimum wage makes $12,064. The US federal definition of poverty for this individual would be anything below $12,880. So yes, minimum wage workers are literally, by definition, working for poverty wages.
    - humanrebar 6y ago
      I don't find those talking points convincing. For one, even with your statistics, half of folks employed are school-age. Also, poverty is measured by household. Confusing the math isn't a good way to make a quantitative argument. But mostly your argument is a semantic trick around the word "poverty" to rationalize weighted terminology. Again, I have strong feelings that employers should be conscious of the lives and prospects of their employees. For instance, having policies that lead to irregular patterns of night and day shifts that have to be unhealthy long-term. But we can have rational discussion about these issues.
fuzzer37 6y ago
I'm of the opinion that if you're business model relies on paying people so little that they don't even want to work for you, maybe that business _shouldn't_ be viable. No one is forcing you to own a business, just like no one is forced to work for you.
ericbarrett 6y ago
What about franchise fees? Independent fast food restaurants basically don’t exist in the U.S. anymore. An individual McDonalds may be scraping the boundary of profitability, but corporate had a net income of $1.5B last quarter[0], or about $7,500 per employee per quarter[1]. That’s net income, not revenue. [0] https://corporate.mcdonalds.com/content/dam/gwscorp/assets/investors/financial-information/earnings-release/Q1-21%20Earnings%20Release.pdf https://corporate.mcdonalds.com/content/dam/gwscorp/assets/i... [1] https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/number-of-employees https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/numb...
- simfree 6y ago
  Dicks, Burgerville (mostly unionized), Burgermaster, In N Out and other regional chains exist, along with a plethora of single location independent fast food restaurants.
  - ericbarrett 6y ago
    All those regional chains you mentioned pay significantly better than McDonalds, YUM, etc. as well.
    - simfree 6y ago
      Yes, the point of most franchised chains is to extract wealth from communities rather than invest in a stable, skilled workforce delivering a good product. McDonalds, YUM Brands, et all charge large franchise fees and force use of particular vendors and business practices to ensure they extract as much income as possible from their franchisees.
      - ericbarrett 6y ago
        Then we are in agreement!
- nimos 6y ago
  ~200,000 is number directly employed by McDonalds. They have 5-10% of stores. There doesn't seem to be a current accurate number for total including franchisees - but seems to be in the 1.5 - 2 million range.
maybelsyrup 6y ago
> This article unfortunately doesn't address the business side of the problem. Good! I've been hearing about "the business side of the problem" my entire life -- lectured sternly about it, in many cases. All while few of the Adults and Experts - people with Real Power, in other words - dare even mention some of the topics laid out in the link. > I'm just saying that both sides of the equation need to be examined, i.e. the plight of the worker AND the plight of the business. There is no "plight of the business". There's a business that's making money, losing it, or breaking even. The people working there may feel the consequences, but a business cannot "suffer".
- smabie 6y ago
  plight: "a dangerous, difficult, or otherwise unfortunate situation." Pretty sure a business can have plight.
  - maybelsyrup 6y ago
    It was hyperbolic, yes, but only a little, I think. The point I was making is that we've drunk a lot of koolaid about corporations being legal persons, as having rights, etc., such that no one bats an eye at anthropomorphisms like "the suffering of a company". My claim is that a) those words in that context are anthropomorphisms, metaphors, and b) that I don't think we've had much of a conversation about the koolaid I'm alluding to. (Outside of wealthy educated elites like ourselves, I mean.)
    - zepto 6y ago
      Nobody talks about “the suffering of a company” - that’s a made up example. People do say things like ‘the company suffered losses’, but isn’t anthropomorphising.
    - smabie 6y ago
      A company is just a group of people right? Like people talk about the plight of the Syrian people or whatever. What's the difference?
  - 6y ago
michael1999 6y ago
Firms in a competitive market are price takers. None of them individually can raise prices. But an increase of the minimum wage increase affects all of them together, and will cause a new equilibrium at higher prices.
- fighterpilot 6y ago
  That assumes no substitutes, but in reality this will increase the relative cost of restaurants compared to home cooking which will reduce demand for take out.
  - dmitriid 6y ago
    Ah yeah. You can always look at how Europe is empty and has very few, if any, restaurants with their minimum wages and healthcare. Oh wait...
    - fighterpilot 6y ago
      I said that it would reduce demand, not that it would eliminate it.
      - dmitriid 6y ago
        Has it reduced demand in Europe? In general. Americans regularly have deep-rooted fears about giving fellow humans a chance at a decent life. Are any of those fears substantiated?
        fighterpilot 6y ago
        Economic theory says yes. If prices of A go up and B is a close substitute, some people will shift from A to B. I doubt anyone has studied that rather specific question empirically, though, and even if they had it's not an easy question to study. So theory and common sense is our best bet when it comes to forming expectations here. I'm sure there are empirical studies about how demand shifts from A to B for other examples of substitute goods, though. Maybe start there?
Sebb767 6y ago
> This article unfortunately doesn't address the business side of the problem. She actually addressees this in the very last paragraph: > if a business can’t pay a living wage, should it be a business?
- djbebs 6y ago
  Yes? I dont understand how this is a question. If a businesa is in operation profitably it is because it is providing more value than if it were not, otherwise it would not be able to remain in business
  - Jweb_Guru 6y ago
    If a business is operating profitably by paying people wages below the cost of living, it is being subsidized by the government and therefore is not independently profitable in any meaningful sense.
    - Noumenon72 6y ago
      I view the government as setting up a playing field which entrepreneurs than explore to find profit opportunities. With welfare and especially the Earned Income Tax Credit, the government created a class of people who can be profitably employed by paying $X below the cost of living. This was intentional, a way to keep people in the market economy even though they're not productive enough to survive in current conditions. An entrepreneur who employs someone like this is like someone living in New York City in a rent-controlled apartment. You can't say they're not supporting themselves just because they couldn't afford rent in a pure market system. The actual system was purposely designed to make certain activities profitable that would ordinarily be losses. Without people taking advantage of those niches, the subsidies would be pointless.
      - Jweb_Guru 6y ago
        The subsidies in this case do not exist so that businesses can exploit underpaid workers, though (and are not comparable to something like a rent-controlled apartment, where landlords are just prevented from charging so much that they'll drive out the workforce rather than actively subsidizing with things like food stamps or welfare). They exist because the US is reluctant to let people starve in the streets and die, the fact that you interpret them as an effort to "keep [unproductive] people in the market economy" notwithstanding. The government bumping up unemployment to the point that people don't have to take certain types of jobs that rely on underpayment for profitability does not contradict that goal, which is why many people are not that sympathetic to small business owners complaining about it.
throwawaygh 6y ago
> But they will, they will go down the street But... why? To save a couple bucks on a burger? This is a serious question. Is this really how consumer behavior works in the restaurant industry? Restaurant food isn't actually a commodity. A burger from one place can be quite different from a burger at another. Even at the low end -- I much prefer McD's to the other fast food joints. Atmospheres can be very different as well, even at the low end. Etc. This is not at all how I behave. I have two local bars. I like both way more than all the other bars. I have one local brunch place I like way more than all the other brunch places. All 3 places can & have increased prices. In one case substantially. I go anyways. Granted, I have more expendable income than the average American. But this is even how I behaved when I was on a pretty tight budget during grad school -- a few regular places and I went as much as I could within my budget. Maybe I'm just a weirdo?
- djbebs 6y ago
  Price changes do work...
- lotsofpulp 6y ago
  > Maybe I'm just a weirdo? Yes. The data clearly shows the vast majority of the restaurant business be a low margin, high risk venture. That must mean a majority of the customers are very price sensitive. I can easily afford to pay double and triple what most restaurants charge today. But I’m not going to pay it because I can easily make a meal at home of better quality for less, just have to add in my time and energy. Moreover, I don’t trust restaurants to not cut corners most of the time due to the volatility of their business. But that’s all personal preference. I suspect most people just have limited budgets, so increased prices means less times they go out.
  - throwawaygh 6y ago
    > The data clearly shows the vast majority of the restaurant business be a low margin, high risk venture I think what I was suggesting was that perhaps restaurants as an industry have systematically under-estimated consumers' willingness to pay. You see this in software pricing discussions a lot, actually: small shops that leave a lot of money on the table by not charging enough. Is it really so crazy to imagine that restaurants might be doing the same thing? > That must mean a majority of the customers are very price sensitive. It's this "must" that is always asserted but... I think might not be as true as we assume? I am not a restaurant owner, so what do I know.
pnutjam 6y ago
Maybe we need some sort of wage floor or mandatory "minimum"...?
losteric 6y ago
Real estate prices are also part of the problem, especially in urban cores... some Seattle and SF rents are just stupid, to say nothing of NYC
- robocat 6y ago
  Real estate prices and rent are driven by how much people can only just afford it. If people earn more, they can afford a bigger mortgage, so house prices rise.
  - Itsdijital 6y ago
    Yeah, but the counter to all that is building new housing, which unsurprisingly very difficult in these areas.
    - robocat 6y ago
      > but the counter to all that is building new housing I would like to see some stats on that meme. Anecdotally, what I think happens is that people buying second homes, vacation homes, and more people living one person to a home. People without homes are not clearly advantaged. I live in Christchurch New Zealand, with a truely massive increase in standalone houses, and significant densification in the city center. However house prices are still booming, and plenty of friends are struggling to find a first home.
ManBlanket 6y ago
The tone of this article also sounded like she was spitting it through clenched teeth, which I found to be incredibly distracting and defeating to the point the author was attempting to make. Was the point small business owners at establishments like Dales are facing troubles because they're fat-cat capitalist Trumpian Covid deniers whose problems aren't valid as such? That's what it sounded like. I look forward to when we can have conversations about topics like economics without hyperbolic intolerance for outsiders serving an ultimately unproductive narrative that has been driven into the ground. I live in Missoula. I am a regular customer of Black Cat Bakery and I can see them struggling. In fact most restaurants and breweries I frequent face the same issue, a few employees desperately trying to keep an inundated ship afloat. I will tell you this article largely ignores what everyone who lives here understands is the biggest problem faced by laborers in Missoula at the moment. This city is amid a dire housing shortage, expedited by lack of new construction and a migration of buyers from more lucrative economies. The median home price increased by 57% in the last 10 years, 8.6% in the last year alone to $315k. In the meantime the median family income remains only $46k. https://missoulian.com/news/local/missoula-housing-prices-see-largest-annual-jump-of-last-decade/article_cc9e693b-3943-5b7f-be6f-c5cd5370571f.html https://missoulian.com/news/local/missoula-housing-prices-se... It is truly a seller's dream market and as such the availability of rentals has evaporated. You'd be lucky to find a 1 bedroom right now. My wife and I bought a home here a little over a year ago and were fortunate to find the nut who, "didn't need a realtor, what with craigslist." Before then we had been outbid 5 times previously, during which we offered up to 30k above the asking price. Frankly, we wouldn't live here if we didn't get lucky. Our experiences weren't unique at the time and it has only gotten worse. I regularly hear of houses selling for 50K over listing price to people buying sight-unseen. Frankly I don't care what the owners of Dales or Black Cat Bakery think about Covid or whether they voted for Trump. I really, sincerely, don't care. I only hope for the best for their business and their employees. I know what it's like to struggle in Missoula, I did for years and I still would be if not for dumb luck and a bit of privilege. The problems people face today are starting to pale in comparison to my own, and a solution is becoming truly urgent. I can only hope people will come to understand if we care about solving these problems, then we have to put down the tribalism and intolerance for those with different views and focus on the matter at hand. To quote Vince Staples, "Ain't no money in havin' hate in your heart."
