This is the IEE:
This is his Russian analogue:
This is his little debate:
I've been seeing a lot of people calling for a hike in the minimum wage... Let me try to put this into perspective.
How increasing the minimum wage actually works in the real world…
Person A Works at a fast food restaurant for $7.40/hr
Person B Works as a website designer for $15/hr
Value of money is what matters, NOT how much you have.
McDonald's Burger = $0.99
Essentially, Person A can buy 7 burgers evenly.
Essentially, Person B can buy 15 burgers evenly.
, let’s say that minimum wage hits the suggested amount of $11/hr (at least that’s what I’ve been seeing).
Person A Works at a fast food restaurant for $11/hr (via the new minimum wage).
Person B Works as a website designer for $15/hr (his company doesn’t increase his pay because… Why? They aren’t required to.)
So, in a PERFECT world where companies don’t mind losing profits…
Essentially, Person A can now buy 11 burgers evenly.
Essentially, Person B can still buy 15 burgers evenly.
Still with me? Great.
But, this is REALITY we’re talking about here. Companies will refuse to lose money, so they will pass the costs off somewhere… That’s to the customer.
Person A’s company now has to pay their employees $3.6 more per hour. That’s an increase of ~ 48.6%.
That burger that was $0.99 now costs 48.6% more, which equals ~ $1.47
Essentially, Person A can now buy 7 burgers evenly.
Essentially, Person B can still buy 10 burgers evenly.
So, what happened?
Person A can still only by 7 burgers, BUT person B can now only buy 10 burgers… Person A lost nothing, but Person B lost 5 burgers worth for his money.
Wait, doesn’t person A have more money because they increased the minimum wage?
Sure! They have “more money”, but they money lost its value so they have the same exact buying power.
How much value was lost? Well, originally, the total the two could purchase was 22 burgers… After the minimum wage increase the total they could purchase was only 17. The dollar lost approximately 22.7% of its value by increasing the minimum wage by a mere $3.6.
So, tell me… What’s more important? How MUCH money we have, or the VALUE of the money that we have?
Please note that the price of a burger in and of itself may not go up by the exact percentage, but a mix of items will go up such as all the items in a combo meal. I just used “burger” for simplicity’s sake.
Now, imagine if you will what this would do on a grand scale... The cost of all the materials goes up to produce the burger, to transport the burgers, as well as the cost of the restaurant to pay it's people. So, in reality the increase of 48.6% is given to each level of production of the burger...
Think about it.THINKER #1:
Travis, I have enjoyed this discussion, but I have to say that your math in the hamburger example is a bit "fuzzy". Let's say that you sell 1000 hamburgers in an 8 hour shift. Let's also say that you have 5 employees working that 8 hour shift. At $3.60/hour you will incur an additional cost of $144. If you divide that $144 by the 1000 hamburgers you sell you get just over 14 cents per hamburger. Therefore you only need to raise the price of the hamburger by 14 cents to cover the additional cost incurred. Person B loses a little because he didn't get a raise, but person A benefits greatly.IEE:
So, if we’re going to split hairs on math, then you’re also not taking some things into account. At the end of my original shpeel I asked for everyone to think on the “grand scale”. But it looks like I’ll need to break it down, which is fine.
So, while I do agree that your math is more precise when you take into account hours and people, dividing out by so many hamburgers to outweigh costs, it lacks a few pieces that my flat 48% took into account that your math does not.
First: 1000 hamburgers in a single 8 hour shift of 5 employees is NOT likely. Aside from the specific McDonald’s being in New York, Los Angeles or Chicago, etc. (Via McDonalds’ themselves) There are over 34,492 McDonald’s worldwide, they sell 6.5 million burgers a day. That averages out to 188.44 burgers a day per restaurant.
So, it would take roughly 5 days to equal out to the 1000 burgers you mentioned.
So, each day the business is incurring $144 of extra expense (we’re assuming the same 5 workers, at 8 hours each). However, we all know McDonald’s runs 24 hours a day, so the math will STILL be off. I digress. So let’s just run this for a 7 day period (1 whole week) just to be fair to both sides.
Employee expense for 7 days:
8 hours *5 employees * 7 days * $7.40/hr = $2072 (current Minimum wage)
8 hours * 5 employees * 7 days * $11/hr = $3080 (suggested Minimum wage)
Difference of $1008.
