Cities advance their fight against rising inequality

[Tuckerman]

Originally Posted by Crawford

Whatever you think of the moral imperitve behind such efforts, the fact is that inequality cannot be solved (and probably not even ameliorated) at the municipal level.

This is the critical point. This is essentially a national problem and it needs to be solved at the federal level. Raising the minimum wage is just a piece of the solution; there is also a need for heavier taxes on the wealthy and a more equitable distribution wages.

[Vlajos]

Originally Posted by Crawford

Whatever you think of the moral imperitve behind such efforts, the fact is that inequality cannot be solved (and probably not even ameliorated) at the municipal level.

I agree completely, I think it is a terrible idea for a city/town to even attempt to do something about this.

[10023]

Originally Posted by Eightball

Yeah, $15 is way too high. $10/$11 for urban areas is reasonable, and $8.50/$9 for rural.

Which urban areas and which rural areas? There are parts of rural New England that are more expensive than some cities in the US.

One thing that's certain is that for local (as opposed to federal) minimum wage laws to do anything to help people, they need to be kept at a level that only impacts service workers... fast food workers, janitorial staff, etc. If they started to impact the cost of factory/warehouse labor, expect those jobs to be swiftly relocated. Even retail jobs at larger "destination" stores will be affected if wage laws are municipal rather than state/regional. For example, why would Target build a store inside city limits when workers just outside city limits were $2/hour cheaper?

[mhays]

Two groups are typically ignored in these discussions: 1. people on fixed incomes, and 2. people who make more than the new minimum already.

All they get is higher rents and higher prices at stores...they're dragged down a notch or two.

[Fiat Lux]

Seattle should raise its minimum wage to $15 to finally get rid of the rest of the poor, undereducated class there. Growth management and crappy public schools have done great work at that so far. With a $15 minimum wage jobs will be filled by college graduate slackers and the under educated will be forced into the suburbs to find work.

Seattle's war on the poor is a model other cities should follow.

[Reverberation]

Originally Posted by mhays

Two groups are typically ignored in these discussions: 1. people on fixed incomes, and 2. people who make more than the new minimum already.

All they get is higher rents and higher prices at stores...they're dragged down a notch or two.

Yes, cost-push inflation is the result of continuing to raise the minimum wage. you raise the minimum wage, employment costs increase, costs of goods and services increase, minimum wage needs to be raised again.

• Video Link

[dc_denizen]

^ How can you say that when Wal mart and other companies employing lots of low wage workers are swimming in so much cash they are buying back billions in stock?

Why shouldn't that surplus go to workers and not shareholders?

[Reverberation]

Originally Posted by dc_denizen

^ How can you say that when Wal mart and other companies employing lots of low wage workers are swimming in so much cash they are buying back billions in stock?

Why shouldn't that surplus go to workers and not shareholders?

Who says that workers can't also be shareholders? Shareholders have a fundamental interest in the success or failure of the company because their own money is at risk to be lost. Wal-Mart stock is currently trading at $77.57 per share. There is no law that prohibits anyone working there from buying a share with their own money if they choose to do so.

Wage markets are almost perfectly related to the ability of an employer to duplicate the position that a given worker holds coupled with the demand for that particular skill. If you stack bread on shelves, your skill set is easily duplicated and not worth much money. If you are a lawyer with a nationally recognized expertise in the Law of the Sea, your skill set is harder to duplicate cheaply.

If your value as a cashier is $11.00 per hour, and your value as a store manager is $11.50 per hour, there is less incentive to take the harder job with more responsibility for only $20.00 more per week.

College degrees don't necessarily mean that you are smart, just that you spent an additional 2,000+ hours in class over someone who didn't go, therefore based on what the content of those classes was, your knowledge may be worth more money to an employer.

[dc_denizen]

Originally Posted by Reverberation

Who says that workers can't also be shareholders? Shareholders have a fundamental interest in the success or failure of the company because their own money is at risk to be lost. Wal-Mart stock is currently trading at $77.57 per share. There is no law that prohibits anyone working there from buying a share with their own money if they choose to do so.

If you are a worker making minimum wage, how are supposed to have saved up to amass the capital (cash) to invest in another asset (Walmart stock) with the potential for capital gains or dividends? Especially if for the last 30 years, asset owners have minimized labor costs to the greatest extent possible by paying people far less than what is required to keep up with the inflation, for basically the same job? Minimum wage jobs don't allow a lot of savings, you agree?

