"Poverty cycle" for businesses

John B. Slocomb on Sun, 02 Nov 2014 15:24:24

+0700 typed in rec.crafts.metalworking the following:

What is the total cost of labor? Not just the Wages paid the employee, but the "Employer's contribution" as well? Not to mention the "Payroll tax" levied to fund bus services, fair wages for county contractors, bike path. Or other (governmental) costs to a business based upon the size of their workforce. And that is before we get into the questions of benefits. Or the fact that if a contracted pay scale is based on "prevailing wages" -- raise the minimum wage by 5% and your raise everybody else wages by 5%. [Oh wait, that rarely happens. Those making less than the new minimum wage are now making 'more' money, at minimum wage. But I digress.] I have been told the company figured it was cheaper to have two guys working 40 hours equivalent in over-time, than to hire a third body.

-- pyotr filipivich "With Age comes Wisdom. Although more often, Age travels alone."

Reply to
pyotr filipivich
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Not true. Everyone would still believe that they benefited. Look at the people wanting an increase in the minimum wage. Do you think they realize that there is no lasting benefit as all labor would increase?

Dan

Reply to
dcaster

Absolutely true. Raising the minimum wage will raise the cost of labor used in raising beef, electricity, trash disposal.

Ed while you're practicing your arithmetic, you might want some real-world prices to put into your homework. Raising the minumum wage will increase all labor costs.

Dan

Reply to
dcaster

That's supposed to be the total labor cost, John, which would include benefits, etc. I only checked a couple of sources but the 33% for the general restaurant trade seems to be a common claim, and that sounds like 25% claimed for fast food should be about right.

Reply to
Ed Huntress

I think that figure was for employee wages plus benefits, and nothing else.

Reply to
Ed Huntress

I worked for a contracting business in Indonesia for many years. Along with building your oil field for you we would also rent you specialists for shorter or longer periods.

While we did calculate everything involved in making up the actual billings for one of these guys, for conversational purposes we used to simply double the man's salary and that's his billing rate. It was very close in most cases.

Regarding the effect of increasing salaries. We recently had the nationally mandated minimum salary here in Thailand doubled. Immediately, the next day, prices for nearly everything increased, some doubled the first day.

Reply to
John B. Slocomb

No, those are operating costs, cost of sales (also called "cost of goods sold"), etc. They aren't affected by the company's employee salaries. They *may* be affected if your entire supply-and-support chain gets a significant raise with an increase in the minimum wage. But when did you last hear of an electrician, or even a trash man, who works for minimum wage?

The accounting for this stuff in small business is pretty well laid out, Ig. I think that Tom could give you a good rundown.

Probably true to some extent. But not much. The examples cited by both sides generally show that it varies by industry, but that the job losses tend to be very low overall when minimum wages are increased.

Basic capitalist labor theory goes like this: It assumes equal bargaining power for labor and owners. It then evaluates how well that is working from the following.

If you raise the wages of workers, through legislation or otherwise, and the company continues to make a profit, then wages were too low before, and labor's bargaining power was not equal to that of the owners.

We could get more involved but that's the basic situation. Sometimes people talk about proper labor costs for "optimum" profitability on sales or capital. But that's a chimera, because profit usually optimizes in such a model at zero cost for labor.

Unequal bargaining power distorts wages (downward, in almost all cases), competititvely distorts prices (downward) and distorts market consumption (upward from the profit-making equilibrium). In other words, we eat too damned many Big Macs because they're too cheap.

With rare exceptions, the economies of the US and other western countries have been operating with distorted labor costs (low) and distrorted consumption (high) since the early days of the Indistrial Revolution.

Reply to
Ed Huntress

On Sunday, November 2, 2014 7:58:45 AM UTC-5, Ed Huntress wrote: e.

Electricians make a multiple of the minimum wage. Trash men make a differe nt multiple of the minimum wage. If the minumum wage goes up, all labor go es up by the same percentage. Material costs also go up by about the same percentage, because the cost of material is pretty much all labor costs if you look hard enough.

When I worked in construction, ditch diggers were minimum wage workers. Backhoe operators were not.

If it would take a ditch digger a day ( 8 hours ) to do a job with a shovel , the backhoe operator would get the same amount of money for doing the sam e job. Say it took the backhoe operator 2 hours. So the backhoe operators made

4 times minimum wage.

So if the minimum wage went to $15/hr. the backhoe operator's pay immediate ly goes to $60 an hour. Why would you pay more to use a backhoe if it cost more than using unskilled labor? Why would you pay more to unskilled labo r than it cost to use a backhoe?

Dan

Reply to
dcaster

Yes, it'll be with us forever now, huh?

Reply to
Larry Jaques

John B. Slocomb on Sun, 02 Nov 2014 19:48:49

+0700 typed in rec.crafts.metalworking the following:

Ah yes, well instead of taking you a half an hour to earn enough for lunch, you could now earn enough in 30 minutes.

-- pyotr filipivich "With Age comes Wisdom. Although more often, Age travels alone."

Reply to
pyotr filipivich

I never heard this. Where did you hear it?

Virtually everything is all labor costs plus rent, when you work your way back through the supply chain. "Rent" in this case is the economists' definition of the term, not necessarily rent on property.

Once you get outside of a few service businesses, you won't find a lot of people working for minimum wage today.

Here's a Pew report for 2013:

75.9 million hourly-paid workers and 2.6% of all wage and salary workers. In 1979, when the BLS began regularly studying minimum-wage workers, they represented 13.4% of hourly workers and 7.9% of all wage and salary workers. "

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When you look at the costs imposed through a supply chain by an increase in the minimum wage, you have to consider that 4.3% or 2.6%, and look at what the relevant number is for the supply-chain businesses in the particular case. It's almost always trivial.

