7 ms·

One "libertarian assumption" is that it's worth doing a little math to figure these sorts of things out. Usually if you do that math you will discover that neit

by glenra 12y ago

One "libertarian assumption" is that it's worth doing a little math to figure these sorts of things out. Usually if you do that math you will discover that neither profits nor high top salaries are anywhere near large enough that companies could merely absorb the higher cost out of either or both. (Incidentally, a raise to $15/hour is quite a lot more than "the smallest hike in pay".) But hey, just for the sake of argument let's pretend you COULD take it out of profits. Here's where you run into a related assumption which is one of the basic rules of economics: change happens on the margin. Suppose that the entirety of the McDonalds chain as a whole is profitable. For simplicity we'll ignore the fact that the individual stores are mostly franchises and pretend they're all company-owned. The chain is not uniformly profitable! Some outlets are very profitable and others are just barely scraping by. When you increase the cost of labor the outlets that were very profitable are still worth running even with the new cost of labor, but the outlets that were only slightly profitable before are now losing money. Those are the outlets that close. Restaurants that will lose money every year with the higher wage aren't worth keeping open. shifts that lose money at the higher wage also aren't worth keeping open, so hours of work tend to get cut back too. You don't lose jobs at every store or uniformly, but you do lose marginal jobs that did exist or that would exist were it not for the new wage. Overall, the chain will survive, but it has to shrink back in order to do so. In order to argue that it doesn't, you'd need to believe not just that the company overall is making (a lot of) profit, but that EVERY individual outlet is making the same share of that profit, so they're all worth keeping around post-change.

whimsy 12y ago
See my reply to zo1 on the same topic: https://news.ycombinator.com/item?id=7838800 https://news.ycombinator.com/item?id=7838800
- glenra 12y ago
  Doesn't really answer my point. An average increase in costs of 5% or even 3% is still enough to kill restaurants on the margin. For instance, suppose you are a McD franchise owner whose restaurant has 50 "crew members" (source on that number: https://answers.yahoo.com/question/index?qid=20070917131148AAT0JbQ https://answers.yahoo.com/question/index?qid=20070917131148A... ) and your restaurant recently became profitable to the point that it currently makes an annual profit of $250k. A quarter million dollars in annual profit isn't a lot but it's respectable - that is a sustainable business! That's something you can afford to keep operating indefinitely (and try to grow over time). You have some room to invest, some room to make mistakes. Now suppose the state passes a law requiring you to give all 50 of your crew members an extra $5/hour. How much does that cost? 50 people * 2000 hours/year * $5 = $500,000. So your restaurant just went from gaining a quarter million to losing a quarter million a year. Now it is not a sustainable business. Your pockets are not deep enough to keep losing that year after year; you should probably close the business or scale it way back. Are you going to claim that every restaurant in the chain has enough buffer to take a half-million-per-year hit to the bottom line and stay standing? Of course not. There are always some marginal businesses; those are the ones that are likely to shrink, cut benefits, or close.
  - bakhy 12y ago
    it would be foolish to expect that such a measure can be passed without negatively affecting some businesses. a lot of people, including the electorate of Seattle, and the authors of the here oft cited study, obviously consider that the gains outweigh the losses. surely you don't suggest we should allow majority of workers to be exploited because some weakly profitable restaurants might fail? (and 50 employees with 250k annual profits sounds pretty weak.) all these workers are paid the same miniscule wage, regardless of whether their restaurant makes more or less profit, so most of them are exploited, simply because they can easily be replaced.
    - glenra 12y ago