jonnycomputer 6y ago
Well you're describing a situation where there needs to be general rise in the cost of labor. Its competition against competitors that don't raise wages that is the problem, right?
heavyset_go 6y ago
> But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem for some time now... This claim in particular was examined in studies on minimum wage increases, and found that increases in the minimum wage had no impact on the adoption of automation[1]. [1] https://research.upjohn.org/up_workingpapers/260/ https://research.upjohn.org/up_workingpapers/260/
- a3n 6y ago
  Automation may merely not yet be readily adoptable.
TheSpiceIsLife 6y ago
For any of this to be a valid arguement you're going to have to explain why places like Australia haven't imploded. We have a decent minimum wage, social welfare, and hybrid socialised / private healthcare. Increase wages and conditions gradually, businesses that can't innovate or charge more will fall by the wayside. That happens.
ThrustVectoring 6y ago
> the financial model is set by the fixed or imperative costs, i.e. the cost of rent Rent for commercial spaces is set to what the market will bear, and that is also determined by the same financial models with labor prices as input. "Restaurant owners aren't getting rich off of exploiting labor; their landlord is" just means that the haircut should be getting taken off of the landlord's profit margins. Now, this isn't a panacea - there are some distortionary effects from squeezing the rents that landlords can charge, and it favors high-skill and low-labor businesses by competing away higher bidders on commercial real estate, but it's not like business owners will feel 100% of the incidence of a minimum wage hike. Some will go out of business, which will lower commercial rents as vacancies rise, which will save a portion of the businesses that would die based off first-order effects alone.
jethro_tell 6y ago
meh, if the only way you can get a piece of the pie is to take it from someone who has less opportunity than you I don't really feel bad. Cities like Seattle raised their minimum wage, there was a lot of worry that everyone would go broke and there would be no food to eat. As it turned out, a few people shut down and someone else almost immediately opens a similar business in that place. Not everyone runs a business that is properly priced, or properly managed to make a profit, but lots of people can do it, and they tend to fill the void that is left by businesses that can't offer a product that people feel is worth paying enough to support less than poverty wage. Even for companies that pay really well, some don't make it.
sbierwagen 6y ago
>With such a small profit margin, arbitrarily raising everyone's wages is likely going to kill the business. There are maybe ten lunch places within walking distance of my (suburban) office. The variety is nice, certainly. I like having a bunch of options. I don't think it would destroy society if I only had half the choices, though.
fallingknife 6y ago
You do know that businesses can also raise prices, right?
angmarsbane 6y ago
If businesses didn’t have to pay for health plans, would that free up enough to pay higher wages?
- WaltPurvis 6y ago
  Almost none of the jobs in question include health benefits, so it's not really a factor.
count 6y ago
10% profit is not necessarily very modest. 10% of $50M is a lot of money. 10% of $50K is not a lot of money. 10% only sounds 'modest' in relation to SaaS/software margins which are ridiculous. Walmart's gross margin is only ~28%. Many manufacturing companies compete across 3-5% margins. If the base number is big enough, that's a ton of money still! %'s are a bad way to measure this, for that reason. Labor isn't even the majority of cost for restaurants (avg is apparently around 34% fully loaded [1]). [1]https://totalfood.com/busting-restaurant-labor-cost-myth/ https://totalfood.com/busting-restaurant-labor-cost-myth/
6gvONxR4sf7o 6y ago
Think of the business side of the problem as a collective action problem. You want to pay your workers a living wage, but to do so, you have to raise your prices. If you raise your prices, your business will go to your competitor, so you can't exist if you increase your wages (and your competitor doesn't). Meanwhile your competitor wants to increase wages but doesn't for the same reason. If the government mandated that when you raise your prices, everyone else had to too, then suddenly increasing wages won't put you out of business! Same story if the government mandated that you raise your wages (in this particular hypothetical). You're right that both sides of the equation need to be examined, but it's actually a bunch of equations with a bunch of sides.
- deleted 6y ago
  [deleted]
- chii 6y ago
  > If you raise your prices ... and your competitor doesn't this means your business is less efficient than your competitor's, or you are asking for a higher margin than your competitor. Both means that the business deservedly fail under the raised minimum wage. if everybody has to raise their prices to fund the higher minimum wage, then it means the original minimun wage was already at the optimal level for your business!
  - 6gvONxR4sf7o 6y ago
    > Both means that the business deservedly fail under the raised minimum wage. Isn't the point that it wouldn't fail under a raised minimum wage? It would only fail under an uncoordinated raised wage.
joe_the_user 6y ago
I think a big factor is that a lot of restaurants in the US are throw-away businesses. The average life span of restaurant is five years. A lot of people enter the restaurant out of a weird desire to create something - which is to say they're shoveling money into the business 'till they're out of capital and then another "entrepreneur" takes their place. And oppositely, landlords and local government pretty expect that the sequence of failures is going to continue. Everyone else (landlords, restaurant suppliers, consultants and so-forth) makes money. But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem for some time now... Restaurant is a little bit convenience but mostly entertainment. If a robot is going to spit some stuff for you, why not buy an cheaper even microwave dinner, they're not that bad (or cook it yourself for something good tasting and which you can entertain yourself with).
blihp 6y ago
A 10% margin also often doesn't tell the whole story of how they make their money. Nearly since its inception, a substantial portion of McDonald's long term profit came from the appreciation of the real estate the stores were built on. Operating a business on it just made it cash flow positive during the holding period. So it was essentially a REIT that happened to operate a fast food chain. Even for many mom-and-pop restaurants (or other business) the real payoff often comes when it comes time to sell and cash in on the capital appreciation of the business assets. My point isn't to say there's anything wrong with that model: more power to anyone who comes up with a creative, legal way to make a living. Mainly I just want to point out that you often can't look at it simply as making X% margin on sales in a given period of time or any other single metric for many businesses as the real gain is longer term than that. Which is really a long-winded way of saying: if the ability of a business to make a long term profit is not my concern, their claimed inability to pay a living wage isn't either. If they honestly can't afford to pay a living wage, then as the article states, perhaps it shouldn't be in business. If there is a market for whatever product/service they were offering, someone will come up with a sustainable way to serve it that is better for all involved.
- ianai 6y ago
  Not to forget the times where states raise their minimum wage and see the number of people in the labor force increase. The balance of power is almost always squarely weighted on the side of the employer. This can push wages below market optimum.
  - sokoloff 6y ago
    I’d expect minimum wage increases to be mostly off the table during recessions, so it’s not surprising to see them passed during economic expansions, which are tightly linked to rising employment figures, so this might be a "wet streets cause rain" correlation.
    - cyrrus 6y ago
      Except it’s those on minimum wage that spend most or all of their paycheck stimulating the economy. Middle class have record savings at the moment.
dv_dt 6y ago
Fast food restaurants do fine in other nations. In sweden, one survey puts a Big Mac combo meal at 15% higher than in Fresco. About 1.50 different. https://www.expatistan.com/price/big-mac/stockholm/USD https://www.expatistan.com/price/big-mac/stockholm/USD
Strs2FillMyDrms 6y ago
The problem is not that the margin is small, is that big companies get to cover the losses of the uncertain(unforeseen situations) with the foreseeable profits, while at the same time (as an extra bonus from their government lobbying) maintaining a minimal labor cost. The price of their product is unreachable to small business, small business are not failing because the labor is too demanding (I know you did not explicitly stated this, but it could be construed as if). They are doing so because the competition is too big. This is my cynical approach... A right-to-center leaning person is in no position to argue "handouts are to blame", or "zoomers/millenials want it easy"... a truly right-to-center political commentary should be telling restaurant owners "Work smarter".
fukmbas 6y ago
If your business model cannot support affordable wages for employees, then it is not a good business model. Super simple...
a3n 6y ago
They can charge what they need to be profitable, after discovering how much they need to pay workers to apply and show up. Which will drive away many customers who have become accustomed to cheap service built on "shit jobs." At some point an equilibrium will be reached, the customers who can't or won't pay more will drop out of participation, and we'll have the true market for service built on good jobs. No customer deserves cheap drinks and service built on shit jobs. "Oh, but all those jobs will be lost." They're already lost, the difference is that it's the workers making the decision.
crossroadsguy 6y ago
> The problem for the business is that the financial model is set by the fixed or imperative costs What about profit sharing? Hire an employee who agrees to get 1K currency units if company (store, resto etc) made 100K CUs. But 500 if company made 50K CUs and 50K CUs if store made 5000K CUs. There's always a max cap, but never a min cap. When someone talks about min caps we all get antsy.
throwaway1492 6y ago
> But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem for some time now... Brings to mind the growing prevalance of self serve kiosk for placing an order that so many fast food restaurants have now. Removing the need for the cashier all together. That and self checkout at a lot of big chain retail stores. I don't think the business concern is necessarily with making a profit, but making 1% more profit than not.
laurencerowe 6y ago
> But they will, they will go down the street--until everyone's prices go up and there is nowhere else to go. This is why higher minimum wages are so important. They force all businesses (not just the ethical ones) to increase prices to point that workers receive a living wage.
stainforth 6y ago
>the cost of rent, The real drag on business and progress
alwayshasbeen 6y ago
If a business makes very little profit - why not closing it? It makes no sense to keep something alive that only works out when you pay your employees basically nothing.
fwip 6y ago
A 10% profit can be a lot, if like many restaurants you're pulling $5-10k in revenue in a day. Many owners own multiple restaurants, too.
- throwawayboise 6y ago
  It's a hugely risky business, especially if you're not a national chain. Most mom-and-pop restaurants don't last long. 10% isn't that big a return for that kind of risk.
