Tuesday, April 18, 2006

Slave Wages: Is There a Crisis of Minimum Wage?

One Big Mac Extra Value Meal:

Double Quarter Pounder w/ Cheese Extra Value Meal:

10 piece Chicken Nugget Extra Value Meal:

Minimum Wage in New York State:

Knowing that in the last hour you prepared about 5 of each of these extra value meals and you’re only getting paid the equivalent of one:

A lot of the immigration law debate has been centered around the willingness of immigrants to perform labor that Americans refuse to do themselves. If minimum wage were higher and more logical, wouldn't people be more willing to work?

The next time you buy two latte grandes from Starbucks or a Big Mac extra value meal from McDonald's, think about this: The amount you come out of pocket to consume these products is often greater than the amount that the person behind the counter is getting paid per hour.

If at the age of fifteen you were a feign for those coffee beans (my rhymes are “discombobulatingly devastating” à la Mike Tyson) during an 8-hour work day at Starbucks you could very well consume half of your own worth by drinking 8 cups of coffee. That's ‘ludicrous.’


Brother Afrocan said...

Smartness, I hate to be the corporate sleazebag or minimum wage scrooge, but I must say the wonderful economics of capitalism are responsible. Are we communists? then celebrate the minimum wage.

Take a look at the company in question, a brief look at McDonalds financials reveals the company earns 30% gross margins and 17.8% operating margins. If McDonald was to raise its employee wages by even a few pennies, their operating profit would take a dive, drastically lowering their EPS and likely tanking the stock.

Like a tale of 2 cities look at McD's friend in Redmond, Microsoft. MSFT earns 81% gross margins and operating margins are at 39%. Simple business model really, you design software once then sell the same program to millions of people, pure profit after u have designed it. I think Microsoft employees should definately be paid above minimum wage, they have a strong case......whats that you say? Microsoft employees earn 6 figures plus, ohh snap.

So it means for McD to pay workers above minimum wage, they either have to tank their stock or charge $20 dollars for a big mac and go out of business to BK down the street that charges $6.40 while paying workers minimum wage. Same is applied to Walmart etc., in the end, software engineers at MSFT

The moral of the story? software engineers will always make around 21,000 times as much as guys at McDonalds and will be able to buy 21,000 times as much things whether the minimum wage is $1 an hour or $300 an hour. Raising it will only cause inflation. The only answer is to become communists and ask the software engineer to share some of his surplus with the burger flipper.

That said I hate engaging in a woe is capitalism rant or the growing inequalities witnessed. But seems like more and more that seems to be the end result of alot of the economic issues we are dealings with now.

Brother Lightness said...

Damn, Afrocan broke that math down like the mighty Mos Def:


Brother Smartness said...

Afrocan, perhaps you are correct in saying that it isn't feasible to increase minimum wage. But I think you miss the larger point.

America is reverting to a Booker T. Washington-esque attempt to praise labor as a result of the immigration law debate. Much of our labor has been exported to third world countries and the result is that newer generations of Americans aspire to sit in an office or cubicle and believe they can get here without the sacrifice of manual labor.

So how can a teenager really learn these values when the pay is substantially less than the product provided?

I think it's a real crisis. Upon further reflection, perhaps it's a crisis of the more current idea of the American dream. The dream still has a lot to do with working hard, but it now has much more to do with who you know.

You came at that post on that Morty Schapiro gangsta tip. Much respect for providing that info.

Brother Afrocan said...
This comment has been removed by a blog administrator.
Brother Afrocan said...

Morty S, lol! that was my dogg man, I took an econ class with him. I totally agree with the values you feel are important. What I was trying to raise is the fact that in the free market wages are set by productivity and demand. Unless a guy at McD can magically make one burger that will be eaten by 50 people, he is "technically" less productive than the software engineer that can make 1 program that is consumed by millions. (There are some exceptions to this rule like Teaching or social services- its hard to put a price on an education or to judge a productive teacher from a non-productive one)

My view was a critique of capitalism and the free market economy. I believe it is incompatible with the values and american dream you talk about. To be honest, I think it reduces us down to animals. In the animal kingdom, the less productive animals starve to death or are killed. There is no sense of society and helping people. Techology is making the productivity difference between a manual laborer and a tech guy(office worker) HUGE! and thus causing a HUGE difference in wages.

haz swaleheen said...

i think it's important to talk about these things as fluid topics with room for conscience and fervor instead of questions already answered by economic models.
that being said, the value added by the burger flipper is far less than the value of the burger itself, which includes the value added by the factory workers who manufactured the meat, bread, etc.
admittedly, burger flippers have weak bargaining power and it's possible they're getting screwed. however, it's ridiculous to begin the argument by pointing out the discrepancy between wage and price.

