
Supersize My Wage - tristanj
http://www.nytimes.com/2013/12/22/magazine/supersize-my-wage.html?&pagewanted=all
======
Zhenya
In my opinion is all these studies are myopic. The reality is probably more
complicated and can be broken down into a few steps

Short term: Employees get paid more and the number of employees stays close to
the same. The businesses must operate as they did before

Medium Term: The quality of employee goes up. The people who are willing to
trade their time for more $ is a different demographic as you climb the $/hour
slope.

Long Term: Businesses find a way to remove high costs out of their operating
costs and will automate the jobs were possible. This will improve productivity
of each paid employee but the total employee count will go down (all other
things held constant). The productivity and manual labor has been shifted from
person to machine.

~~~
hkmurakami
In economics, we consider "capital (machinery, automation, software, etc)
input" to be fixed. Only labor input can change. But in the long term capital
investments can be made to reduce labor in the input mix. That's probably what
you're referring to here.

~~~
robomartin
And in economics you are wrong. In the real world everything is variable.

Many eons ago --before surface mount was commonplace-- I was employing
engineering students to stuff circuit boards for a low volume product (a few
thousand units per year).

Part of the job entailed bending component leads based on how they had to be
mounted to the board. I didn't have the money or the volume for fancy
automated tools. We used prototyping-level hand tools to bend the components.
After wave soldering we'd clip the leads by hand and test.

Back then minimum wage was $6 or $7. I was paying the kids $10.

I bought an old Bridgeport CNC milling machine for $1,800. I devoted a week to
making better lead-forming tools and a mass lead cutting machine using a cheap
router motor.

Within a week the same worker could do nearly ten times more work. I
eventually let go of half the crew.

Costs are everything in business. If government unilaterally and unnaturally
forces an increase in costs businesses will naturally respond with cost-saving
measures and technology. This can also include taking the work to lower labor
cost markets...forever.

That's how it works in the real world. At one point an artificially high
minimum wage will result in less jobs, not more.

~~~
drabiega
> artificially high minimum wage

Artificially high? If you're making a profit but your employees need public
assistance, you're literaly profiting at the expense of the taxpayers. You are
in effect benefiting from an artificially low prevailing wage. If you can't
afford to pay them a living wage, society would be better off if resources
were allocated elsewhere.

~~~
yetanotherphd
>If you can't afford to pay them a living wage, society would be better off if
resources were allocated elsewhere.

Since hiring a person can only increase that person's income, and decrease the
amount of welfare they can claim, this is wrong. If there were a better
allocation of that person's labor (e.g. a higher paying job) that person would
surely take it.

~~~
drabiega
When you pay less than a living wage you are not reducing the cost to produce
whatever you are producing, you are using taxes as an input. If you literally
cannot afford to pay your employees a living wage, that means it's real cost
(including the taxpayer's assistance) is greater than what people are willing
to pay for it and we'd all be better off if our taxes just supported that
person instead of supported that person and lined your pockets.

~~~
yetanotherphd
But that is wrong. Suppose I invented a machine that let any person churn out
$3 in gold per hour. Now suppose everyone who was currently unemployed started
doing this, and collecting slightly less benefits.

Would society be better of banning this machine, because it couldn't produce a
"living wage"? Because this is what you are proposing.

~~~
stefan_kendall
Don't bury the lede. You've rediscovered Bitcoin!

------
ronaldx
Fast-food employees are pretty much the canonical beneficiaries of a minimum
wage law.

Fast-food outlets can afford to spend more on salary (in that, they will still
be profitable and it doesn't affect their viability as a business) but have no
inclination to, and therefore must be forced by law. As an additional bonus,
they can't outsource their work to another, cheaper state. Great - the minimum
wage law works exactly as intended, in this particular case.

It's less obvious that this applies to other industries. Will average
households employ a domestic cleaner at minimum wage? Small, near-viable
businesses where salary is the largest expense: what happens to them when the
minimum wage increases? What happens to people who are thinking about starting
businesses with that as a risk?