  - fwip 6y ago
    It's not a 10% return on investment, it's 10% profit.
iamflimflam1 6y ago
There are plenty of countries who have had minimum wage for some time and have increased that minimum wage over time. So there have been lots of studies done on the impact of it. Here’s one: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/601139/The_impact_of_the_NMW_on_employment_-_a_meta-analysis.pdf https://assets.publishing.service.gov.uk/government/uploads/... > This report includes the findings from a meta-analysis of the empirical UK national minimum wage literature. Similar to a previous UK minimum wage study by de Linde Leonard et al. (2014), this study finds no statistically significant aggregate adverse employment effect of the NMW and also no publication bias in the NMW literature. However, estimates for different sub-groups suggest some relatively larger adverse employment effects for some labour market groups, such as part-time employees.
- karmasimida 6y ago
  Even with minimum wages at 15 dollars, it is still hard to say this is a decent job, although this is the already among the highest globally. The problem lies that the value of assets, especially housing etc, increase much faster than wages can catch up.
  - throwawayboise 6y ago
    I honestly think that part of the problem is that the older people who make decisions on things like minimum wage remember their own minimum wage jobs. My first job paid $3.35/hr. $15/hr is $30K a year full-time. I barely made more than that at my first professional programming job out of college. It sounds insane to me on first hearing that $15/hr is not "decent" pay for an entry level, non-skilled position.
heterodoxxed 6y ago
https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... "The tendency of the rate of profit to fall (TRPF) is a hypothesis in the crisis theory of political economy, according to which the rate of profit—the ratio of the profit to the amount of invested capital—decreases over time. This hypothesis gained additional prominence from its discussion by Karl Marx in Chapter 13 of Capital, Volume III, but economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, although they differed on the reasons why the TRPF should necessarily occur." Consider that if the rate of profit tends to fall, and shareholders require greater profits each quarter, how that affects "inputs" such as labor?
neilwilson 6y ago
"I'm just saying that both sides of the equation need to be examined, i.e. the plight of the worker AND the plight of the business." It was examined. In 1944 in the Beverage Report "Full Employment in a Free Society". It concluded that people not earning sufficient to eat is an order of magnitude more harm than businesses not earning a profit and that the labour market should always be a sellers market, not a buyers market. "But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem" That's sort of the point. However micro-solving the labour problem with automation to drive forward productivity leaves you with a big problem - given wages are the primary source of demand, who are you going to sell the output of the robots to? The underlying assumption here is always that the private sector provides the jobs. Look at the vacancies vs the number of people without work that want it. Then you'll realise that the private sector is systemically incapable of supplying sufficient jobs to go around. It always stops short. Which means that jobs have to be topped up by the public sector to ensure there are enough to go around. If there are always 19 bones and 20 dogs, it doesn't matter how good the dogs are at bone hunting. Blaming the dogs for a bone shortage is desperately unfair.
- deleted 6y ago
  [deleted]
- xyzzyz 6y ago
  > It was examined. In 1944 in the Beverage Report "Full Employment in a Free Society". It concluded that people not earning sufficient to eat is an order of magnitude more harm than businesses not earning a profit and that the labour market should always be a sellers market, not a buyers market This report is completely irrelevant in today’s America, where everyone has more than enough to eat, especially if they are working.
  - SamoyedFurFluff 6y ago
    > today’s America, where everyone has more than enough to eat What are you talking about? Nearly 1 in 4 households experienced food insecurity during the pandemic. https://www.npr.org/2020/09/27/912486921/food-insecurity-in-the-u-s-by-the-numbers https://www.npr.org/2020/09/27/912486921/food-insecurity-in-...
pyuser583 6y ago
There’s another option: reducing hours of operation. Some hours are much more profitable than others. That’s not necessarily bad for workers. It might mean holding more than one job, which is common in the food business.
Salgat 6y ago
No business is entitled to be successful. This is just a case of a business with a no longer profitable business model where they can't compete for employees with other businesses.
Iv 6y ago
I agree but let's continue with that story. Let's remember that the beginning of the story was the labor shortage. So not enough people to serve in all restaurants at a competitive price. Let's suppose some restaurants decide to raise prices. Customers decide to go to a place that's cheaper but... it is packed. Shortage, remember? Free market dictates that higher demand than supply makes the prices go up. If client CAN go to a cheaper venue then we are not in a position of shortage. In the end, look at places like Scandinavian countries: salaries are high and going to the restaurant is very expensive. When you think about it, being served by humans is actually a luxury and as global wealth progresses, this should become less and less common. I really hope that the future of restaurants is either fully automated fast foods or high end luxury restaurants that people work out of passion, and that you can afford maybe oncee every months.
didibus 6y ago
What's the absolute number attached to that? 10% could be a lot or very little.
bregma 6y ago
If a business model relies on the exploitation of the vulnerable, it deserves neither our sympathy nor our collective subsidization.
BeFlatXIII 6y ago
Perhaps those kinds of jobs should be automated.
cowsandmilk 6y ago
> raise prices and hope that customers won't just go down the street I always found the idea that restaurants need to compete on price strange. A typic Mexican restaurant is always going to lose to Taco Bell on that, so raising the price of your enchiladas or margaritas probably won’t have much impact on traffic. We read a lot here about founders not setting prices high enough (see patio11 for tons of discussion). Or comment on backblaze being very hesitant to raise prices [0], but then buy into this idea that restaurants have set their prices optimally and that business will plummet if the $15 dish is suddenly $17. The truth is very few decisions on where to eat are driven by price (except at the high end) and instead are driven by experience and location. [0] https://news.ycombinator.com/item?id=20996555 https://news.ycombinator.com/item?id=20996555
- xyzzyz 6y ago
  That $15 vs $17 difference per dish might be immaterial to you, but if you include tax and tips, it’s a difference of a full hour of wage labor for a night out of a family with 2-3 kids with parents earning average wage.
marcosdumay 6y ago
> The only choice is to either automate, which will reduce the labor requirements, or raise prices and hope that customers won't just go down the street. But they will, they will go down the street--until everyone's prices go up and there is nowhere else to go. That's why governments created a minimum wage. If the salaries are written into law, there is no place down the street to go. That's also why environmental and hygienic regulations are so successful. Those things simply can not be done without government intervention.
varispeed 6y ago
The need for wage controls is more apparent in the tech industry. If a hypothetical company with 100 employees registers 10 billion profit and apart from CEO and the board employees make 5 figure salaries, then there is something horribly wrong going on. I think we need a regulation that beyond a certain threshold company should redistribute 30% of profits annually among the staff on top of their salaries. There should also be other restrictions - for example I'd vote for complete removal of dividends. Only way to get paid from a company should be by being an employee and getting a salary taxed as everyone else. The rich have so many loopholes, it is crazy that we allow them to get even richer on the backs of the hard working no name people.
- conformist 6y ago
  Making sure that dividends are taxed like other types of income could make sense - not sure how this currently works in the US? Removing dividends all-together? That doesn't seem like a good idea, because why would anyone invest in a business, if there is no potential for future cash flows arising from it? Even companies that don't generally pay dividends have value, because they could. So removing dividends would also require another mechanism to incentivise investing in businesses in the first place?
ab111111111 6y ago
The whole point of a minimum wage increase is that it will increase all restaurants' wage costs to the same degree, at the same time. Meaning that going "down the street", potential diner's will find that all restaurants' prices have increased equally. So the business threat isn't that American consumers will abandon "Dale's" in particular for some other restaurant. It's that they will choose to eat at home instead of eating at a restaurant, or that they will order less food when they do go to one.
- inglor_cz 6y ago
  "it will increase all restaurants' wage costs to the same degree" In an ideal world full of law abiding citizens, yes. In practice, restaurants that cheat are going to win. I live in a country that has a lot of regulations in the hospitality sector and yet the "paid under the table, not officially employed here" phenomenon is everywhere.
  - ab111111111 6y ago
    Isn't that already the case, though? There's already a minimum wage in the US. The debate is about increasing the minimum wage, not creating one.
Balgair 6y ago
Forgive my ignorance here, but won't capitalism sort this all out? Businesses need to raise prices. Some do and less people buy from them. Some can't make ends meet and close. Now the number of businesses is less. So, the number of open jobs is less. Potential employees now have a lower 'supply' of jobs. The wage for those jobs then falls. Somewhere in there, a new equilibrium is reached and everyone is unhappy for a while. I'm not trying to discount the emotional pain that comes with this process. Putting your life into something that just blows up is hard. Especially when you had nothing to do with it. I feel for those owners, the situation is the opposite of fun. But this is how capitalism works. The US is not a planned economy like China. Capitalism is core to the system (bastardized as it is). Markets change and shops close up. It sucks, but this is the process as I understand it. If I'm understanding it wrong, I would very much like to know because then I really am missing something big, and that's not good.
vagrantJin 6y ago
> And all of this is free market capitalism at work. It is a continuous process of reinvention. I agree with this sentiment. Mostly. But I can't say it freely, or with impunity - I'm on the lucky end of the spectrum partly by my own hard work, partly blind luck to be born in a middle class family, partly because my country has racial equality laws that give me the opportunity. I can negotiate my own terms for work and when I'm out of work I can freelance or build a product. But I can't swallow looking at workers as a line on an income statement. Something about it feels uncomfortable, uneasy. Like casually throwing talent and skills into the ocean when theres still so much work to do. Sure, it's great for some. Most people in this forum are part of the economic and cognitive elite. I would expect words like automation to be thrown around freely because "optimization" and "free-market" are fantastic myths to belive in. They might even be self-fulfilling prophecies. They just never come up to help people get a leg up. Those families that could be paying taxes are going on welfare, which means we get taxed more but do we have a right to complain and try to dodge out of paying taxes to support the people we've put out of work for the sake of automation and progress? Would we be happy to automate to our hearts content if you had to pay more taxes?
11235813213455 6y ago
It would be somewhat a good thing that jobs/services with very little added value like fast food (or even a somewhat negative value) make little margins/profits. We are really way too much in a society of consumption, there are many intermediate and unnecessary jobs and services, and those are the first hit during a crisis
cyrrus 6y ago
Just raise the price of the burgers... its not that hard. If everyone raises wages at once then they’ll also raise their prices at once. And the people you’re hiring won’t have to live off the dollar menu at fast food restaurants anymore.