7 days of 188.44 burgers a day = 1319.08
$144 / 1000 burgers a day = $0.14 (single day, which is not what McDonald’s reports.)
Burgers would cost $1.13
$1008 / 1319.08 (per week) = $0.76 (single week, based on actual numbers given by McDonalds)
Burgers would cost $1.75
So, it’s worse than what you thought, and far worse than what I thought based on your own principals.
What we (both of us) ALSO didn’t take into account: Each LEVEL of production for the burger. So, now we have to take into account the increase of costs of the meat, bun(s), packaging, shipping, ketchup, mustard and pickles, etc.
Even if you were correct at the $0.14 increase per burger at the store level, you’d now have to add expenses for each level of production below that. So, Let’s just add $0.03 per unit for each level. There are 7 levels of production that I listed, at $0.03 per unit MORE (not including whatever profits they want to make.) Let’s bump it up to $0.04 per level so they make a profit of 1 penny per unit. 7 * 4 = 28, so $0.28 more per unit just for McDonald’s to BUY the burger. So, now add that $0.28 and the $0.14 which = $0.42
0.99 + 0.48 = 1.47
1.47 = 48.6%
0.99 + 0.42 = 1.41
1.41 = 42.2%
The reality is actually closer to 76.76% increase based on the actual math with numbers from McDonald's based on your principals (not including the increase in costs from each level of producing the burger).
Your thoughts?THINKER #1:
Wow! If I own a McDonald's and sell 188 burgers a day, and I am open from 600 A.M. to 10:00 P.M. that's 12 burgers per hour, I guess I would lay off all of my employees, run the place myself and save 100% in labor costs. Oh, and I would turn out the lights and lock the doors, because I wouldn't be in business very long. Let's look at this another way. According to McDonald's, they have ~34,000 restaurants and serve 69 million customers a day. Conservatively, if each customer purchased two items, a sandwich and a beverage, that would mean 138 million items sold per day. If I divide that by 34,000 restaurants I would be selling 4,058 items per restaurant per day. If I had 10 employees working every hour that I am open(16 hours), and each of them get a $3.60/hour raise, my increase in labor costs would be $576 per day. If I divide 576 by the 4,058 items a day that I sell, I would have to raise the price of each item by 14 cents to cover the increased cost of labor. My point, Travis, is simply this: You cannot assume that a 48% increase in one of your costs will translate into a 48% increase in the price of your product. The larger your business is the easier it is to absorb an increase in costs. Your initial argument was saying that an increase in the cost of labor of 48% would translate into a 48% increase in the price of a product. Now, if other costs also go up (heat, electricity, etc.) then we have a different discussion.IEE:
That percentage translates to all levels of production in some way. My flat 48% takes that into account. Not all levels will see an increase of 48%, some will see 20% others 5% others 70%. This is for each level of production for EACH item. In your most recent argument you now added 2 more items to the equation. Your 14 cents only holds true assuming that not a single other item's cost increased which wouldn't happen. Fries would cost more, nuggets would cost more, drinks would cost more, premium sandwiches would cost more. My flat 48% takes that into account for ALL levels.THINKER #1:
I really didn't add anything to the equation. I simply stated that to offset the increased LABOR cost McDonald's would have to charge an additional 14 cents per item. That's each item sold, whether it is a burger or fries or a beverage or anything else. It's actually more accurate than just talking about burgers because Mcdonald's sells more than just burgers. I was countering your initial argument that raising employees wages by 48% would add 48% to the price of their products. You now have added the other variables at ALL levels. You are absolutely correct that other costs influence the price of a product. That was exactly my point. Labor costs alone would not cause a 48% increase in the price of a product.IEE:
Yes, because I also stated: "Now, imagine if you will what this would do on a grand scale... The cost of all the materials goes up to produce the burger, to transport the burgers, as well as the cost of the restaurant to pay it's people." Each level of production goes up, EACH LEVEL. If I had to make the argument and do the math for EACH level to prove my point to you, we'd be here for a long time... That's why we use flat percentages, because it assumes the cost is spread out evenly through all distribution and production levels. That 48% that we see on the top level is because of the top level's increased costs as well as all the other levels increased costs.THINKER #1:
You do not need to do the math at every level because, as Benjamin said, not every level will experience the same cost increase. There are way too many variables to make blanket statements about percentages. And yes, prices have gone up and will continue to go up whether Mcdonald's employees get a raise or not. I think we've beaten this horse long enough to kill it many times. Travis, I want to thank you for making me think. It's good exercise for a retired old fart like me!THINKER #2:
I didn't read all the comments, so sorry if I repeat something.. But another thing on this topic is the fact that I think you might be looking at it backwards a little. Yes, people are wanting an increase in minimum wage, and yes that will cause everything else to increase in price which would lower the value of your dollar. However the part that I never saw mentioned was the number one reason why I (personally) see a demand for minimum wage increases is to catch up to the inflation that has already set in. When min. wage was $5.15 (the majority of my younger working life, the crappy jobs), gas cost less than $2 a gallon when I got my first job (at age 14). I was somewhere around 20-22 when min. wage was increased for the first time in my working life. At the time of the increase (NOT caused by the increase) gas was somewhere around $3 a gallon. I would have used your cheeseburger comparison, but I didn't feel like looking it up. However, I'll never forget the first meal I ever bought myself with my own money I earned while working. It was at McDonalds, and it cost me just a bit over $5. I had even supersized my meal (if you remember that). That same meal, at a smaller size (because supersized no longer existed) was somewhere just under $7 at the time of the first min. wage increase. So, in fact, your dollars are losing value if you do NOT increase the wage. When you increase the wage, it slightly catches up to the former value of the dollar before it's dwindled down again over time. Thus, the cycle will continue. I wonder if my meal at McDonalds will ever cost me $45, you know, when I'm making $85/hr..IEE:
The problem with you saying we need to "catch up to inflation" is that we're ahead of inflation via Minimum Wage already. Minimum wage in 1970 was $1.60... If we use that as sort of a base (because most minimum wages prior to that were of very similar amounts) minimum wage today dictated by inflation should be: $3.75. Our current minimum wage is $7.25 federally. We are $3.5/hr above inflation... How can that be? We synthetically pushed inflation higher. We screwed up. We thought we could fix things by increasing the minimum wage, but we didn't see the effects it would have because the effects on the economy didn't matter, or the effect on the people financially. We did it to make them feel better. So we screwed ourselves in the long term so we could feel better for a few years.THINKER #1:
Travis, I thought this horse was dead, but you have sucked me back in with your math. You have said that the minimum wage factoring for inflation would be $3.75 an hour. Your calculations are way off. I'm assuming that you took the 3% average inflation rate and applied it to $1.60 giving you ~5 cents. You then multiplied 5 cents times 43 years and got $2.15. You then added the $1.60 to get the $3.75 cents per hour. The problem with your math is that the 5 cents is not a static figure. Let me give you a real world example. Let's say that your heating bill in year 1 is $1000 and rises the next year by 10%. Your bill in year 2 would be $1,100. Let's say that it increases again by 10%. Year 3 would be $1,210, not $1,200. The utility company will apply the 10% to year 2, not year 1. The same is true to calculate a projected value for the minimum wage factoring in inflation. I started in 1968, when the minimum wage was $1.60. Inflation in 1968 was 4.2%. I multiplied $1.60 by 1.042 and got $1.67. The inflation rate in 1969 was 5.5%. I multiplied $1.67 times 1.055 and got $1.76. I did the math all the way through 2013 and came up with ~$9.90 as an accurate minimum wage factoring in inflation since 1968. Most economists say it's 10 dollars and change. There is no way that minimum wage has kept up with inflation.IEE:
Other people started commenting. I couldn't just not reply that would be rude I used a flat %, what I didn't take into consideration with my flat % is the amount of inflation from 1970 to 1981. The % of inflation for those years was ALMOST the same as the next 31 years of inflation. 31 years had 95.8 points of inflation versus 94.6 for the first 11. That being said, the average rate of inflation from 1982 to 2013 is 2.9%, so I did make a mistake in my original math because I took bits of information and mixed them together incorrectly. However, from 1982 till 2013 the average was 2.9% averaged out which is what I went on. So, my bad.