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0 pointsforgingahead12y ago0 comments

The general principle is that an employee has to cost less than the money they bring in. The best HN-related example is that if you work for a software development firm, and if they bill you out to clients at $100 an hour, your total cost to them (your hourly wage + taxes + healthcare + benefits + extra) has to be less than $100.

To properly phrase your example, yes it is depend on "work", but work is dependent on revenue. If McDs needs 10 employees per shift where they generate $800, each employees total cost per shift cannot be more than $80, which works out to about $10 CTC (cost-to-company) per hour in an 8-hour shift.

If you now mandate that the worker salary MUST be $12 or higher than $12, McDs is losing money. So you either pray for an increase in business (sales), or cut costs (ie, fire people) and automate.

And lower-skilled jobs are easier to automate. It's easier to automate fast-food checkout by having (for example) iPads for people to place their orders, so your human workforce can just be the cooks at the back and the janitorial staff.

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johnsonman12y ago

If you now mandate that the worker salary MUST be $12 or higher than $12, McDs is losing money. So you either pray for an increase in business (sales), or cut costs (ie, fire people) and automate.

Or you increase prices. Or a combination of the three.

sethammons12y ago

You increase prices, yes. You might trim the workforce too. But so does every other business that has a large contingent of low skill, low pay labor. This means that most things that are "made on the cheap" become more expensive. So now, the cost of living goes up for everyone who consumes from that pool of resources. This squeezes middle income families and hurts lower income families. Does the cost of living for which a minimum wage worker rise higher than the wage? I don't know. But with a higher cost of living and potentially greater unemployment, I'm not sure that raising minimum wage is a win.

I'm not aware of all the complex reason for why the following is the case, but my brother's mom (I know how odd that may sound) was able to rent an apartment when she was 18 working in fast food without tips. There is _no way in h-e-double-hockey-sticks_ that that could happen anywhere in America today. I'm not convinced that raising minimum wage is the solution -- it could be part of the problem. Models of human behavior and economics can get tricky and counter-intuitive. It is a hard nut to crack; I'll just stick to writing software. Now, if someone wants to pay me to make and become familiar with those models....

phamilton12y ago

Additionally, the floor on wages affects the floor on hirable skillset. Employee A is someone who understands how to work effectively and can handle 40 clients per hour. Employee B is someone who can only handle 20 clients per hour. In this example, the only reason to hire Employee B is if you can pay them half as much as you pay Employee A. If you pay Employee A $15/hour and you pay Employee B $7.5/hour, then all is well. However, if you have to start paying Employee B $10/hour, then you are better off hiring someone who can handle 27 clients an hour and paying them $10/hour.

This is a simplistic example and assumes unlimited supply of labor, but it illustrates the point.

The result is that the unskilled end of the spectrum are too expensive in relation to their productivity. These are the ones who end up unemployed.

I am not an economist, but that is how I understand it.

jurassic12y ago

> The general principle is that an employee has to cost less than the money they bring in.

That's not strictly true. If you have two programmers, one produces $80 in value per hour and the other only $40 in value per hour you can still afford to pay both $60/hr each. This happens all the time because worker productivity is uneven and some jobs are more important/impactful than others. The requirement that revenue exceed costs is only true in aggregate, so the effect of increasing low-wage employee cost is to reduce profits.

alexqgb12y ago

This is really bad analysis, not least of all because it excludes the glaringly obvious option of simply accepting tighter margins of profit and lower executive-level pay.

If you want an intelligent, fair-minded, and properly-researched account of economics at McDonald's see here:

http://www.bloomberg.com/news/2012-12-12/mcdonald-s-8-25-man...

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