Wage markets are almost perfectly related to the ability of an employer to duplicate the position that a given worker holds coupled with the demand for that particular skill. If you stack bread on shelves, your skill set is easily duplicated and not worth much money. If you are a lawyer with a nationally recognized expertise in the Law of the Sea, your skill set is harder to duplicate cheaply.

We're not talking about rewarding people out of proportion to their contribution, we just need to update the ability of low skill/wage people to make ends meet to where it should be after years of decline.

If your value as a cashier is $11.00 per hour, and your value as a store manager is $11.50 per hour, there is less incentive to take the harder job with more responsibility for only $20.00 more per week.

Of course managers should be paid more, but the difference is clearly more than 50 cents as you cite, before and after a hypothetical minimum wage increase.

[10023]

Originally Posted by dc_denizen

^ How can you say that when Wal mart and other companies employing lots of low wage workers are swimming in so much cash they are buying back billions in stock?

Why shouldn't that surplus go to workers and not shareholders?

Because shareholders own the company, and they're able to find enough workers at the current offered wages.

Do you pay anyone for services (maid, gardener, babysitter)? Why don't you pay them more than you do now, despite the fact that they're willing to do the work for what they're currently being paid?

And it's not like Wal-Mart stock has been a stellar investment recently. The business isn't growing; they need to use the cash it generates to buy back stock in order to deliver acceptable returns to shareholders.

http://finance.yahoo.com/echarts?s=W...l=WMT;range=1y

[dc_denizen]

Originally Posted by 10023

Because shareholders own the company, and they're able to find enough workers at the current offered wages.

Do you pay anyone for services (maid, gardener, babysitter)? Why don't you pay them more than you do now, despite the fact that they're willing to do the work for what they're currently being paid?

Shareholders own the company and should do with their cash what they want; but government regulates the labor market and is free to increase the minimum wage if this is what voters want.

Companies are able to adjust to regulation increasing the minimum wage; one way would be by buying back less stock and paying out less in dividends to shareholders.

Any why are equity investors owed an "acceptable" return? Surely they invested knowing that they had exposed themselves to a negative return, given that they invested in stock and not secured assets like debt?

[Reverberation]

Originally Posted by dc_denizen

If you are a worker making minimum wage, how are supposed to have saved up to amass the capital (cash) to invest in another asset (Walmart stock) with the potential for capital gains or dividends? Especially if for the last 30 years, asset owners have minimized labor costs to the greatest extent possible by paying people far less than what is required to keep up with the inflation, for basically the same job? Minimum wage jobs don't allow a lot of savings, you agree?



We're not talking about rewarding people out of proportion to their contribution, we just need to update the ability of low skill/wage people to make ends meet to where it should be after years of decline.



Of course managers should be paid more, but the difference is clearly more than 50 cents as you cite, before and after a hypothetical minimum wage increase.

It sounds like you are making two assumptions;

Minimum wage isn't enough to live on. and,
Those who need to live on it are working full time.

I completely agree that every FULL TIME working person should be able to make ends meet. But is the fundamental problem the fact that they aren't paid enough or is it that living is becoming unaffordable. Ten years ago I was making minimum wage, which was $5.15 per hour. If living costs have risen so far that they have practically doubled in 10 years, that would imply serious inflation. Our government has not been honest about the inflation rate (they don't include food, gas, and energy) as it relates to households because they don't count some of the most crucial household items. If that trend plays out into the future, in ten years the minimum wage would be $20 per hour (more than what most college graduates today make starting out) and in 14 years the minimum wage earner (who would presumably still pay no taxes) would have an annual salary that would exceed that of a college student who graduated today, started at $35k, and made 3% raises every year. That is inflation and it means the cost of living spirals out of control and everyone's money/savings become worth less.

The fact that our government is proposing this should be revolting. In the short term it's worth a few low information votes, but in the long term, it translates into back door inflation which lets the government keep spending faster, squeezes out part time workers, and screws everyone who uses dollars to buy things. I know that there has always been inflation, but the rate that it is accelerating is a bit worrying.

[10023]

Originally Posted by dc_denizen

Shareholders own the company and should do with their cash what they want; but government regulates the labor market and is free to increase the minimum wage if this is what voters want.

Companies are able to adjust to regulation increasing the minimum wage; one way would be by buying back less stock and paying out less in dividends to shareholders.

No, that isn't a viable way to do it. At all.