~~~
rogerbinns
> they can't outsource their work to another, cheaper state

They have done some of it for almost a decade
[http://www.nytimes.com/2006/04/11/technology/11fast.html?pag...](http://www.nytimes.com/2006/04/11/technology/11fast.html?pagewanted=all)

They can also use more automation - "outsourcing" to machines.

There are far more subtleties that the article didn't cover as you partially
point out. There is a good article on cafehayek about it. (eg the nature of
work done can change). [http://cafehayek.com/2013/12/again-more-on-the-
minimum-wage....](http://cafehayek.com/2013/12/again-more-on-the-minimum-
wage.html)

------
grecy
Rather than worrying about raising prices or cutting the number of employees,
what about if the burger joint just made less profit?

McDonald's could double wages and it's operating profit would still be
$5.5Billion. What's wrong with $5.5billion in profit?

[http://www.businessinsider.com/mcdonalds-could-double-
wages-...](http://www.businessinsider.com/mcdonalds-could-double-wages-for-
employees-and-make-less-money-2013-7#ixzz2aZHNwoL5)

~~~
yetanotherphd
This cuts to the core of the ethics of the free market.

It is more ethical for McDonalds to make a higher profit, and pay lower wages,
if they can.

This is because they have an agreement (and I don't care about the precise
legal nature of this agreement) with the shareholders to maximize the profit
of the company.

The employees on the other hand, they never made any promises to. Employees
have a relationship with the company as long as they are willing to take the
wages/conditions on offer.

You might think that it is ethical for McDonalds to redistribute money from
their shareholders to their workers (and their workers are surely poorer on
average). But this is solely the role of the government, and private charity.
I can't prove this properly in a single post, but it is closely related to the
First and Second Welfare Theorems.

~~~
grecy
> This cuts to the core of the ethics of the free market.

I know, that's why I left it as an open question.

> They have an agreement with the shareholders to maximize the profit of the
> company.

It's fascinating we let that agreement trump the implicit agreement they have
with all humans on earth.

> You might think that it is ethical for McDonalds to redistribute money from
> their shareholders to their workers (and their workers are surely poorer on
> average). But this is solely the role of the government, and private charity

This is how the system currently functions, but I strongly believe the system
needs to (and must) change. For a business to purely be concerned with profit
can only lead to destruction for all of us. They'll bleed workers dry, kill
the planet and be happy doing it.

~~~
yetanotherphd
>This is how the system currently functions

It's also the system that makes the most theoretical sense given the First and
Second Welfare Theorems, which state (or more accurately strongly imply) that
any desired outcome can be achieved by the free market, and government
redistribution.

"killing the planet" is an externality that can be addressed by environmental
legislation (e.g. a carbon tax).

~~~
grecy
And how would you say it's working out for America vs. all the other Developed
countries?

One has to wonder what the end-game will be,

~~~
yetanotherphd
There is a distinction between free-market principles, and the way people on
the right use free-market rhetoric to justify redistributing less money from
the wealthy to the poor.

There is nothing that I have said that would rule out a highly progressive tax
system, and a generous welfare system. In fact that is exactly what I would
recommend.

I don't think the US is particularly free economically. It is true that most
developed countries have higher minimum wages and, for example, more powerful
unions, but this is not, in my opinion, why they have less inequality. They
have less inequality because they have more progressive tax systems, and more
generous welfare systems.

Also the US has more cultural diversity, and many people (e.g. living in poor
rural areas) could earn more money if they were willing to choose a very
different lifestyle.

------
TrainedMonkey
I think implied point was, that while raising minimum wage also forced fast
food joint to raise prices, demand stayed same.

Things to be wary about - this is limited experiment with two fast food
joints.

1\. This might be a fluke, with only two fast food places compared data sample
is very small - at best it is case study. Apparently this is incorrect, see
comment below.

2\. Their monitoring period was only 11 months. Who knows what will happen in
5 years?

All that said, I applaud their effort. Too many things are taken for granted
in Economics because they "make" sense. Real world is so complex that things
are often counter intuitive.