fshbbdssbbgdd 6y ago

I think the effects of price stickiness (on goods and labor) aren’t being adequately considered in these discussions. Yes, these restaurants could raise their wages to compete with unemployment, and many have. They’ll also need to raise their prices, which they have leeway to do, because everyone is facing the same costs. The problem occurs in a few months when the bonus unemployment runs out. Then there will be millions more people looking for work. At that point, expanding employers will be able to hire at lower wages again. They’ll also be able to offer goods at lower prices. Employers who stepped up to pay higher wages won’t be able to compete. They’ll need to cut prices and cut wages or lay people off. That will be painful, which makes holding out until wages lower more attractive. Employers can get around this by offering signing bonuses instead of higher wages, but they need to be large to compete with unemployment checks, and it may not make sense to do that for a few months of work. These conditions may present a unique opportunity for policymakers to increase employment by raising the minimum wage.

deleted 6y ago
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runako 6y ago
> The problem occurs in a few months when the bonus unemployment runs out. Then there will be millions more people looking for work. Maybe this won't happen? Unemployment is officially at 6%. Better-capitalized firms have hired a ton of people over the last year. It's possible that marginal businesses like the weaker local restaurants mentioned in this thread will just have to adapt. Besides, given that their jobs are apparently so crappy that they are losing employees to the likes of McDonalds, certainly they have high turnover. If a labor glut happens, they can just lower wages and deal with the resulting turnover, which they already know how to handle.
kukx 6y ago
Rising the minimum wage is exactly the thing that should not be done, if one cares about the employment levels. It prices out the least qualified workforce of the market. To put it simply the less able/educated/experienced are not productive enough to cover own costs. So that no one wants to employ them and they are stuck. They start to rely on the government to provide them with resources and it means that have to vote for politicians that promise to keep the free money flowing. It creates a perverse relation between politicians and citizens, which may resemble a dealer addict situation.
- 8note 6y ago
  Realistically, GDP has grown substantially with the owners receiving nearly all the benefits. Raising the minimum wage is unlikely to affect employment much because of just how profitable companies are today Mind you I think a better tslternative to a specific minimum wage is to have a guaranteed government job at a specific wage. That sets a bar that all labourers have an option, while some lower paying jobs can still exist if they're otherwise competitive in other experiences
  - saddlerustle 6y ago
    Corporate profits as a fraction of GDP hasn't changed much.