      > surely you don't suggest we should allow majority of workers to be exploited because some weakly profitable restaurants might fail? Who is exploiting whom here? Most restaurants fail. Nearly all restaurants lose money in the first three years of operation. During that time, when the firm is losing money but still paying salaries, isn't the firm owner the one being exploited? And aren't you exploiting the owner even more by forcing him or her to lose even more money on the way to a slim chance of profitability? People who consider that "the gains outweigh the losses" probably don't realize that even those who get a raise due to a minimum wage law might be on net worse off than before that law was passed. Certainly those who lose their job or fail to get a new one are worse off, but even some who keep their job are also worse off, because they lose other benefits in lieu of salary that they presumably valued more. There is no plausible theory that says low-skill workers are made better off by making it illegal to hire them for less than a specified price. Legally fixing one term in a contract in general makes both parties to that sort of contract worse off. There are many reasons why it should be hard to measure the damage the minimum wage does so it's not surprising that a few empirical studies return the "man-bites-dog" result, but we shouldn't fool ourselves into thinking it doesn't do any harm at all just because that harm is occasionally hard to measure. The minimum wage is callous and cruel; it harms those least able to afford being harmed. It is at heart indefensible. Fortunately, we live in a rich enough society that being legislatively forced into a suboptimal job situation or involuntary unemployment is usually recoverable. It's not a death sentence. Yes, Seattle is effectively kicking poor people in the face with this law, but in the grand scheme of things it's probably not the worst legislative indignity we inflict on them.
bakhy 12y ago
in my experience with libertarians so far, they are most disinclined to do any math. i don't see any math here either. there is a study mentioned a lot in the comments here which refutes this argumentation. as for the argumentation - it is again the same thing! instead of "whole company", you moved to topic into "individual branches", but it is still the same - apparently, a huge number of workers is employed in places with zero profit, be it whole companies or just branches. this is an incredible claim. why would we accept that workers in highly successful branches should get underpaid, just so that a couple of barely profitable branches could remain open? everyone needs work. and low-skilled workers come in large numbers. any manager not aware of this, and how it enables him or her to pay the workers as little as possible, is a fool! management will pay the least amount possible, since replacement workers are readily available. this is why an increase in minimum wage will not produce nowhere near a proportionate response in lost jobs.
- waps 12y ago
  > as for the argumentation - it is again the same thing! instead of "whole company", you moved to topic into "individual branches", but it is still the same - apparently, a huge number of workers is employed in places with zero profit, be it whole companies or just branches. this is an incredible claim. why would we accept that workers in highly successful branches should get underpaid, just so that a couple of barely profitable branches could remain open? Let's do some maths then : McDonalds 2012 profit : $5.5 billion Revenue : $27.56 billion Employees : 1.8 million Revenue per employee : $15311 Profit per employee : $3055 So costs per employee : $12256 Let's say McDonalds locations vary in revenue by 25% (95%) and that the main cause is employee_cost/customer. That seems to me a very reasonable claim. That means employees make McDonalds between $11483 and $19138 in revenue, -772 to 6682 in profit. Let's assume uniform distribution. The amount of net-negative employees would be about 10%. Since most companies are much less profitable than McDonalds, the idea that a lot of people are effectively employed with zero or negative gain seems quite plausible to me. In the US and Europe both you could defend the idea that most people have a net-negative utility to the US and European nations (taken as a whole), a gap that gets filled by the sale of treasury notes to foreignors. But there are whole classes of employees that will have net-negative utility : 1) government employees (government does not produce goods or services. And where it does it's financed by taxes, negating the benefit) 2) management (they don't contribute directly to work getting done) Ideally, neither function would exist (and police and roads would simply be organised directly by the people who want to use them). I'm not saying that's realistic, but it would be better from an economic perspective. In my opinion people often overestimate how inefficient capitalism is. There was a huge fuss about oil profits a few years back, when oil first went to $100/barrel. When you calculate how much per gallon oil company profits were (and thus how much they could be theoretically maximally lowered by nationalizing the oil companies) you'd get something like 2-3% depending on the company. This was the populist solution to bring oil back from $105 or so to $60 ... Of course if you're living in San Francisco and see Goldman Sachs organise a bankers' convention in the most expensive hotel in the city it seems excessive, but all their costs only amount to at most the low double digits of their revenues. For the vast majority of firms, it is the low single digits. That doesn't mean improving the "common man"'s life is not worth it, of course.