What will happen is that they will raise prices to reflect the higher cost of providing goods and services, in order to sustain profit margins (or at least unit profitability). That means consumer inflation, i.e., higher costs of goods and services for everyone across the economy.

There is no free lunch here, which is why voters don't unanimously support an increase in the minimum wage. Every dollar that goes into a minimum wage worker's pocket is a dollar that comes out of everyone else's pocket. And even if some of that dollar does come from shareholders, and not consumers, most of us are shareholders... anyone with a 401(k) or IRA owns stocks.

The argument in favor of raising the minimum wage, of course, is that the benefit to each minimum wage worker is greater than the cost to each person that doesn't work for the minimum wage. For example, if labor represents 15% of the cost of the typical good in the US, then a 10% increase in workers' wages will result in 1.5% inflation (and obviously the minimum wage labor component of the economy is much less than that). And of course, because only a few million Americans work for the minimum wage and hundreds of millions do not, the costs are spread across many more people than the benefits accrue to. But still, there is a balance to be achieved, and debated by economists (all of whom have their own political leanings... they are not purely objective predictors of economic cause and effect, even if they could predict these effects with certainty), about 1) what level of minimum wage will achieve the optimal macroeconomic outcome; and 2) to what extent macroeconomic benefits should be sacrificed for individual gains among minimum wage workers (the "size of the pie vs. how it's divided" debate).

[10023]

Originally Posted by dc_denizen

Any why are equity investors owed an "acceptable" return? Surely they invested knowing that they had exposed themselves to a negative return, given that they invested in stock and not secured assets like debt?

Company managers and boards of directors have an obligation to do what they can to deliver an acceptable return. If not the board of directors will be voted out of their seats by the shareholders, and replaced with people who will do better. This is how corporate governance works (at least in theory). As in politics, the shareholders (like voters) have the power to "throw the bums out".

Equity investors still expect a certain return over time, in fact one that is higher than debt investors to compensate for additional volatility and risk. You might have negative returns over a given period of time, but in the long run, one expects a certain return.

If you plan to save money to invest in an IRA or 401K for your retirement, you are dependent upon this longstanding principle of capitalism.

Some suggested reading if you're interested:

http://www.amazon.com/Company-Histor...ds=the+company

http://www.amazon.com/Valuation-Meas...ation+mckinsey

http://www.amazon.com/Intelligent-In...igent+investor

[mhays]

Labor is a lot more than 15% of the cost of any product. You have to combine your own labor with your suppliers' labor and their suppliers' labor. If you're buying gravel it's their labor, the excavator equipment supply chain labor, oil company labor, taxes that support labor, and so on. Even buying a fixed asset like land still goes into a person's or company's pocket and out again.

That said, much of your supply chain can be outside the US. I support higher minimums, like $11 or $12 for my region and maybe $9 nationally, but that would push another round of offshoring.

I bet a lot more than a few million people make minimum wage, once you count the state minimums. Either way, once you include the group that makes less than the raised minimum, any major increase will capture a significant percentage.

Yes, publicly-owned companies are beholden to act in stockholder interest. Social responsibility can be both part of the company's operating strategy, maybe even spelled out in the prospectus, or a big part of their marketing strategy. Companies like Costco that pay higher wages (by retail standards) do it to attract better workers.

[Xelebes]

Originally Posted by mhays

The 20%/20% comparison doesn't make sense. If margins are 2% and a 20% wage increase adds 10% to costs (including supply chain), then prices need to go up substantially to cover it. (Like I said, I'd be ok with wages at $12, intending to compare that with the $9.32 in Washington.)

The $8.00/$10.00 comparison is a fraction of the $5.68 difference proposed here, and also at the very low end of the scale, only for the cheapest jobs. At $15.00 the effect covers a lot more jobs. Obviously the cost to employers is higher than base wage also. Suddenly the difference might outweigh the benefits of being close-in. For comparison, office space often rents for about $3.00 per hour per employee, and a $1.00 difference in office pricing is a big location factor.

Businesses live and die based on efficiency. One positive might be that the immigrant-owned mom & pop has an advantage because the wife and kids are cheap. But for any type of business, if the low-service model suddenly has a 20% price advantage, business will certainly move in that direction, and the result will be fewer jobs.

Actually, it is the opposite. This gives an advantage to the small mom-and-pops, who need to employ more due to the inefficiencies that marshalisation of an industry introduces.

Monopolisation is good if it is a product we don't care much about or we prefer a standardisation. Marshalisation (making a Marshallian district or industry) is good if we want experimentation. Monopolisation reduces jobs, but the jobs it does offer are much more stable. Marshalisation creates jobs but reduces job stability.