fma 6y ago

Yep - which is the appeal Universal Basic Income as Andrew Yang proposes...automation is inevitable, have it work for the people rather than increasing profits.

madengr 6y ago
Or stop producing as many people.

nitwit005 6y ago

> With such a small profit margin, arbitrarily raising everyone's wages is likely going to kill the business. There have been past minimum wage hikes, and that's not what has happened. The costs get passed onto consumers. Of course, there's presumably some hypothetical minimum wage that would be too high and destroy the industry, but the amounts being discussed in the US are below what other countries have already tried.

nickff 6y ago
Your second sentence is debatable, as it appears that many European countries have high enough minimum total compensations (including benefits and other indirect costs) that unemployment is relatively high, and it can be very tough to get on the economic ladder.
- rbg246 6y ago
  But equally a poverty wage job doesn't get you on the ladder it makes you an indentured servant.
  - nickff 6y ago
    The company I work at has hired a number of employees whose only previous work was very low wage, and that (low wage) experience definitely weighed in their favor.
  - humanrebar 6y ago
    A verified history of showing up in time and not getting fired for theft or negligence is definitely valuable.
- gilbetron 6y ago
  Which countries are suffering from this?
  - magila 6y ago
    France and Italy have long had chronically high unemployment, particularly among young adults who struggle to gain entry into the workforce due to the high cost floor on labor.

rbg246 6y ago

I don't think anyone is saying that these sorts of companies have lots of money. These business have a model that relies on poverty wages changing the minimum wage will disrupt these businesses greatly and I don't see a problem with that. You can't keep a broken thing going because of the businesses that will have to change their model. But sorry I also see your point there needs to be help to business to change their business.

humanrebar 6y ago
A teenager making change on bagel purchases isn't working for "poverty wages". And a business that providing tennagers jobs isn't being exploitive. I do think employers should be conscious about the kinds of lives they set their employees up for, though we can talk about that without overgeneralization.
- dstaley 6y ago
  Two things: 1. According to the US Bureau of Labor Statistics, about half of people making minimum wage or less are older than 25 years old. 2. A single person working a full-time job (32 hours) at minimum wage makes $12,064. The US federal definition of poverty for this individual would be anything below $12,880. So yes, minimum wage workers are literally, by definition, working for poverty wages.
  - humanrebar 6y ago
    I don't find those talking points convincing. For one, even with your statistics, half of folks employed are school-age. Also, poverty is measured by household. Confusing the math isn't a good way to make a quantitative argument. But mostly your argument is a semantic trick around the word "poverty" to rationalize weighted terminology. Again, I have strong feelings that employers should be conscious of the lives and prospects of their employees. For instance, having policies that lead to irregular patterns of night and day shifts that have to be unhealthy long-term. But we can have rational discussion about these issues.

fuzzer37 6y ago

I'm of the opinion that if you're business model relies on paying people so little that they don't even want to work for you, maybe that business _shouldn't_ be viable. No one is forcing you to own a business, just like no one is forced to work for you.

ericbarrett 6y ago

What about franchise fees? Independent fast food restaurants basically don’t exist in the U.S. anymore. An individual McDonalds may be scraping the boundary of profitability, but corporate had a net income of $1.5B last quarter[0], or about $7,500 per employee per quarter[1]. That’s net income, not revenue. [0] https://corporate.mcdonalds.com/content/dam/gwscorp/assets/investors/financial-information/earnings-release/Q1-21%20Earnings%20Release.pdf https://corporate.mcdonalds.com/content/dam/gwscorp/assets/i... [1] https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/number-of-employees https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/numb...

simfree 6y ago
Dicks, Burgerville (mostly unionized), Burgermaster, In N Out and other regional chains exist, along with a plethora of single location independent fast food restaurants.
- ericbarrett 6y ago
  All those regional chains you mentioned pay significantly better than McDonalds, YUM, etc. as well.
  - simfree 6y ago
    Yes, the point of most franchised chains is to extract wealth from communities rather than invest in a stable, skilled workforce delivering a good product. McDonalds, YUM Brands, et all charge large franchise fees and force use of particular vendors and business practices to ensure they extract as much income as possible from their franchisees.
    - ericbarrett 6y ago
      Then we are in agreement!
nimos 6y ago
~200,000 is number directly employed by McDonalds. They have 5-10% of stores. There doesn't seem to be a current accurate number for total including franchisees - but seems to be in the 1.5 - 2 million range.

maybelsyrup 6y ago

> This article unfortunately doesn't address the business side of the problem. Good! I've been hearing about "the business side of the problem" my entire life -- lectured sternly about it, in many cases. All while few of the Adults and Experts - people with Real Power, in other words - dare even mention some of the topics laid out in the link. > I'm just saying that both sides of the equation need to be examined, i.e. the plight of the worker AND the plight of the business. There is no "plight of the business". There's a business that's making money, losing it, or breaking even. The people working there may feel the consequences, but a business cannot "suffer".

smabie 6y ago
plight: "a dangerous, difficult, or otherwise unfortunate situation." Pretty sure a business can have plight.
- maybelsyrup 6y ago
  It was hyperbolic, yes, but only a little, I think. The point I was making is that we've drunk a lot of koolaid about corporations being legal persons, as having rights, etc., such that no one bats an eye at anthropomorphisms like "the suffering of a company". My claim is that a) those words in that context are anthropomorphisms, metaphors, and b) that I don't think we've had much of a conversation about the koolaid I'm alluding to. (Outside of wealthy educated elites like ourselves, I mean.)
  - zepto 6y ago
    Nobody talks about “the suffering of a company” - that’s a made up example. People do say things like ‘the company suffered losses’, but isn’t anthropomorphising.
  - smabie 6y ago
    A company is just a group of people right? Like people talk about the plight of the Syrian people or whatever. What's the difference?
- 6y ago

michael1999 6y ago

Firms in a competitive market are price takers. None of them individually can raise prices. But an increase of the minimum wage increase affects all of them together, and will cause a new equilibrium at higher prices.

fighterpilot 6y ago
That assumes no substitutes, but in reality this will increase the relative cost of restaurants compared to home cooking which will reduce demand for take out.
- dmitriid 6y ago
  Ah yeah. You can always look at how Europe is empty and has very few, if any, restaurants with their minimum wages and healthcare. Oh wait...
  - fighterpilot 6y ago
    I said that it would reduce demand, not that it would eliminate it.
    - dmitriid 6y ago
      Has it reduced demand in Europe? In general. Americans regularly have deep-rooted fears about giving fellow humans a chance at a decent life. Are any of those fears substantiated?
      - fighterpilot 6y ago
        Economic theory says yes. If prices of A go up and B is a close substitute, some people will shift from A to B. I doubt anyone has studied that rather specific question empirically, though, and even if they had it's not an easy question to study. So theory and common sense is our best bet when it comes to forming expectations here. I'm sure there are empirical studies about how demand shifts from A to B for other examples of substitute goods, though. Maybe start there?

Sebb767 6y ago

> This article unfortunately doesn't address the business side of the problem. She actually addressees this in the very last paragraph: > if a business can’t pay a living wage, should it be a business?

djbebs 6y ago
Yes? I dont understand how this is a question. If a businesa is in operation profitably it is because it is providing more value than if it were not, otherwise it would not be able to remain in business
- Jweb_Guru 6y ago
  If a business is operating profitably by paying people wages below the cost of living, it is being subsidized by the government and therefore is not independently profitable in any meaningful sense.
  - Noumenon72 6y ago
    I view the government as setting up a playing field which entrepreneurs than explore to find profit opportunities. With welfare and especially the Earned Income Tax Credit, the government created a class of people who can be profitably employed by paying $X below the cost of living. This was intentional, a way to keep people in the market economy even though they're not productive enough to survive in current conditions. An entrepreneur who employs someone like this is like someone living in New York City in a rent-controlled apartment. You can't say they're not supporting themselves just because they couldn't afford rent in a pure market system. The actual system was purposely designed to make certain activities profitable that would ordinarily be losses. Without people taking advantage of those niches, the subsidies would be pointless.
    - Jweb_Guru 6y ago
      The subsidies in this case do not exist so that businesses can exploit underpaid workers, though (and are not comparable to something like a rent-controlled apartment, where landlords are just prevented from charging so much that they'll drive out the workforce rather than actively subsidizing with things like food stamps or welfare). They exist because the US is reluctant to let people starve in the streets and die, the fact that you interpret them as an effort to "keep [unproductive] people in the market economy" notwithstanding. The government bumping up unemployment to the point that people don't have to take certain types of jobs that rely on underpayment for profitability does not contradict that goal, which is why many people are not that sympathetic to small business owners complaining about it.