by glenra 12y ago

whimsy 12y ago

See my reply to zo1 on the same topic: https://news.ycombinator.com/item?id=7838800 https://news.ycombinator.com/item?id=7838800

glenra 12y ago
Doesn't really answer my point. An average increase in costs of 5% or even 3% is still enough to kill restaurants on the margin. For instance, suppose you are a McD franchise owner whose restaurant has 50 "crew members" (source on that number: https://answers.yahoo.com/question/index?qid=20070917131148AAT0JbQ https://answers.yahoo.com/question/index?qid=20070917131148A... ) and your restaurant recently became profitable to the point that it currently makes an annual profit of $250k. A quarter million dollars in annual profit isn't a lot but it's respectable - that is a sustainable business! That's something you can afford to keep operating indefinitely (and try to grow over time). You have some room to invest, some room to make mistakes. Now suppose the state passes a law requiring you to give all 50 of your crew members an extra $5/hour. How much does that cost? 50 people * 2000 hours/year * $5 = $500,000. So your restaurant just went from gaining a quarter million to losing a quarter million a year. Now it is not a sustainable business. Your pockets are not deep enough to keep losing that year after year; you should probably close the business or scale it way back. Are you going to claim that every restaurant in the chain has enough buffer to take a half-million-per-year hit to the bottom line and stay standing? Of course not. There are always some marginal businesses; those are the ones that are likely to shrink, cut benefits, or close.
- bakhy 12y ago
  it would be foolish to expect that such a measure can be passed without negatively affecting some businesses. a lot of people, including the electorate of Seattle, and the authors of the here oft cited study, obviously consider that the gains outweigh the losses. surely you don't suggest we should allow majority of workers to be exploited because some weakly profitable restaurants might fail? (and 50 employees with 250k annual profits sounds pretty weak.) all these workers are paid the same miniscule wage, regardless of whether their restaurant makes more or less profit, so most of them are exploited, simply because they can easily be replaced.
  - glenra 12y ago
    > surely you don't suggest we should allow majority of workers to be exploited because some weakly profitable restaurants might fail? Who is exploiting whom here? Most restaurants fail. Nearly all restaurants lose money in the first three years of operation. During that time, when the firm is losing money but still paying salaries, isn't the firm owner the one being exploited? And aren't you exploiting the owner even more by forcing him or her to lose even more money on the way to a slim chance of profitability? People who consider that "the gains outweigh the losses" probably don't realize that even those who get a raise due to a minimum wage law might be on net worse off than before that law was passed. Certainly those who lose their job or fail to get a new one are worse off, but even some who keep their job are also worse off, because they lose other benefits in lieu of salary that they presumably valued more. There is no plausible theory that says low-skill workers are made better off by making it illegal to hire them for less than a specified price. Legally fixing one term in a contract in general makes both parties to that sort of contract worse off. There are many reasons why it should be hard to measure the damage the minimum wage does so it's not surprising that a few empirical studies return the "man-bites-dog" result, but we shouldn't fool ourselves into thinking it doesn't do any harm at all just because that harm is occasionally hard to measure. The minimum wage is callous and cruel; it harms those least able to afford being harmed. It is at heart indefensible. Fortunately, we live in a rich enough society that being legislatively forced into a suboptimal job situation or involuntary unemployment is usually recoverable. It's not a death sentence. Yes, Seattle is effectively kicking poor people in the face with this law, but in the grand scheme of things it's probably not the worst legislative indignity we inflict on them.

bakhy 12y ago

in my experience with libertarians so far, they are most disinclined to do any math. i don't see any math here either. there is a study mentioned a lot in the comments here which refutes this argumentation. as for the argumentation - it is again the same thing! instead of "whole company", you moved to topic into "individual branches", but it is still the same - apparently, a huge number of workers is employed in places with zero profit, be it whole companies or just branches. this is an incredible claim. why would we accept that workers in highly successful branches should get underpaid, just so that a couple of barely profitable branches could remain open? everyone needs work. and low-skilled workers come in large numbers. any manager not aware of this, and how it enables him or her to pay the workers as little as possible, is a fool! management will pay the least amount possible, since replacement workers are readily available. this is why an increase in minimum wage will not produce nowhere near a proportionate response in lost jobs.

waps 12y ago
> as for the argumentation - it is again the same thing! instead of "whole company", you moved to topic into "individual branches", but it is still the same - apparently, a huge number of workers is employed in places with zero profit, be it whole companies or just branches. this is an incredible claim. why would we accept that workers in highly successful branches should get underpaid, just so that a couple of barely profitable branches could remain open? Let's do some maths then : McDonalds 2012 profit : $5.5 billion Revenue : $27.56 billion Employees : 1.8 million Revenue per employee : $15311 Profit per employee : $3055 So costs per employee : $12256 Let's say McDonalds locations vary in revenue by 25% (95%) and that the main cause is employee_cost/customer. That seems to me a very reasonable claim. That means employees make McDonalds between $11483 and $19138 in revenue, -772 to 6682 in profit. Let's assume uniform distribution. The amount of net-negative employees would be about 10%. Since most companies are much less profitable than McDonalds, the idea that a lot of people are effectively employed with zero or negative gain seems quite plausible to me. In the US and Europe both you could defend the idea that most people have a net-negative utility to the US and European nations (taken as a whole), a gap that gets filled by the sale of treasury notes to foreignors. But there are whole classes of employees that will have net-negative utility : 1) government employees (government does not produce goods or services. And where it does it's financed by taxes, negating the benefit) 2) management (they don't contribute directly to work getting done) Ideally, neither function would exist (and police and roads would simply be organised directly by the people who want to use them). I'm not saying that's realistic, but it would be better from an economic perspective. In my opinion people often overestimate how inefficient capitalism is. There was a huge fuss about oil profits a few years back, when oil first went to $100/barrel. When you calculate how much per gallon oil company profits were (and thus how much they could be theoretically maximally lowered by nationalizing the oil companies) you'd get something like 2-3% depending on the company. This was the populist solution to bring oil back from $105 or so to $60 ... Of course if you're living in San Francisco and see Goldman Sachs organise a bankers' convention in the most expensive hotel in the city it seems excessive, but all their costs only amount to at most the low double digits of their revenues. For the vast majority of firms, it is the low single digits. That doesn't mean improving the "common man"'s life is not worth it, of course.