~~~
norswap
To me, it seems common sense that the fast-food will simply increase wage and
keep the same amount of people. The fast-food is profitable up to a wage of X,
but it prefers to pay the lowest it can to attract workers instead, which
happens to be (by law) the minimum wage.

And I'm convinced fast-foods can afford to pay employees more.

~~~
aetherson
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?

~~~
marcosdumay
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
>> 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."

------
yetanotherphd
People often assume that the role of economists is to answer the question
"will raising the minimum wage increase unemployment" or even "will raising
the minimum wage increase inflation".

In fact most economists would rather answer the questions "why should we
increase the minimum wage" or "should we increase the minimum wage".

Most economists would say that interfering with the market is bad in general.
If we wanted to help people with low incomes, it would make more sense to
decrease taxes for people on low incomes.

~~~
adventured
If you wanted to help people with low incomes, you'd do two things:

1) More skill based education, enabling them to upgrade out of their low
paying, low skill jobs

2) Make it dramatically less expensive and easier to employ people, lower
regulations (rather than adding thousands of new regulations per year),
simplify compliance, simplify healthcare dramatically, and overall stop
providing huge disincentives to hiring

The only tax that poor pay is sales tax. The bottom 40% pay a negative income
tax rate. We could attempt to kick the sales tax back to them, but it wouldn't
make even remotely as big a dent as improving the macro economic environment.

We should also become fiscally responsible and stop destroying the poor's
standard of living through inflation. Inflation harms the poorest the most, by
far.

And I don't mean the bogus CPI, which was substantially adjusted to mask
inflation under Clinton's presidency. I'm talking about the massive inflation
in: energy, housing & rent, food, education, health care. The cost of a new
car has gone up by 50% in 20 years, while we're selling less of them (relative
slack demand). The cost of milk & eggs has doubled in 15 years. The cost of a
house has doubled in 15 years. Meanwhile, we have 14% real unemployment, with
no justification for the massive increases in prices on the demand side (ie
it's primarily driven by the Fed's massive devaluation of the dollar, with QE
being used to avoid bankruptcy at the federal level; aka the poor are being
papered to death in the process of masking our nation's fiscal
irresponsibility).

~~~
drabiega
>Inflation harms the poorest the most, by far.

I don't think that word means what you think it means. When prices go up, so
does income. It has to because there are two sides to every economic
transaction. Inflation often seems to coincide with declines in the real
median wage because it's easier for your employer to not give you a raise
instead than it is to reduce your salary. But over time it doesn't matter
because even with no inflation if there's real wage decline you still have the
same problem.

~~~
adventured
Why yes, that word does mean what I think it does.

If we're talking about what inflation is, well, prices going up is not
inflation to begin with. The expansion of the money supply is inflation.
Prices going up is merely a potential symptom of inflation.

Inflation does in fact harm the poor dramatically more so than anybody else.
They're the most susceptible to rising prices, their incomes rise the slowest,
and they have no capital or assets to leverage to keep pace with inflation
through hedges (such as stocks, gold, commodities in general, housing, etc).

Incomes do not inherently go up hand in hand with prices. In fact it's the
exact opposite, the greater the inflation the less able incomes are to keep
pace. America is dramatic proof of that over the last 40 years, as the cost of
major goods such as housing, education and healthcare have vastly outstripped
gains in income.

Your theory that wages inherently keep up with inflation assumes that there
are no spin-off consequences to inflation, that's blatantly not correct. It
generates a downward spiral, cascade effect; just ask Argentina how that
works, their economy has been getting hammered by it the last few years. As
you expand the money supply, devalue your currency and generate inflation, all
sorts of costs from external sources begin to climb, such as the cost of
imports (raw goods like plastic or steel, completed goods like toasters,
commodities etc). This one effect alone guarantees domestic wages can never
keep pace with inflation.

Inflation also destroys savings, and the poor always have the smallest base of
savings to begin with, and are least able to shift their savings into higher
yielding investments.

There are numerous recent examples from around the world where inflation
outstrips wage gains.

Brazil is an obvious recent example of it, the cost of goods in Brazil is
outrageous, and was one of the reasons for their recent riots. The high
inflation there, requiring incredible interest rates to fight, has far
outstripped their wage gains. Venezuela and Argentina are two other recent
examples of it. And there are extreme examples of it, in which the people of a
country have been wiped out by inflated prices while their incomes did not
keep up (Zimbabwe is an easy example of that).