throwawaygh 6y ago

> But they will, they will go down the street But... why? To save a couple bucks on a burger? This is a serious question. Is this really how consumer behavior works in the restaurant industry? Restaurant food isn't actually a commodity. A burger from one place can be quite different from a burger at another. Even at the low end -- I much prefer McD's to the other fast food joints. Atmospheres can be very different as well, even at the low end. Etc. This is not at all how I behave. I have two local bars. I like both way more than all the other bars. I have one local brunch place I like way more than all the other brunch places. All 3 places can & have increased prices. In one case substantially. I go anyways. Granted, I have more expendable income than the average American. But this is even how I behaved when I was on a pretty tight budget during grad school -- a few regular places and I went as much as I could within my budget. Maybe I'm just a weirdo?

djbebs 6y ago
Price changes do work...
lotsofpulp 6y ago
> Maybe I'm just a weirdo? Yes. The data clearly shows the vast majority of the restaurant business be a low margin, high risk venture. That must mean a majority of the customers are very price sensitive. I can easily afford to pay double and triple what most restaurants charge today. But I’m not going to pay it because I can easily make a meal at home of better quality for less, just have to add in my time and energy. Moreover, I don’t trust restaurants to not cut corners most of the time due to the volatility of their business. But that’s all personal preference. I suspect most people just have limited budgets, so increased prices means less times they go out.
- throwawaygh 6y ago
  > The data clearly shows the vast majority of the restaurant business be a low margin, high risk venture I think what I was suggesting was that perhaps restaurants as an industry have systematically under-estimated consumers' willingness to pay. You see this in software pricing discussions a lot, actually: small shops that leave a lot of money on the table by not charging enough. Is it really so crazy to imagine that restaurants might be doing the same thing? > That must mean a majority of the customers are very price sensitive. It's this "must" that is always asserted but... I think might not be as true as we assume? I am not a restaurant owner, so what do I know.

pnutjam 6y ago

Maybe we need some sort of wage floor or mandatory "minimum"...?

losteric 6y ago

Real estate prices are also part of the problem, especially in urban cores... some Seattle and SF rents are just stupid, to say nothing of NYC

robocat 6y ago
Real estate prices and rent are driven by how much people can only just afford it. If people earn more, they can afford a bigger mortgage, so house prices rise.
- Itsdijital 6y ago
  Yeah, but the counter to all that is building new housing, which unsurprisingly very difficult in these areas.
  - robocat 6y ago
    > but the counter to all that is building new housing I would like to see some stats on that meme. Anecdotally, what I think happens is that people buying second homes, vacation homes, and more people living one person to a home. People without homes are not clearly advantaged. I live in Christchurch New Zealand, with a truely massive increase in standalone houses, and significant densification in the city center. However house prices are still booming, and plenty of friends are struggling to find a first home.

ManBlanket 6y ago

The tone of this article also sounded like she was spitting it through clenched teeth, which I found to be incredibly distracting and defeating to the point the author was attempting to make. Was the point small business owners at establishments like Dales are facing troubles because they're fat-cat capitalist Trumpian Covid deniers whose problems aren't valid as such? That's what it sounded like. I look forward to when we can have conversations about topics like economics without hyperbolic intolerance for outsiders serving an ultimately unproductive narrative that has been driven into the ground. I live in Missoula. I am a regular customer of Black Cat Bakery and I can see them struggling. In fact most restaurants and breweries I frequent face the same issue, a few employees desperately trying to keep an inundated ship afloat. I will tell you this article largely ignores what everyone who lives here understands is the biggest problem faced by laborers in Missoula at the moment. This city is amid a dire housing shortage, expedited by lack of new construction and a migration of buyers from more lucrative economies. The median home price increased by 57% in the last 10 years, 8.6% in the last year alone to $315k. In the meantime the median family income remains only $46k. https://missoulian.com/news/local/missoula-housing-prices-see-largest-annual-jump-of-last-decade/article_cc9e693b-3943-5b7f-be6f-c5cd5370571f.html https://missoulian.com/news/local/missoula-housing-prices-se... It is truly a seller's dream market and as such the availability of rentals has evaporated. You'd be lucky to find a 1 bedroom right now. My wife and I bought a home here a little over a year ago and were fortunate to find the nut who, "didn't need a realtor, what with craigslist." Before then we had been outbid 5 times previously, during which we offered up to 30k above the asking price. Frankly, we wouldn't live here if we didn't get lucky. Our experiences weren't unique at the time and it has only gotten worse. I regularly hear of houses selling for 50K over listing price to people buying sight-unseen. Frankly I don't care what the owners of Dales or Black Cat Bakery think about Covid or whether they voted for Trump. I really, sincerely, don't care. I only hope for the best for their business and their employees. I know what it's like to struggle in Missoula, I did for years and I still would be if not for dumb luck and a bit of privilege. The problems people face today are starting to pale in comparison to my own, and a solution is becoming truly urgent. I can only hope people will come to understand if we care about solving these problems, then we have to put down the tribalism and intolerance for those with different views and focus on the matter at hand. To quote Vince Staples, "Ain't no money in havin' hate in your heart."

jonnycomputer 6y ago

Well you're describing a situation where there needs to be general rise in the cost of labor. Its competition against competitors that don't raise wages that is the problem, right?

heavyset_go 6y ago

> But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem for some time now... This claim in particular was examined in studies on minimum wage increases, and found that increases in the minimum wage had no impact on the adoption of automation[1]. [1] https://research.upjohn.org/up_workingpapers/260/ https://research.upjohn.org/up_workingpapers/260/

a3n 6y ago
Automation may merely not yet be readily adoptable.

TheSpiceIsLife 6y ago

For any of this to be a valid arguement you're going to have to explain why places like Australia haven't imploded. We have a decent minimum wage, social welfare, and hybrid socialised / private healthcare. Increase wages and conditions gradually, businesses that can't innovate or charge more will fall by the wayside. That happens.

ThrustVectoring 6y ago

> the financial model is set by the fixed or imperative costs, i.e. the cost of rent Rent for commercial spaces is set to what the market will bear, and that is also determined by the same financial models with labor prices as input. "Restaurant owners aren't getting rich off of exploiting labor; their landlord is" just means that the haircut should be getting taken off of the landlord's profit margins. Now, this isn't a panacea - there are some distortionary effects from squeezing the rents that landlords can charge, and it favors high-skill and low-labor businesses by competing away higher bidders on commercial real estate, but it's not like business owners will feel 100% of the incidence of a minimum wage hike. Some will go out of business, which will lower commercial rents as vacancies rise, which will save a portion of the businesses that would die based off first-order effects alone.

jethro_tell 6y ago

meh, if the only way you can get a piece of the pie is to take it from someone who has less opportunity than you I don't really feel bad. Cities like Seattle raised their minimum wage, there was a lot of worry that everyone would go broke and there would be no food to eat. As it turned out, a few people shut down and someone else almost immediately opens a similar business in that place. Not everyone runs a business that is properly priced, or properly managed to make a profit, but lots of people can do it, and they tend to fill the void that is left by businesses that can't offer a product that people feel is worth paying enough to support less than poverty wage. Even for companies that pay really well, some don't make it.

sbierwagen 6y ago

>With such a small profit margin, arbitrarily raising everyone's wages is likely going to kill the business. There are maybe ten lunch places within walking distance of my (suburban) office. The variety is nice, certainly. I like having a bunch of options. I don't think it would destroy society if I only had half the choices, though.

fallingknife 6y ago

You do know that businesses can also raise prices, right?

angmarsbane 6y ago

If businesses didn’t have to pay for health plans, would that free up enough to pay higher wages?

