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What's your theory for why competition doesn't solve this problem? That is, if I am opening a new Wendy's in this area you're postulating, and the deal is that

What's your theory for why competition doesn't solve this problem? That is, if I am opening a new Wendy's in this area you're postulating, and the deal is that I can have generous profits despite a substantial increase in my employee's wages, why don't I offer $1 more than the other fast food joints in the area and steal all of their best employees? I see a few possible explanations: 1. Fast food employees do not substantially differ in quality. The best fast food employee in the world is not really better than the median, in terms of their ability to drive additional business to a location. 2. The owners of the fast food restaurants in the area have formed a cartel, and are (flagrantly illegally) engaged in anti-competitive practices. 3. There is simply no competition among fast food restaurants -- the field is so sparse that when I open a new restaurant, there are no competitors to steal from. 4. The labor market is incredibly overpopulated such that every fast food restaurant can fill its ranks with employees who are first-tier, without raising their wages. What's your theory?

jacalata 13y ago
From when I worked in fast food - 1, absolutely. The big corporations can't afford to allow variation in employee quality to change their food/experience, so instead it is all run as though they are all low-quality employees, which means it doesn't really benefit you to get higher quality employees (who in any case probably can't stand the micro-management and will quit as soon as they get another option).
- aetherson 13y ago
  It seems kind of impossible to me for that to be the whole story. I mean, I totally buy that it doesn't matter how competent or incompetent a cook you are in terms of assembling McDonald's meals, but there are a lot of axes that employees can vary on: 1. Speed. Employees are going to be better or worse at turning orders quickly, and I can't see how good preparation from the corporate overlords can entirely compensate for this. 2. Graft/Wastage/Slackery. If your employees steal from you, that's going to affect your bottom line real fast. If they're dropping burgers on the floor all the time, that's a big deal. If they are chatting with each other instead of serving your customers, that's a big deal. 3. Customer Service. It has traditionally been the case that a bright smile, eye contact, and polite language has seen some reward among food service workers, and again it doesn't seem possible that McDonald's has figured out how to make all employees great at this. I would be provisionally ready to believe that the combination of corporate work to provide a simplified work experience plus a slack labor market has created a situation where there's a glut of potential fast food workers who are somewhere between the 60th and 99th percentile in worker quality, and the difference between 60th and 99th percentile is small enough that it doesn't warrant paying a higher wage.
  - jacalata 13y ago
    Well, where I worked they solved a lot of it with literally constant supervision and feedback by managers - like 'hey Jane, smile more! Tom, don't just stand there, wipe that bench again. And again, if you have nothing else to do.' That cuts stealing and slacking down pretty fast. Customer service - pretty clear scripts, constant reminders to smile, warnings about mystery shoppers (and actual mystery shoppers), to keep you focusing on it. A three part diagram of something like 'hello - SMILE - can I take your order please?' on each register. Speed - yea, I guess there's a few clumsy workers who just aren't going to be able to do it, but it's like a factory line - a small set of tasks that you pretty much memorize then do over and over. In very busy times where every second counts, you'd put the slightly faster people on the register and have about two runners for each three registers to actually bring the food, which is simpler. I guess there must have been a reasonable availability of workers behind this, because all the pressure was based on 'or you'll be fired'. Or they just relied on us taking them seriously - the city was at about 4% official unemployment (Brisbane, 2006), so it can't have been that bad a glut.