~~~
drabiega
> Prices going up is merely a potential symptom of inflation.

No, seriously, increases in the price level is literally the definition of
inflation.

> Incomes do not inherently go up hand in hand with prices.

If you hold purchases stable, incomes have to go up with prices because every
price someone pays is also a price someone gets paid. And in fact, this
actually understates the income effects of inflation because it results in an
increase in demand because the value of holding money decreases.

I don't contend that there are no consequences of inflation, just that they
are either only short term or that they happen anyway with more hysteresis in
the absence of inflation.

> Inflation also destroys savings, and the poor always have the smallest base
> of savings to begin with, and are least able to shift their savings into
> higher yielding investments.

It does indeed reduce the value of savings. If you've got more savings than
debt, inflation hurts you. That's not a position most of the poor are in.
They're in the opposite position, statistically, where the losses to
purchasing power from savings is outweighed by the gains from the reduction of
debt.

My core point is not that the problems that you cite are not problems, but
that inflation is not their cause. Argentina's problems have to do with
instability. There are costs imposed by any movement in the value of money and
they tend to have feedback effects. Too much inflation is a bad thing because
it has large cost effects and causes more inflation. The same is true for
large amounts of deflation.

The difference between prices and median income is the problem in your
examples, but those problems would largely surface without the inflation
because they are inequality problems. Inflation shortens the time scale on
which the effects of income inequality is felt but it is not the source of the
problem.

~~~
AjithAntony
I don't have any data either way, but these statements felt wrong.

> If you hold purchases stable, incomes have to go up with prices because
> every price someone pays is also a price someone gets paid.

Assuming that is true, that doesn't mean that poor people's income grows.
Maybe it just further consolidates income and wealth on the other end of the
socioeconomic spectrum.

> They're in the opposite position, statistically, where the losses to
> purchasing power from savings is outweighed by the gains from the reduction
> of debt.

Poor people likely do not have meaningful savings so it's their very fixed
incomes that is losing purchasing power, and their debts are often short term
instruments that will compound the problem.

Speaking of inflation and savings and the poor, there is an episode of the
late 1970's tv show "Good Times" where the family encounters a windfall, and
one of the kids asks the dad what they should do with it, and the dad replied,
and I'm paraphrasing, "We better spend it right away [perhaps on durable
goods], becuase tomorrow it won't be worth anything." Having lived all of my
life with relatively low inflation rates, as I child, I just assumed, as a
comedy, it was just highlighting the foolish short-sighted decision making of
the poor. Later in life I now appreciate what a powerfully poignant economic
anecdote that scene represents.

Does anyone happen to know which one that was? Now that I'm thinking about it,
I can't think of any modern TV shows that come close to depicting the
lifestyles of poor people as "Good Times" did.

------
drabiega
If you don't get enough value from your employees to pay a living wage such
that they need government assistance, then your business is a misallocation of
resources. You are literally profiting at the expense of tax payers.

------
nahname
>It helps low-wage workers to raise their family above the poverty line.

Wouldn't someone earning minimum wage define the poverty line?

~~~
itsybitsycoder
What if there was no minimum wage -- would someone pulling in $10 a month be
above the poverty line in that case? The poverty line is the minimum income
you need to get by, not the minimum you can pull in with a full-time job.

------
bonemachine
Y'know, a bump from $4.25 to $5.05 per hour is hardly "supersizing."

