Wealth Distribution in the USA

What about other corporations int he same market who do pay more and remain in business? In and Out Burger, from what I understand, pays significantly better than minimum wage.In fact, I've read recently that in some countries even McDonalds pays the equivalent of $14-24/hour.Profit margin does not necessarily need to be lowered to increase wages. Re-structuring salaries in general - paying top-level CEOs and the like less, and increasing the wage of the average and/or lowest-paid employees - can result in an identical bottom line where labor cost is concerned.McDonald's CEO "earned" $8.75 million last year.

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Shareholders, not employees, have reaped the rewards. McDonald’s, for example, spent $6 billion on share repurchases and dividends last year, the equivalent of $14,286 per restaurant worker employed by the company. At the same time, restaurant companies have formed an industrywide effort to freeze the minimum wage, whose purchasing power is 20 percent less than in 1968, according to the Economic Policy Institute, a think tank that advocates for low- and middle-income workers.

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The responsibility of a corporation is, of course, to its shareholders - but in the interest of "protecting the chickens," to carry an earlier metaphor, we could quite easily institute new regulations tying the minimum wage to cost-of-living, or providing major tax penalties when top employees make more than a certain multiple of the lowest-wage employee, and so on. We can also easily protect smaller businesses, or businesses suffering from economic hardship, from the effects of those same regulations by, for instance, specifying that a certain percentage of corporate profit must be used to increase wages in accordance with the standard of living up to a minimum amount - let the shareholders keep the rest, and the company won't be affected by legislatively forced wage increases when they're losing money. Just off the top of my head. McDonalds data.The incentives of capitalism are strong and beneficial, but we all agree that capitalism requires some form of regulation to prevent the atrocities of the "Robber Barons" of the American past. I would suggest that, when an average employee would need to work 1 million hours to make what the CEO of the same company makes in a single year, that we are seeing a red flag indicating that the current incentive system has gone awry, that we are looking at an example of runaway capitalism and not healthy capitalism.After all - a single CEO will only buy so many widgets. A thousand individuals with the combined income of just that one CEO will buy a lot more widgets. It's purchasing power, not the ability to hoard wealth, that drives an economy. Which is why supply-side economics has always been a pipe-dream, a lie sold by the already-wealthy.Supply doesn't create demand - demand creates supply. Increase the average wage and watch as people buy more widgets and drive the wheels of industry. Let the average wage stagnate and watch people buy things on credit until a credit bubble pops, leaving them unable to buy more widgets, and the rest of the economy grinds to a virtual halt.I think we just watched the latter over the past few years.

I'm not from the US so I don't know them or their business model, but there's many ways to make a living making burgers - McD's is to be low cost, good value and franchise like crazy. Others do it differently or try to copy but there are economies of scale that are hard to match until you get the volume. Sure, it has to comply with local minimum wage regulation and operate inside the economy that it finds itself in. I'm betting that it's not Africa you're referring to. Normally that calculation doesn't work - I suspect that McD's total wages bill is rather more than all of the top dog's salaries put together multiplied by a big number. But do you expect McDs to change the way they're structured - which means the fat cats taking a haircut by their own decision - just because we'd like them too?They will only do it if they have to.

It's an idealised model missing numerous real life factors. As is the simplistic supply and demand model you are applying. Then, by the same law of supply and demand they would sell less and fail to meet their previous profit levels anyway. So now it becomes a question of determining which has the biggest hit on profits.(Or you could reduce CEO salaries to make up some of the shortfall) Think about this for a second. At the increased wage each employee still generates $95 of profit per hour. Less than the $100 per hour before the wage increase. But still a considerable profit per employee. Each employee they layoff saves $15 per hour in wages but loses $95 per hour in profits generated.So why would any company seeking to maximise profits go down a route of raising prices, selling less and laying off workers if that results in losing even more profit than it would by just accepting the effect of wage increases if product price is maintained? I'm not asking you to consider that becaue it's going to happen. I'm asking you to consider that because it is a way of demonstrating the economic benefit that McDonads derives from it's low wage workforce. As above - You need to show that raising prices, selling less and laying off workers necessarily results in a better profit outcome than just accepting the hit on profits due to the wage increase.Can you do that?Edited by Straggler, : No reason given.Edited by Straggler, : No reason given.