So your claim that it works its way back through the supply chain and significantly raises costs throughout is almost always incorrect. This is one of the claimsl made by those opposed to raising the minimum wage, and, across the board, it's bogus for that reason.

And if the ditch digger makes $7.50/hour, and the backhoe operator therefore makes $30/hour, you're saying that doubling the ditch digger to $15/hour means that the backhoe operatore is suddenly going to demand $60/hour?

Good luck with that, backhoe operator! If there really are John Henry ditch diggers out there today, pricing themselves against backhoes, then they're going to be out of a job. I have to wonder how many such jobs there were in the first place, as a straight tradeoff against doing the same job with a backhoe.

I really doubt if that has any real consequence to costs in the economy. The Bureau of Labor Statistics says that 38,000 construction-related workers made minimum wage in 2013. That's 0.026% of the employed workforce. You couldn't even measure the real net effect of doubling the ditch-diggers' wage, downstream through the supply chain.

Look at that Pew report. You're see where the minimum wage workers are. They're overwhelmingly in food services.

I should have read ahead. The answers are, according to your arithmetic, $60/hr. to the backhoe operator would NOT cost more than using unskilled labor. It would still be a wash. But the backhoe operator is unlikely to succeed in making his case for $60.

The answer to the second is, you wouldn't. And it's likely that hardly anyone works on that straight tradeoff today, in any base. It's kind of a bogus example.

Again, in all of construction, only 38,000 people make minimum wage. In food services, the number is 1,540,000. That's where the economic issues are, not in ditch digging.

Reply to
Ed Huntress

I owned a service station in the 80s. Every kid with a new car had to have a custom stereo. Most were self installed. I made more profit on fuses and keys than gas and oil. No one knew what a fuse should cost. Everyone knew where the cheapest gas was.

Another high profit line was specialty fasteners (think door panel Xmas trees). We were charging the city $5 for the 10 minutes it took to remove rear door handles and window cranks on police squad cars.

Niche markets are almost always the most profitable; and that niche is usually hard dirty work no one else wants to do...or has the expertise to do.

Reply to
aasberry

Only because you laminate yours.

Reply to
Michael A. Terrell

Since only the minimum wage would increase, how would that cause an increase in say an accountants wages?

Best Regards Tom.

Reply to
Howard Beal

Particularly in the computer business, valuing inventory over a month old at cost is being delusional. (which is why I don't inventory ANYTHING anymore) If you buy 2 of something and only sell one, you are farther ahead to just expense it right away, and if you get lucky enough to sell it and make some money, claim the whole income as profit. Otherwise you are continually trying to re-evaluate inventory and take write-downs on the inventory at year end. I have pretty good suppliers, so really no reason for me to inventory anything.

My main customers have a spare power supply on the shelf and a spare hard drive, so they are seldom down waiting for parts. (because the last time they needed one, I bought 2, and they paid for them both. Insurance. (main customer is an insurance office)

Reply to
clare

One very successful and popular full service restaurant in our area serves quite generous portions, and a reviewer asked how they could afford to serve large portions for the price they charged. The owner showed how low a percentage of the overall cost of the meal was influenced by the cost of the potatoes, meat etc. The labour and overhead didn'r change a measurable amount to put a bit more on the plate. It's in a small town and is very popular with the local farmers

- and being on a main route to cottage country, is VERY busy weekend evenings and lunch hours.

Reply to
clare

I used to work at a garage/used car dealer where the boss was that way. A car would sit on the lot for 5 years and he wouldn't come down fifty bucks. He has old used farm equipment out in the orchard that was the same way. It would rust away before he'd sell it for a dollar less.

Reply to
clare

If the minimum wage goes up from 10 to 12 dollars, that is an increase of 20%. NO WAY does the electricians wage go up 20% just because the minimum wage does. It might go up $2, or even (unlikely) $4 - which comes out to something closer to 8% or 10%

Not quite. Cost to dig the ditch would be the same whether done by backhoe or manual labour - but the cost of the backhoe and fuel had to be figured in. Backhoe operator does the job in 2 hours, cost of operating the hoe is, say, $20 an hour, that needs to come off the rate the operator gets paid. So a labourer at minimum wage of, say, $10 per hour for 8 hours is $80 to dig the ditch. Backhoe takes 2 hours,@ $20 per hour for the hoe, leaves $ 40 for the operator - or $20 per hour - double the wage of the labourer.

If the hoe only costs $15 per hout to run, that leaves $50 for the operator - or $25 per hour. 2.5 times as much as the labourer.

Backhoes don't run on air - they don't magically appear for free, and they require maintanance to keep them running. That all goes into the cost of operation.

Quite simply, the cost of skilled labour does not follow the increase in minimum wage in a direct linear manner. Not in the real world. Even in the UNION labour world (which is often FAR from the "real" world.

Reply to
clare

Labor sure taught those evil businesses a thing or two, didn't they?

Reply to
Larry Jaques

vel, the backhoe operator would get the same amount of money for doing the same job. Say it took the backhoe operator 2 hours. So the backhoe operat ors made

ately goes to $60 an hour. Why would you pay more to use a backhoe if it c ost more than using unskilled labor? Why would you pay more to unskilled l abor than it cost to use a backhoe?

I was talking of the small time backhoe operator who own the backhoe. You are right, the expenses of running the backhoe have to come out of the owne r operator's pocket.

But you are wrong. The cost of skilled labor does follow the increase in t he minimum wage. Maybe not instantaneously , but it does follow.

Dan

Reply to
dcaster

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