[dc_denizen]

Originally Posted by 10023

No, that isn't a viable way to do it. At all.

What will happen is that they will raise prices to reflect the higher cost of providing goods and services, in order to sustain profit margins (or at least unit profitability). That means consumer inflation, i.e., higher costs of goods and services for everyone across the economy.

There is no free lunch here, which is why voters don't unanimously support an increase in the minimum wage. Every dollar that goes into a minimum wage worker's pocket is a dollar that comes out of everyone else's pocket. And even if some of that dollar does come from shareholders, and not consumers, most of us are shareholders... anyone with a 401(k) or IRA owns stocks.

The argument in favor of raising the minimum wage, of course, is that the benefit to each minimum wage worker is greater than the cost to each person that doesn't work for the minimum wage. For example, if labor represents 15% of the cost of the typical good in the US, then a 10% increase in workers' wages will result in 1.5% inflation (and obviously the minimum wage labor component of the economy is much less than that). And of course, because only a few million Americans work for the minimum wage and hundreds of millions do not, the costs are spread across many more people than the benefits accrue to. But still, there is a balance to be achieved, and debated by economists (all of whom have their own political leanings... they are not purely objective predictors of economic cause and effect, even if they could predict these effects with certainty), about 1) what level of minimum wage will achieve the optimal macroeconomic outcome; and 2) to what extent macroeconomic benefits should be sacrificed for individual gains among minimum wage workers (the "size of the pie vs. how it's divided" debate).

Inflation will not occur if all we are doing is redistributing corporate profits (through minimum wage increases) that are currently accruing to shareholders in a monopolistic economic system. Between people that have capital, and those than don't.

Russia, Turkey, and China presents an interesting take on what happens in the extreme, eg when profits are almost entirely to a class of oligarchs. What you're seeing with these countries is inflation of the goods these people consume - witness the $37 MM cup sold to some Chinese collector, or $90 MM spent on a NYU student's apartment by Oleg Deripaska or whoever it was. The American oligarch's similarly will invest their surplus in inflated-priced goods like Mercedes S-Class sedans et cetera, or in overseas investments will no benefit to American workers. Look at the various commodity, equity, and real estate booms around the world for future evidence of this type of asset-class inflation run rampant.

I think we agree that (as you state in your their paragraph) a cost-benefit or social welfare analysis should reveal how the spoils of technological progress should be be allocated to labor and capital. I'm merely saying that said analysis is likely to argue for more wage increases and reduction in corporate profits.

[dc_denizen]

Originally Posted by 10023

Company managers and boards of directors have an obligation to do what they can to deliver an acceptable return. If not the board of directors will be voted out of their seats by the shareholders, and replaced with people who will do better. This is how corporate governance works (at least in theory). As in politics, the shareholders (like voters) have the power to "throw the bums out".

Equity investors still expect a certain return over time, in fact one that is higher than debt investors to compensate for additional volatility and risk. You might have negative returns over a given period of time, but in the long run, one expects a certain return.

If you plan to save money to invest in an IRA or 401K for your retirement, you are dependent upon this longstanding principle of capitalism.

Some suggested reading if you're interested:

http://www.amazon.com/Company-Histor...ds=the+company

http://www.amazon.com/Valuation-Meas...ation+mckinsey

http://www.amazon.com/Intelligent-In...igent+investor

First, thank you for the links.

Certainly, the average equity investor would like to see a return on capital over the long term. However, the presence of a board cannot guarantee this occurs.

Look at utilities - the boards and management might want to maximize shareholder return by increasing rates, but they are prevented by a regulatory system that limits ROE's to 10-14%. Yet plenty of investors seem content to invest in utility stocks. Government limitations on investment returns and ROE don't make the utility sector socialism, it's just regulated capitalism. I'm proposing something similar for other sectors (eg big box retail, services, etc etc).

"Acceptable" return is really a social convention. Treasury investors are now making 3% compared to 5% 10 years ago. Same for most debt classes. Yet boards and managers want to extract the greatest possible, 10-20-30% ROE's from their businesses. 50 years ago, managers pursued much more modest returns, 10-20%, maybe it would be good if this convention was reestablished. I might feel it in my 401k, but inequality would be lessened and the great, socially destabilizing concentrations of wealth would be reduced.