    - aetherson 13y ago
      Yeah, not at all intending to discount your experience, but as you point out, something there seems off. If it's a full employment market, constant threats of firing don't seem like they could possibly have had much in the way of teeth. For really bad employees, certainly -- but if Jane the fry girl is working at about 85% of the capacity that you want her to, firing her and suffering at 0% of the capacity doesn't seem like an improvement.
      - jacalata 13y ago
        yea, in hindsight it does seem weird. Perhaps they were relying on the attractiveness of the job circumstances overall (great location near the university and a bunch of high schools, reasonably flexible shift times, not really difficult)? Or perhaps that unemployment rate doesn't reflect the actual number of teenagers willing to work but not really looking. I quit, personally, when my schedule got screwed around at the last minute. They seemed kind of shocked.
marcosdumay 13y ago
The competition at the other side of the coin is also important. If there is $1 extra that the fast food owner is caching, why does no other fast food restaurant open in the area, offering $1 cheaper prices, and steall all the clients? Also, as your question can be answered as the combined effect of a series of dimensions, for this one there are basically non-price competition, oligopolies, and low price sensitivity of customers as likely culpits.
- the_watcher 13y ago
  >> If there is $1 extra that the fast food owner is caching, why does no other fast food restaurant open in the area, offering $1 cheaper prices, and steall all the clients? This is exactly the point of the dollar menu/value menu/whatever promo is going on at the time. They do exactly this. Also, fast food economics are basically "Get the customer in the door. Take their order. Do all you can to sell them sodas and fries. Break even everywhere else."
baddox 13y ago
> What's your theory for why competition doesn't solve this problem? What's your theory for why it was a problem? Obviously, in the immediate sense, a higher wage is better for the employee and worse for the employer, so are you assuming (perhaps as an axiom) that favoring the employee over the employer is a solution to a problem?
- aetherson 13y ago
  I'd regard an ideal economy as one in which robust competition drives prices down and wages up, at the expense of profits. If we take as stipulated the idea that there are robust profits and low wages, that suggests market failure, especially in a mature space like fast food. More so, I think that my interlocutor regarded it as a problem, and he suggested that it was "common sense" that of course wages would always be at the minimum wage. His "common sense" idea doesn't take into account the major mechanism of price and wage levels that is supposed to exist in a market economy, and I was wondering why it was so conspicuously absent from his comment.
  - baddox 13y ago
    > I'd regard an ideal economy as one in which robust competition drives prices down and wages up, at the expense of profits. I think that's fairly reasonable, although at what point do you say "profits are too high" or "wages are too low"? If the market can fail (which it obviously can), then what mechanism can we use to determine what is "optimal"? I do not think that monopoly regulation of the economy (i.e. government regulation and fiscal policy) should be expected to do better than the market.
    - aetherson 13y ago
      I wasn't suggesting any particular solution -- and I share your pessimism regarding top-down regulatory approaches. I was really just trying to explore how and why we might imagine the market was failing here.
the_watcher 13y ago
>>That is, if I am opening a new Wendy's in this area you're postulating, and the deal is that I can have generous profits despite a substantial increase in my employee's wages, why don't I offer $1 more than the other fast food joints in the area and steal all of their best employees? This is what happens in every other industry. For example, at my company, we constantly lose customer service reps to a nearby company that pays $1 more. We could increase our wage and reduce turnover, but have decided it's cheaper to just replace. Not that I necessarily agree, but it's not my call.