I don't know their business model either. I do know that, while they don't have a $0.99 menu, their "meal" prices are not terribly far removed from McDonalds. Tastes better, too. Actually, according to what I read, the $14-24/hour wages are in a country that actually does not have a minimum wage - merely laws against "abuse of employees." I think it was Sweden; I'll try to track it down later tonight. That isn't likely only because of how many people McDonalds employs. Remember that many/most are part-time, and many locations are 24-hrs.But regardless...I think that such a massive disparity is one of the signals that new regulations are required to adjust the incentives. ...that would be why the majority of my post spoke of legislative regulation, not boardroom action. As I said, corporations are first beholden to the shareholders. Currently, the incentive exists to pay the lowest wages possible so as to keep the saved money as profit. Legislation can be passed that would alter that incentive such that lowering top-end pay, as a singular example, would provide more benefit to shareholders.The beauty of capitalism lies in its power to drive innovation. The weakness of capitalism is exposed when that innovation turns to finding ways to exploit people and resources in ways that are beneficial for the individual company but harmful for the industry or society as a whole. Business will always go in the direction of cash incentives - whether that's avoiding tax penalties or paying workers below-subsistence wages. The trick is rigging those incentives to allow for innovation, to let new businesses form and keep older businesses around, without killing off the workforce, expending all available resources, or drying up the ability of consumers to consume what business is selling.

No, it doesn't work like that, it's not a straight line relationship. That's because wages are only a part of the costs of running a franchise - a 10% increase in wage costs does not create a 10% change in profits; it's much lower than that. also a 10% price rise does not generate a 10% reduction in demand - again it's much lower than that. It's off topic but if you need to know why, google 'price elasticity of demand'.Basically, you can optimise profits by balancing price against demand and the really cute thing about a price increase is that it goes directly to the bottom line without changing the cost structure.In any case, from memory, I believe McD's business model is all about franchising - they don't employ the staff in the restaurants, the franchisees do. (But that's not really relevant to the argument that lies behind your point.) Again no, that's just wrong. An individual franchise may generate $x profit in a particular month. You can then divide the $x by the number of employee hours in the month and get $100 profit per hour per employee. But that does not mean that the employees generated the profit. - that came from the difference between sales and costs of which there were rather more than just employees pay. (if you doubt me, you can do the same calculation but instead divide the total profit in the month by the number of burger machines or french fry broilers- all you get is an efficiency ratio, not a cause.I'm afraid that McD's - like every other business in the world - count their employees as costs, not revenues, so they will always pay them the lowest wage commensurate with their business model. In other words they prefer the $100 profit to the $95. Obviously it wouldn't. In the case of McDs, they don't want anything to change - but if they are forced to increase their costs, they will increase their prices - that's just basic economics. They will adjust to the new reduced demand by by cutting out their franchises with the lowest profitability. Trust me, they won't reduce profits, they'll put up prices and cut jobs.

Sure, I've said this too. Agreed, but there has never been much appetite for those kinds of economic interventions in the USA. I believe you call it socialism and spit on the pavemnent (sidewalk).

You're using accusations like these to avoid discussion. Could you quit the posturing and just discuss things? More posturing. I alerted you to my suspicion that we were talking about two different things a hundred or two messages ago, and here you are still going on and on about it in message after message.I understand that you think there should be a link between a job's wages and that job's "economic benefit" to the company, but this carries with it the implication that you can somehow know that "economic benefit", which you can't. You don't even know if it's positive or negative for any specific job. It also ignores the fact that any "economic benefit" belongs to the stockholders, not the employees.Why don't you just try to address these problems with your position instead of responding with a smokescreen of slanted questions about wage inequity. I think we largely agree about wage inequity, but the fact that wages aren't fair doesn't change financial facts.--Percy

And then you later write:

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Let's say, merely for the sake of argument and to keep things simple, that each employee hired at $10/hour generates $100/hour in profit for the business in question. The company in question would be desperately stupid to start laying off workers merely because it had to pay them $15/hour instead wouldn't it?

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It would cost us practically nothing. There's a whole line of people at the temp service waiting for a job that could be here in less than an hour.I bet some of them would even be willing to take the current persons job from them at a lower wage if we'd be willing to do that.

I only just noticed this when CS replied to it. This highlights precisely how impossible it is to estimate the "economic benefit" to the company for most jobs. Let's say the box stackers go on strike and shut the company down, costing the company millions of dollars in lost business per day. So now one might imagine that the value of a box stacker job per day is the number of box stackers divided by the lost revenue per day, which will always be far more than they're actually being paid.But wait. Let's say it's the truck drivers who go on strike and shut the company down. Now it's the truck drivers who are worth millions of dollars per day.Or the loading dock workers go on strike and shut the company down. Now it's the loading dock workers who are worth millions of dollars per day.Or the assembly line workers go on strike and shut the company down. Now it's the assembly line workers who are worth millions of dollars per day.The fact of the matter is that none of these sets of jobs are worth millions of dollars per day. Once a job is buried within a large corporation it is largely impossible to determine any specific economic benefit to the company. A business is a large number of jobs working in close and coordinated choreography to produce a set of products and/or services, and how much any specific job contributes cannot be known. You can't even know whether it's positive or negative. Some jobs are essential in the sense that the company must shut down if those jobs aren't being done, but that isn't a measure of the "economic benefit" of those jobs.Beyond the impossibility of calculation, there's not even any desire or need to know the amount of this "economic benefit" because wages are not influenced by it. Wages are largely under the control of market forces. NBA centers get (on average) the most money not because they contribute the greatest "economic benefit" to the team but because there's a lack of supply (a tiny fraction of the population is tall enough to play center) and a lot of demand. NBA point guards get the least money because there is a large pool of people to draw upon, people apparently as short as 5' 3" being capable of playing the position.This isn't to say one can't make a business case for adding a job or jobs, but that has nothing to do with any imaginary "economic benefit" for a specific job.--Percy