RAK said...

the "huge difference" in wages is not between the office worker and the mcdonald's flipper, but between the office worker and the CEO and CFO.

In terms of wage inequality, the question is not about issues around the minimum wage, but the absurdly high packages given to corporate officers.

As for the minimum wage, its effect has been found to be relatively limited on productivity, earnings, and inflation as all of that money given to workers is not saved but almost instantly spent, unlike money given to the wealthy, which is often saved and not brought back into the economy nearly as efficiently and immediately.

The minimum wage, as the last poster noted, is not quite a purely economic question, but more of a values question. And I think American values are all sorts of messed up when we can easily all agree that the "minimum wage" is roughly half what a "liveable wage" is. And damn if McDonald's is going to have less profit or will raise its burger price by 20 cents to counteract the effect of a minimum wage raise. I think i'm willing to accept that.

the wonderful economics of capitalism believed our minimum wage, every time it has been raised, would really hurt our economy. I don't think that's the case. The wonderful economics of capitalism also have been behind most of our pollution crisis, child labor, etc.

I don't want to sound like the communist or socialist here. I just believe there is a crucial role for societal values to limit and demarcate where and when capitalism should control the process of deciding something.

Brother Wit-ness said...

You cannot put Starbucks and McDonald’s in the same category. While Starbucks does not offer $20 per hour wages, it offers something that most fast food companies do not offer their so called ‘valued’ employees.

Every worker, I’ll repeat that, every single worker in Starbucks, including part time workers, receive health care coverage from the company. The low minimum wage is not so much a travesty as the lack of health care coverage for many fast food employees. Starbucks was the first major corporation to offer health care coverage to part time workers in the early nineties.

On top of that, Starbucks offers all of its employees the opportunity to buy its stock at a discount or to buy options in the company. Again, they were the first major fast food chain to provide this benefit to all their employees. Even more, they provide all their employees with a pound of coffee every week.

Starbucks is often a target because they are so ubiquitous and they charge such high prices for coffee of all things…but note this, in just about every single market that Starbucks is in, there are local coffee shops that charge much lower prices for their coffee. Those that go out of business do so because consumers prefer the quality of Starbucks coffee to theirs. Starbucks, unlike Walmart and other major corporations, never undercuts their competitor.

To expand this even further, Starbucks pays its suppliers, the farmers in developing countries, a rate higher than the market price for coffee beans because the price has declined so much in past few years. The point is, you cannot compare Starbucks to MCD and other typical fast food restaurants.

Believe it or not, I do not drink Starbucks coffee because I think it is too expensive. However, I admire the company, and particularly the CEO, for truly engaging in social responsibility.

On another note, just because someone throws out numbers doesn’t necessarily make their argument logical. If the minimum wage were increased, ALL companies will have to pay it. McDonald’s would be affected just as much as BK and all of their competitors. A few pennies increase in the minimum wage will affect their margins, but since all corporations paying the minimum wage will be affected, the price increase will likely be passed on to the consumer..or the government might even offer some tax incentive to offset the deterioration in margin

I know the government thing might be pushing it a bit, but the point is, the minimum wage can be increased without it having a significant effect on MCD.

And I can’t believe someone actually said raising the minimum wage $1 will cause inflation and no one has commented on that. Raising the minimum wage to $30 per hour will cause inflation..Raising the minimum wage $1 will cause inflation?...come on now..that’s beyond ridiculous

Brother Afrocan said...

Okay brothers, it appears I have been taken to task for my comments and I welcome the challenge, I will try my best to lucidly explain everything I have set forth. I apologize ahead of time for hijacking the blog with economic theory.

First in response to Brother Wit-ness assertion that changing the minimum wage by $1 will do nothing. Sorry Wit-ness but we do not live in a vaccum, all economic actions set off a chain reaction affecting all the constituent variables and factors related to them. According to the Economic Policy Institute (www.epinet.org) 7.3 million workers (5.8% of the workforce) earn the minimum wage. Increasing the wage by $1- assuming an 8hr work day with 261 workdays in the year, we are talking about a $15.242 billion extra money running around. Let us not forget companies like walmart that pay a few dollars above minimum wage, after a $1 minimum wage increase, walmart will have to pay a few dollars + $1, to save face and continue to tout that they pay above minimum wage. There will be a domino effect in the economy that is not as negligible as Brother Witness dismisses it to be.

Now given the minimum wage increase, which will raise the price of labor without a proportionate increase in productivity, the free market forces will act to correct the change. As a result one of two things or a combination of both will happen.