jacalata 13y ago

From when I worked in fast food - 1, absolutely. The big corporations can't afford to allow variation in employee quality to change their food/experience, so instead it is all run as though they are all low-quality employees, which means it doesn't really benefit you to get higher quality employees (who in any case probably can't stand the micro-management and will quit as soon as they get another option).

aetherson 13y ago
It seems kind of impossible to me for that to be the whole story. I mean, I totally buy that it doesn't matter how competent or incompetent a cook you are in terms of assembling McDonald's meals, but there are a lot of axes that employees can vary on: 1. Speed. Employees are going to be better or worse at turning orders quickly, and I can't see how good preparation from the corporate overlords can entirely compensate for this. 2. Graft/Wastage/Slackery. If your employees steal from you, that's going to affect your bottom line real fast. If they're dropping burgers on the floor all the time, that's a big deal. If they are chatting with each other instead of serving your customers, that's a big deal. 3. Customer Service. It has traditionally been the case that a bright smile, eye contact, and polite language has seen some reward among food service workers, and again it doesn't seem possible that McDonald's has figured out how to make all employees great at this. I would be provisionally ready to believe that the combination of corporate work to provide a simplified work experience plus a slack labor market has created a situation where there's a glut of potential fast food workers who are somewhere between the 60th and 99th percentile in worker quality, and the difference between 60th and 99th percentile is small enough that it doesn't warrant paying a higher wage.
- jacalata 13y ago
  Well, where I worked they solved a lot of it with literally constant supervision and feedback by managers - like 'hey Jane, smile more! Tom, don't just stand there, wipe that bench again. And again, if you have nothing else to do.' That cuts stealing and slacking down pretty fast. Customer service - pretty clear scripts, constant reminders to smile, warnings about mystery shoppers (and actual mystery shoppers), to keep you focusing on it. A three part diagram of something like 'hello - SMILE - can I take your order please?' on each register. Speed - yea, I guess there's a few clumsy workers who just aren't going to be able to do it, but it's like a factory line - a small set of tasks that you pretty much memorize then do over and over. In very busy times where every second counts, you'd put the slightly faster people on the register and have about two runners for each three registers to actually bring the food, which is simpler. I guess there must have been a reasonable availability of workers behind this, because all the pressure was based on 'or you'll be fired'. Or they just relied on us taking them seriously - the city was at about 4% official unemployment (Brisbane, 2006), so it can't have been that bad a glut.
  - aetherson 13y ago
    Yeah, not at all intending to discount your experience, but as you point out, something there seems off. If it's a full employment market, constant threats of firing don't seem like they could possibly have had much in the way of teeth. For really bad employees, certainly -- but if Jane the fry girl is working at about 85% of the capacity that you want her to, firing her and suffering at 0% of the capacity doesn't seem like an improvement.
    - jacalata 13y ago
      yea, in hindsight it does seem weird. Perhaps they were relying on the attractiveness of the job circumstances overall (great location near the university and a bunch of high schools, reasonably flexible shift times, not really difficult)? Or perhaps that unemployment rate doesn't reflect the actual number of teenagers willing to work but not really looking. I quit, personally, when my schedule got screwed around at the last minute. They seemed kind of shocked.

marcosdumay 13y ago

The competition at the other side of the coin is also important. If there is $1 extra that the fast food owner is caching, why does no other fast food restaurant open in the area, offering $1 cheaper prices, and steall all the clients? Also, as your question can be answered as the combined effect of a series of dimensions, for this one there are basically non-price competition, oligopolies, and low price sensitivity of customers as likely culpits.

the_watcher 13y ago
>> If there is $1 extra that the fast food owner is caching, why does no other fast food restaurant open in the area, offering $1 cheaper prices, and steall all the clients? This is exactly the point of the dollar menu/value menu/whatever promo is going on at the time. They do exactly this. Also, fast food economics are basically "Get the customer in the door. Take their order. Do all you can to sell them sodas and fries. Break even everywhere else."

baddox 13y ago

> What's your theory for why competition doesn't solve this problem? What's your theory for why it was a problem? Obviously, in the immediate sense, a higher wage is better for the employee and worse for the employer, so are you assuming (perhaps as an axiom) that favoring the employee over the employer is a solution to a problem?

aetherson 13y ago
I'd regard an ideal economy as one in which robust competition drives prices down and wages up, at the expense of profits. If we take as stipulated the idea that there are robust profits and low wages, that suggests market failure, especially in a mature space like fast food. More so, I think that my interlocutor regarded it as a problem, and he suggested that it was "common sense" that of course wages would always be at the minimum wage. His "common sense" idea doesn't take into account the major mechanism of price and wage levels that is supposed to exist in a market economy, and I was wondering why it was so conspicuously absent from his comment.
- baddox 13y ago
  > I'd regard an ideal economy as one in which robust competition drives prices down and wages up, at the expense of profits. I think that's fairly reasonable, although at what point do you say "profits are too high" or "wages are too low"? If the market can fail (which it obviously can), then what mechanism can we use to determine what is "optimal"? I do not think that monopoly regulation of the economy (i.e. government regulation and fiscal policy) should be expected to do better than the market.
  - aetherson 13y ago
    I wasn't suggesting any particular solution -- and I share your pessimism regarding top-down regulatory approaches. I was really just trying to explore how and why we might imagine the market was failing here.

the_watcher 13y ago

>>That is, if I am opening a new Wendy's in this area you're postulating, and the deal is that I can have generous profits despite a substantial increase in my employee's wages, why don't I offer $1 more than the other fast food joints in the area and steal all of their best employees? This is what happens in every other industry. For example, at my company, we constantly lose customer service reps to a nearby company that pays $1 more. We could increase our wage and reduce turnover, but have decided it's cheaper to just replace. Not that I necessarily agree, but it's not my call.