Paul Krugman: As John Schmitt documents at length, there just isn’t any evidence that raising the minimum wage near current levels would reduce employment. And this is a really solid result, because there have been a *lot* of studies. We can argue about exactly why the simple Econ 101 story doesn’t seem to work, but it clearly doesn’t which means that the supposed cost in terms of employment from seeking to raise low-wage workers’ earnings is a myth.I’ll do some individual replies when I'm less busy. This post is about the evidence.Raise the minimum wage and you will inevitably raise unemployment. That is what the simple supply and demand theory dictates. That is the assertion being made here. But the empirical data contradicts this assertion.Raise the minimum wage and prices will increase. This again is the assertion being made here. But the empirical research on this matter says that price increases due to minimum wage raises are not significant.I have suggested that increased costs due to raising the minimum wage could be accommodated by either accepting lower profits to shareholders or paying those at the top less. This has been dismissed as unrealistic. But the empirical evidence again suggests otherwise. Center For Economic And Policy Research - Why Does the Minimum Wage Have No Discernible Effect on Employment? John Schmitt Feb 2013From the introduction:

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The employment effect of the minimum wage is one of the most studied topics in all of economics. This report examines the most recent wave of this research roughly since 2000 to determine the best current estimates of the impact of increases in the minimum wage on the employment prospects of low wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.

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From the conclusion:

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Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.

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Minimum wage effect on price:

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Sara Lemos has conducted a comprehensive review of the 30 or so academic papers on the price effects of the minimum wage. She concludes: "Despite the different methodologies, data periods and data sources, most studies reviewed above found that a 10% US minimum wage increase raises food prices by no more than 4% and overall prices by no more than 0.4%"; and "the main policy recommendation deriving from such findings is that policy makers can use the minimum wage to increase the wages of the poor, without destroying too many jobs or causing too much inflation.

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Other recent research by Daniel Aaronson, Eric French, and James MacDonald on restaurant pricing, a sector with a high share of low-wage workers suggests that the price effects are likely to be lower than the upper bounds suggested by Lemos. Aaronson, French, and MacDonald "find that a 10 percent increase in the minimum wage increases prices by roughly 0.7 percent."

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Minimum wage effect of wage compression

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Employers faced with higher wage costs for their low wage workers may also seek to make up for these costs by cutting the earnings of higher wage workers. Large changes over time within the United States, as well as large differences across countries, in the relative pay of high and low wage workers suggest that employers have some scope in setting relative wages. In the specific context of a minimum wage increase, Hirsch, Kaufman, and Zelenska found that almost half of the employers they interviewed said that, in the wake of a federal minimum wage increase, they "would delay or limit pay raises/bonuses for more experienced employees. Broader studies of the U.S. economy also conclude that the minimum wage compresses the overall wage distribution. These empirical findings give some support to the possibility that employers may compensate for higher wage costs at the bottom by cutting wages of workers who nearer to the top.

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Minimum wage effect on shareholder profits

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Employers may also absorb the extra costs associated with a minimum-wage increase by accepting lower profits.

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Card and Krueger (1995) report the results of several attempts to analyze the impact of minimum wage increases on firm profits in the United States, but found only a "mixed" and "tentative" effect. More recently, Mirko Draca, Stephen Machin, and John Van Reenen analyzed British firm level data and concluded that "wages were significantly raised, and firm profitability was significantly reduced by the minimum wage introduction."

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That wouldn't qualify as a "successful strike" then would it? If you want to know the economic benefit different roles provide think of the economic effects of that labour being successfully witheld. And then I provide a numbered hypothetical example to show that raising wages in a low wage high profit situation needn't necessarily lead to the negative effects on employment being asserted.A position which the empirical evidence seems to support........

ffs. It's NOT unrealistic if the increased minimum wage is legislated for, it's unrealistic to think that an individual employer that is happy with their situation - McDonalds, Walmart etc - will do it unilaterally without being forced to.

Really?That's gotta be one of the dumbest things I've ever seen you type.

In a reply to a post that nowhere mentions the minimum wage, you talk about nothing but the minimum wage. Let's complete the discussion about your supposed link between a job's "economic benefit" and its wage before we get into other areas.--Percy

This is, to paraphrase CS, not a supportable position, and I already explained why and gave examples in Message 384.--Percy