Either the increase in wages will force businesses to increase prices in order maintain margins. Since it is a legislative increase as brother witness pointed out, it will affect every business, McD, BK and every other vendor will have to jack up prices. The increase in prices will rachet through the economy and eventually cause inflation- yes, when average prices rise for goods goes up that is the very definition of inflation (http://www.economist.com/research/Economics/searchactionterms.cfm?Query=inflation

Alternatively, if businesses are unable to pass costs along to consumers through raising prices, as is the case with the ‘beggar thy neighbor’ cutthroat competition that is seen in the market today (no doubt immigration has contributed to this). In this situation, in order to preserve margins, businesses will have to reduce the costs of labor by effectively forcing employees to increase their productivity. They would do this by hiring less employees. Thus, 9 workers will end up doing the work that was previously done by 10. Those that are often the victims of such adjustments are teenagers who are unskilled, young and inexperienced employees, thus the first out of the door.

I will repeat my earlier sentiments, the free market sets wages based on demand and productivity! Not legislation. In a capitalist, free market society if you want an employee to earn more, you must improve his productivity!!! – maybe buy him a larger flipper that allows him to flip two burgers at once. Alternatively increase the demand of his products, Ipods are really hot right now as an example. Any legislative increase in wages MUST have some repercussion in the market (that’s MUST in cap’s lock)

Lastly I will leave you with a third party resource for those that believe I am just throwing numbers around.

(www.wikipedia.org) “ Supporters say that minimum wage reduces exploitation, and can help ensure that everyone can afford to live. However, opponents contend that minimum wage causes inflation or unemployment, and slows economic growth.”

Brother Wit-ness said...

Your theory is correct..in a simple economy holding many, and let me stress that point, many variables that affect inflation constant..a $1 increase in wages will have a significant impact on inflation. However, that is not the American economy.

The federal minimum wage has not been significantly increased in almost a decade now..yet, many states have increased the minimum wage and even many companies, as you mentioned, pay a wage higher than the minimum wage..yet there hasn't been a commensurate or even a negligible increase in the level of inflation...why is that?

There are many factors that affect the inflation rate. There has been a significant housing bubble in the US economy for the past 5 years and the amount of wealth that has been extracted and created as a result of the housing bubble is much larger than the $15 billion figure that was thrown out. Yet, inflation has not skyrocketed. $15 billion sounds like a mighty big number...but it's all relative. In a developing country, that is significant. In the $12 trillion US economy, it is not that significant.

One reason why inflation has not increased significantly over the past decade is because of globalization. The outsourcing of goods by many US corporations enable them to keep the cost of goods low, thereby, keeping the price of goods low. Another reason has been the Feds intense focus on maintaining a stable and low inflation rate through monetary policy.

We could go back and forth on the effect of a $1 increase will have on the economy without coming to an agreement. In a simple economy, a will lead to b, which will then lead to c. In the US, increases in the minimum wage (in particular states) in the past has not resulted in a spike in inflation, a decrease in productivity, or an economic slowdown. The reason for this is that the US economy is a lot more dynamic than the economies we study in econ 101 books.

Brother Afrocan said...

Witness great points, and I fully agree with you. The economy is very complex and it is difficult to truly determine the effect (if any) of a $1 minimum wage increase the best we can do is speculate based on simplified models.

I think lost in this back and forth over inflation, is the main point I was trying to bring across, when saying that increasing the minimum wage causes inflation or comparing an McD worker with an MSFT programmer. Sorry to belabour the point, but wages must be indexed to productivity. If I produce goods worth $X in one day and you produce goods worth $2X, your wages will be 2X as much as mine or subject to some function that reflects the underlying productivity.

This is the biggest reason we see such a growing income disparity, productivity of skilled laborers has far outstripped that of unskilled labor. If you were waiting on 10 tables a day in 1971, you are probably still waiting on 10 tables a day today. Meanwhile an accountant who used to do the books by hand, has seen multiple increases in productivity through tools like MS EXCEL etc.

Now we can't just create money and decide we want people to earn some amount that we think is 'fair', if we were to arbitrarily set wages without regard to productivity (which is what the minimum wage does) we have a problem as it is incompatible with the capitalist free market and some correction must take place be it- inflation, a larger trade deficit, higher interest rates, etc. I concede the possibilities are too many to list or predict.

I think the underlying problems are philosophical questions. Can capitalist wage policies be truly fair? How communist/socialist do we wish to be? What responsibilities do the more productive members of society have in helping the less productive ones? How can we best redistribute the wealth held by the top echelon while keeping them motivated to stay productivite?

Brother Lightness said...

Is there room in this thread for those of us who weren't ECON majors?

Seriously though, I'm glad to see such knowledgeable and progressive minds at work!