WaltPurvis 6y ago
Almost none of the jobs in question include health benefits, so it's not really a factor.

count 6y ago

10% profit is not necessarily very modest. 10% of $50M is a lot of money. 10% of $50K is not a lot of money. 10% only sounds 'modest' in relation to SaaS/software margins which are ridiculous. Walmart's gross margin is only ~28%. Many manufacturing companies compete across 3-5% margins. If the base number is big enough, that's a ton of money still! %'s are a bad way to measure this, for that reason. Labor isn't even the majority of cost for restaurants (avg is apparently around 34% fully loaded [1]). [1]https://totalfood.com/busting-restaurant-labor-cost-myth/ https://totalfood.com/busting-restaurant-labor-cost-myth/

6gvONxR4sf7o 6y ago

Think of the business side of the problem as a collective action problem. You want to pay your workers a living wage, but to do so, you have to raise your prices. If you raise your prices, your business will go to your competitor, so you can't exist if you increase your wages (and your competitor doesn't). Meanwhile your competitor wants to increase wages but doesn't for the same reason. If the government mandated that when you raise your prices, everyone else had to too, then suddenly increasing wages won't put you out of business! Same story if the government mandated that you raise your wages (in this particular hypothetical). You're right that both sides of the equation need to be examined, but it's actually a bunch of equations with a bunch of sides.

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chii 6y ago
> If you raise your prices ... and your competitor doesn't this means your business is less efficient than your competitor's, or you are asking for a higher margin than your competitor. Both means that the business deservedly fail under the raised minimum wage. if everybody has to raise their prices to fund the higher minimum wage, then it means the original minimun wage was already at the optimal level for your business!
- 6gvONxR4sf7o 6y ago
  > Both means that the business deservedly fail under the raised minimum wage. Isn't the point that it wouldn't fail under a raised minimum wage? It would only fail under an uncoordinated raised wage.

joe_the_user 6y ago

I think a big factor is that a lot of restaurants in the US are throw-away businesses. The average life span of restaurant is five years. A lot of people enter the restaurant out of a weird desire to create something - which is to say they're shoveling money into the business 'till they're out of capital and then another "entrepreneur" takes their place. And oppositely, landlords and local government pretty expect that the sequence of failures is going to continue. Everyone else (landlords, restaurant suppliers, consultants and so-forth) makes money. But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem for some time now... Restaurant is a little bit convenience but mostly entertainment. If a robot is going to spit some stuff for you, why not buy an cheaper even microwave dinner, they're not that bad (or cook it yourself for something good tasting and which you can entertain yourself with).

blihp 6y ago

A 10% margin also often doesn't tell the whole story of how they make their money. Nearly since its inception, a substantial portion of McDonald's long term profit came from the appreciation of the real estate the stores were built on. Operating a business on it just made it cash flow positive during the holding period. So it was essentially a REIT that happened to operate a fast food chain. Even for many mom-and-pop restaurants (or other business) the real payoff often comes when it comes time to sell and cash in on the capital appreciation of the business assets. My point isn't to say there's anything wrong with that model: more power to anyone who comes up with a creative, legal way to make a living. Mainly I just want to point out that you often can't look at it simply as making X% margin on sales in a given period of time or any other single metric for many businesses as the real gain is longer term than that. Which is really a long-winded way of saying: if the ability of a business to make a long term profit is not my concern, their claimed inability to pay a living wage isn't either. If they honestly can't afford to pay a living wage, then as the article states, perhaps it shouldn't be in business. If there is a market for whatever product/service they were offering, someone will come up with a sustainable way to serve it that is better for all involved.

ianai 6y ago
Not to forget the times where states raise their minimum wage and see the number of people in the labor force increase. The balance of power is almost always squarely weighted on the side of the employer. This can push wages below market optimum.
- sokoloff 6y ago
  I’d expect minimum wage increases to be mostly off the table during recessions, so it’s not surprising to see them passed during economic expansions, which are tightly linked to rising employment figures, so this might be a "wet streets cause rain" correlation.
  - cyrrus 6y ago
    Except it’s those on minimum wage that spend most or all of their paycheck stimulating the economy. Middle class have record savings at the moment.

dv_dt 6y ago

Fast food restaurants do fine in other nations. In sweden, one survey puts a Big Mac combo meal at 15% higher than in Fresco. About 1.50 different. https://www.expatistan.com/price/big-mac/stockholm/USD https://www.expatistan.com/price/big-mac/stockholm/USD

Strs2FillMyDrms 6y ago

The problem is not that the margin is small, is that big companies get to cover the losses of the uncertain(unforeseen situations) with the foreseeable profits, while at the same time (as an extra bonus from their government lobbying) maintaining a minimal labor cost. The price of their product is unreachable to small business, small business are not failing because the labor is too demanding (I know you did not explicitly stated this, but it could be construed as if). They are doing so because the competition is too big. This is my cynical approach... A right-to-center leaning person is in no position to argue "handouts are to blame", or "zoomers/millenials want it easy"... a truly right-to-center political commentary should be telling restaurant owners "Work smarter".

fukmbas 6y ago

If your business model cannot support affordable wages for employees, then it is not a good business model. Super simple...

a3n 6y ago

They can charge what they need to be profitable, after discovering how much they need to pay workers to apply and show up. Which will drive away many customers who have become accustomed to cheap service built on "shit jobs." At some point an equilibrium will be reached, the customers who can't or won't pay more will drop out of participation, and we'll have the true market for service built on good jobs. No customer deserves cheap drinks and service built on shit jobs. "Oh, but all those jobs will be lost." They're already lost, the difference is that it's the workers making the decision.

crossroadsguy 6y ago

> The problem for the business is that the financial model is set by the fixed or imperative costs What about profit sharing? Hire an employee who agrees to get 1K currency units if company (store, resto etc) made 100K CUs. But 500 if company made 50K CUs and 50K CUs if store made 5000K CUs. There's always a max cap, but never a min cap. When someone talks about min caps we all get antsy.

throwaway1492 6y ago

> But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem for some time now... Brings to mind the growing prevalance of self serve kiosk for placing an order that so many fast food restaurants have now. Removing the need for the cashier all together. That and self checkout at a lot of big chain retail stores. I don't think the business concern is necessarily with making a profit, but making 1% more profit than not.

laurencerowe 6y ago

> But they will, they will go down the street--until everyone's prices go up and there is nowhere else to go. This is why higher minimum wages are so important. They force all businesses (not just the ethical ones) to increase prices to point that workers receive a living wage.

stainforth 6y ago

>the cost of rent, The real drag on business and progress

alwayshasbeen 6y ago

If a business makes very little profit - why not closing it? It makes no sense to keep something alive that only works out when you pay your employees basically nothing.

fwip 6y ago

A 10% profit can be a lot, if like many restaurants you're pulling $5-10k in revenue in a day. Many owners own multiple restaurants, too.

throwawayboise 6y ago
It's a hugely risky business, especially if you're not a national chain. Most mom-and-pop restaurants don't last long. 10% isn't that big a return for that kind of risk.
- fwip 6y ago
  It's not a 10% return on investment, it's 10% profit.

iamflimflam1 6y ago

There are plenty of countries who have had minimum wage for some time and have increased that minimum wage over time. So there have been lots of studies done on the impact of it. Here’s one: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/601139/The_impact_of_the_NMW_on_employment_-_a_meta-analysis.pdf https://assets.publishing.service.gov.uk/government/uploads/... > This report includes the findings from a meta-analysis of the empirical UK national minimum wage literature. Similar to a previous UK minimum wage study by de Linde Leonard et al. (2014), this study finds no statistically significant aggregate adverse employment effect of the NMW and also no publication bias in the NMW literature. However, estimates for different sub-groups suggest some relatively larger adverse employment effects for some labour market groups, such as part-time employees.

karmasimida 6y ago
Even with minimum wages at 15 dollars, it is still hard to say this is a decent job, although this is the already among the highest globally. The problem lies that the value of assets, especially housing etc, increase much faster than wages can catch up.
- throwawayboise 6y ago
  I honestly think that part of the problem is that the older people who make decisions on things like minimum wage remember their own minimum wage jobs. My first job paid $3.35/hr. $15/hr is $30K a year full-time. I barely made more than that at my first professional programming job out of college. It sounds insane to me on first hearing that $15/hr is not "decent" pay for an entry level, non-skilled position.

heterodoxxed 6y ago

https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... "The tendency of the rate of profit to fall (TRPF) is a hypothesis in the crisis theory of political economy, according to which the rate of profit—the ratio of the profit to the amount of invested capital—decreases over time. This hypothesis gained additional prominence from its discussion by Karl Marx in Chapter 13 of Capital, Volume III, but economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, although they differed on the reasons why the TRPF should necessarily occur." Consider that if the rate of profit tends to fall, and shareholders require greater profits each quarter, how that affects "inputs" such as labor?

neilwilson 6y ago

"I'm just saying that both sides of the equation need to be examined, i.e. the plight of the worker AND the plight of the business." It was examined. In 1944 in the Beverage Report "Full Employment in a Free Society". It concluded that people not earning sufficient to eat is an order of magnitude more harm than businesses not earning a profit and that the labour market should always be a sellers market, not a buyers market. "But watch out for technology and automation...that is the part of the equation that has been "solving" the labor problem" That's sort of the point. However micro-solving the labour problem with automation to drive forward productivity leaves you with a big problem - given wages are the primary source of demand, who are you going to sell the output of the robots to? The underlying assumption here is always that the private sector provides the jobs. Look at the vacancies vs the number of people without work that want it. Then you'll realise that the private sector is systemically incapable of supplying sufficient jobs to go around. It always stops short. Which means that jobs have to be topped up by the public sector to ensure there are enough to go around. If there are always 19 bones and 20 dogs, it doesn't matter how good the dogs are at bone hunting. Blaming the dogs for a bone shortage is desperately unfair.