Also, fundamentally we wouldn't be having this discussion if our corporate sector was more competitive. We have huge monopolies and duopolies, leading corporations to accumulate profits that should be competed away. With profits this high, Prices should really be falling, as new entrants enter the market. But this isn't really happening unfortunately.

[10023]

Originally Posted by mhays

Labor is a lot more than 15% of the cost of any product. You have to combine your own labor with your suppliers' labor and their suppliers' labor. If you're buying gravel it's their labor, the excavator equipment supply chain labor, oil company labor, taxes that support labor, and so on. Even buying a fixed asset like land still goes into a person's or company's pocket and out again.

That said, much of your supply chain can be outside the US. I support higher minimums, like $11 or $12 for my region and maybe $9 nationally, but that would push another round of offshoring.

I bet a lot more than a few million people make minimum wage, once you count the state minimums. Either way, once you include the group that makes less than the raised minimum, any major increase will capture a significant percentage.

Yes, publicly-owned companies are beholden to act in stockholder interest. Social responsibility can be both part of the company's operating strategy, maybe even spelled out in the prospectus, or a big part of their marketing strategy. Companies like Costco that pay higher wages (by retail standards) do it to attract better workers.

That depends on how you define labor and what you mean by product cost. Wages now represent 42% of US GDP, but that includes salaried workers and others that represent "fixed costs" for companies, and GDP includes more than consumer goods.

In terms of labor as a percentage of the cost of products... it's difficult to calculate the percentage of product cost represented by labor across the economy, but here are some examples:
1. 8.4% of the cost of the average US automobile, per the UAW*
2. 4% of the cost of an iPhone 5S (and perhaps 6% if it was built in the US)
3. For foodservice it's obviously higher, but still only ~25% for fast food and 30-35% for sit down restaurants

I get what you're saying about the labor component of cost at each step in the value chain, but I have a hard time seeing labor as more than 15-20% overall. Certainly not if we're talking about the % increase in the overall cost to produce a unit relative to the % increases in wages to labor (which is about marginal cost).

Additionally, remember that direct wages to the employee are only part of the cost of labor. According to the BLS, it's about 2/3 of the total cost of an employee (the rest are various benefits, unemployment insurance contributions, etc): http://www.bls.gov/ro7/ro7ecec.htm

As for how many people work for minimum wage - the BLS estimates that 3.3 million workers had wages at or below the federal minimum wage in 2013: http://www.bls.gov/cps/minwage2013.pdf

I understand that there are also people earning various (higher) state minimums. I haven't been able to find easily accessible data on that, but I think my point stands whether it's 3 million people or 6 million people. There are many times as many people who would not benefit from an increase in minimum wage than there are people who would.

Lastly as I've noted earlier in the thread, it's generally not minimum wage jobs that are offshored. Most minimum wage workers are in retail, and you can't offshore fast food preparation jobs or floor staff at a grocery store.


* This MIT study from 2000 says 13%, but that includes "other manufacturing costs": http://msl1.mit.edu/classes/esd123/vyas.pdf


Sources:
1. http://www.uaw.org/page/wages-and-labor-costs
2. http://www.forbes.com/sites/timworst...m-4-2-billion/
3. http://smallbusiness.chron.com/commo...ges-14700.html

[10023]

dc_denizen,

Utility stocks offer lower expected returns than others because they're essentially bonds. Very low risk because it's a regulated industry. That has no relevance whatsoever to other companies.

And business is global, so companies can't simply choose to be uncompetitive for the sake of social good. They'll fall behind foreign competitors in terms of access to capital, and then in their ability to produce products and services that consumers want. Or they'll just be taken over by foreign competitors.

Originally Posted by dc_denizen

Inflation will not occur if all we are doing is redistributing corporate profits (through minimum wage increases) that are currently accruing to shareholders in a monopolistic economic system. Between people that have capital, and those than don't.

In the above paragraph, you have made prediction, followed by the word "if" to indicate that this prediction is predicated upon a certain set of facts and circumstances.

My point is that the set of facts and circumstances that follow is quite simply not what will happen. There is just no way whatsoever that an increase in labor costs will come predominantly from shareholders' pockets rather than consumers'.


So yes, I agree that there is a cost-benefit analysis and a debate to be had around society's objectives, in terms of whether we want to shift economic benefits from the majority of non-minimum wage workers to the minority of minimum wage workers. But let's at least agree that this is the debate. This whole "raise the minimum wage and make companies buy back less stock and lower returns to shareholders" idea is a fantasy.