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xyzzyz 6y ago
> It was examined. In 1944 in the Beverage Report "Full Employment in a Free Society". It concluded that people not earning sufficient to eat is an order of magnitude more harm than businesses not earning a profit and that the labour market should always be a sellers market, not a buyers market This report is completely irrelevant in today’s America, where everyone has more than enough to eat, especially if they are working.
- SamoyedFurFluff 6y ago
  > today’s America, where everyone has more than enough to eat What are you talking about? Nearly 1 in 4 households experienced food insecurity during the pandemic. https://www.npr.org/2020/09/27/912486921/food-insecurity-in-the-u-s-by-the-numbers https://www.npr.org/2020/09/27/912486921/food-insecurity-in-...

pyuser583 6y ago

There’s another option: reducing hours of operation. Some hours are much more profitable than others. That’s not necessarily bad for workers. It might mean holding more than one job, which is common in the food business.

Salgat 6y ago

No business is entitled to be successful. This is just a case of a business with a no longer profitable business model where they can't compete for employees with other businesses.

Iv 6y ago

I agree but let's continue with that story. Let's remember that the beginning of the story was the labor shortage. So not enough people to serve in all restaurants at a competitive price. Let's suppose some restaurants decide to raise prices. Customers decide to go to a place that's cheaper but... it is packed. Shortage, remember? Free market dictates that higher demand than supply makes the prices go up. If client CAN go to a cheaper venue then we are not in a position of shortage. In the end, look at places like Scandinavian countries: salaries are high and going to the restaurant is very expensive. When you think about it, being served by humans is actually a luxury and as global wealth progresses, this should become less and less common. I really hope that the future of restaurants is either fully automated fast foods or high end luxury restaurants that people work out of passion, and that you can afford maybe oncee every months.

didibus 6y ago

What's the absolute number attached to that? 10% could be a lot or very little.

bregma 6y ago

If a business model relies on the exploitation of the vulnerable, it deserves neither our sympathy nor our collective subsidization.

BeFlatXIII 6y ago

Perhaps those kinds of jobs should be automated.

cowsandmilk 6y ago

> raise prices and hope that customers won't just go down the street I always found the idea that restaurants need to compete on price strange. A typic Mexican restaurant is always going to lose to Taco Bell on that, so raising the price of your enchiladas or margaritas probably won’t have much impact on traffic. We read a lot here about founders not setting prices high enough (see patio11 for tons of discussion). Or comment on backblaze being very hesitant to raise prices [0], but then buy into this idea that restaurants have set their prices optimally and that business will plummet if the $15 dish is suddenly $17. The truth is very few decisions on where to eat are driven by price (except at the high end) and instead are driven by experience and location. [0] https://news.ycombinator.com/item?id=20996555 https://news.ycombinator.com/item?id=20996555

xyzzyz 6y ago
That $15 vs $17 difference per dish might be immaterial to you, but if you include tax and tips, it’s a difference of a full hour of wage labor for a night out of a family with 2-3 kids with parents earning average wage.

marcosdumay 6y ago

> The only choice is to either automate, which will reduce the labor requirements, or raise prices and hope that customers won't just go down the street. But they will, they will go down the street--until everyone's prices go up and there is nowhere else to go. That's why governments created a minimum wage. If the salaries are written into law, there is no place down the street to go. That's also why environmental and hygienic regulations are so successful. Those things simply can not be done without government intervention.

varispeed 6y ago

The need for wage controls is more apparent in the tech industry. If a hypothetical company with 100 employees registers 10 billion profit and apart from CEO and the board employees make 5 figure salaries, then there is something horribly wrong going on. I think we need a regulation that beyond a certain threshold company should redistribute 30% of profits annually among the staff on top of their salaries. There should also be other restrictions - for example I'd vote for complete removal of dividends. Only way to get paid from a company should be by being an employee and getting a salary taxed as everyone else. The rich have so many loopholes, it is crazy that we allow them to get even richer on the backs of the hard working no name people.

conformist 6y ago
Making sure that dividends are taxed like other types of income could make sense - not sure how this currently works in the US? Removing dividends all-together? That doesn't seem like a good idea, because why would anyone invest in a business, if there is no potential for future cash flows arising from it? Even companies that don't generally pay dividends have value, because they could. So removing dividends would also require another mechanism to incentivise investing in businesses in the first place?

ab111111111 6y ago

The whole point of a minimum wage increase is that it will increase all restaurants' wage costs to the same degree, at the same time. Meaning that going "down the street", potential diner's will find that all restaurants' prices have increased equally. So the business threat isn't that American consumers will abandon "Dale's" in particular for some other restaurant. It's that they will choose to eat at home instead of eating at a restaurant, or that they will order less food when they do go to one.

inglor_cz 6y ago
"it will increase all restaurants' wage costs to the same degree" In an ideal world full of law abiding citizens, yes. In practice, restaurants that cheat are going to win. I live in a country that has a lot of regulations in the hospitality sector and yet the "paid under the table, not officially employed here" phenomenon is everywhere.
- ab111111111 6y ago
  Isn't that already the case, though? There's already a minimum wage in the US. The debate is about increasing the minimum wage, not creating one.

Balgair 6y ago

Forgive my ignorance here, but won't capitalism sort this all out? Businesses need to raise prices. Some do and less people buy from them. Some can't make ends meet and close. Now the number of businesses is less. So, the number of open jobs is less. Potential employees now have a lower 'supply' of jobs. The wage for those jobs then falls. Somewhere in there, a new equilibrium is reached and everyone is unhappy for a while. I'm not trying to discount the emotional pain that comes with this process. Putting your life into something that just blows up is hard. Especially when you had nothing to do with it. I feel for those owners, the situation is the opposite of fun. But this is how capitalism works. The US is not a planned economy like China. Capitalism is core to the system (bastardized as it is). Markets change and shops close up. It sucks, but this is the process as I understand it. If I'm understanding it wrong, I would very much like to know because then I really am missing something big, and that's not good.

vagrantJin 6y ago

> And all of this is free market capitalism at work. It is a continuous process of reinvention. I agree with this sentiment. Mostly. But I can't say it freely, or with impunity - I'm on the lucky end of the spectrum partly by my own hard work, partly blind luck to be born in a middle class family, partly because my country has racial equality laws that give me the opportunity. I can negotiate my own terms for work and when I'm out of work I can freelance or build a product. But I can't swallow looking at workers as a line on an income statement. Something about it feels uncomfortable, uneasy. Like casually throwing talent and skills into the ocean when theres still so much work to do. Sure, it's great for some. Most people in this forum are part of the economic and cognitive elite. I would expect words like automation to be thrown around freely because "optimization" and "free-market" are fantastic myths to belive in. They might even be self-fulfilling prophecies. They just never come up to help people get a leg up. Those families that could be paying taxes are going on welfare, which means we get taxed more but do we have a right to complain and try to dodge out of paying taxes to support the people we've put out of work for the sake of automation and progress? Would we be happy to automate to our hearts content if you had to pay more taxes?

11235813213455 6y ago

It would be somewhat a good thing that jobs/services with very little added value like fast food (or even a somewhat negative value) make little margins/profits. We are really way too much in a society of consumption, there are many intermediate and unnecessary jobs and services, and those are the first hit during a crisis

cyrrus 6y ago

Just raise the price of the burgers... its not that hard. If everyone raises wages at once then they’ll also raise their prices at once. And the people you’re hiring won’t have to live off the dollar menu at fast food restaurants anymore.