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21 Feb ’12
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Thanks for the insight K, I was hoping you would chime in on this. I didn't know you had actual experience with Wendy's.
Since you're qualified to give an experienced opinion on this, I have a couple questions for you if you don't mind.
Would an increase in wages have a net positive or negative effect on your ability to employ people?
Would an increase in wages affect your ability to expand your business, or open another location?
Would an increase in wages potentially be a cause for you to raise prices, or find another way to offset those increased costs?
When you opened your business, what was the intention behind you making that substantial investment and incurring that level of risk? (I'm asking about your personal motivation for starting that business)
6 Feb ’14
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DangerDuke said
earthenstead said
As technology continues to advance and shrink in cost to implement and use it will be utilized. The trend is only related to labor and profitability indirectly. Minimum wage labor has been a relatively fixed cost out of proportion with inflation and out of proportion with profitability.-This is only partially correct. Yes, as technology advances, some jobs will be lost and replaced with new ones. if that wasn't the case we would still have lamplighters and horse drawn coach drivers. It is not only indirectly related to labor indirectly however. This current situation should be proof positive of that.
No. It's correct in it's entirety. I deconstructed the matter and expanded the scope beyond Wendy's or franchises. To be more clear, I am saying that greed is the root motive. Everything else is irrelevant and only serves to distract away from the root.
Labor cost is obvious overhead. Lots of things are overhead and costs of doing business. That's stating the obvious. That new jobs are created while others are lost as technology advances is also stating the obvious. None of these things lessen the reality that the root problem is greed.
I was saying that when the profitability of using technology instead of people is greater, businesses will switch. It becomes pure greed when net profits are already substantial and when there is no point when too much is ever enough. When hundreds or thousands or hundreds OF thousands of people must have nothing so one person can have everything, something is very wrong.
DangerDuke said
Additionally, whether or not the cost of minimum wage labor has been fixed, and has scaled with inflation is entirely irrelevant. Labor is a cost of business overhead, there's no way to explain around that.
It couldn't be more relevant. When overhead of any kind is fixed but profit margins grow exponentially, that is greed. I have no idea what you think I'm trying to "explain around". I'm cutting through the chatter and saying that the solitary relevant factor here is greed. Blaming workers who have no power and blaming stagnant wages is effectively buying into propaganda.
DangerDuke said
earthenstead said
Minimum wage labor, unskilled labor, and entry level workers are 3 distinct categories that intermingle but are still distinct. A large percentage of minimum wage workers are neither unskilled or entry level. Many are adults with bills to pay who may be working more than one job or are unable to find other work. Many entry level workers are skilled before entering workplace. Many so called unskilled workers are really displaced skilled labor.-While they may be distinct categories, I would say for the purposes of this discussion they fall squarely in the same bracket. If a worker isn't making minimum wage they're not relevant to this conversation. Here are some statistics taken directly from pew.
-About half of minimum wage earners are age 16-24. Minimum wage earners make up about 2.5% of all hourly and salary employees. About 64% of minimum wage workers are part time employees. The industry with the highest number of minimum wage workers is the restaurant food service industry (18%).
You misunderstand, and I see that I could have phrased that more clearly. They are distinct categories but I was still strictly talking about minimum wage (and in a broader sense about any wage less than a living wage, but to avoid complicating the matter I will leave that out -- at least for now). I was saying that a minimum wage worker is not necessarily entry level or unskilled. I was saying that minimum wage workers occupy a large spectrum of categories.
DangerDuke said
earthenstead said
Regardless of labor costs, some businesses succeed and others fail. Lots of variables can affect that. Sometimes it is the business owners themselves that are responsible.-This is correct. However we aren't discussing the myriad of reasons a business could succeed or fail, we're discussing the effect of wages on the cost of running a business.
No, you are talking about the impact of wage increases on the cost of doing business, and I am saying don't blame workers or wages -- that there are two aspects at the root: greed or staying in business. Food service in particular does not have as high margins and can be risky. While increased wage burdens could close a business, many variables can. All businesses entail risk. It's the side of capitalism that so-called pro-capitalists hate because it's fine when others suffer, just as long as its not them. Well wage increases are a risk of running a business. Either that business is strong and agile enough to succeed despite the wage increases or it fails and another business will succeed in it's place.
DangerDuke said
earthenstead said
The heart of this has nothing to do with wages and everything to do with net take home for owners/investors/executives. The Federal minimum wage could be halved and net profitability could be doubled, and if the overhead of technology was less than equivalent labor many workers would be replaced.-You do realize the the vast majority of Wendy's locations are franchises don't you? The investors and executives have nothing to do with this issue, as they will make the same regardless. It's the private owners who this affects. For starters, a Wendy's franchise will cost the owner between 2 million and 3.5 million just to get up and running. That's a really big investment, and a pretty beefy loan payment to make every month. On top of that, the owner owes 8% of gross sales to Wendy's annually for franchise royalty rights and advertising. On average, a fast food franchise has a profit margin of about 6% or so dependent on the location and volume. Out of that profit has to come the entire operating budget, 70% of which (on average) is the cost of labor. On top of that, there are costs of materials (food), utility costs, building and equipment maintenance, insurance costs etc. Add the loan payment (at a 2.75% interest rate over a 7 year term, that comes out to just over $39,000 that must be paid before any actual profit is made) and you're looking at a lot of risk for a pretty small margin. If you increase the biggest recurring cost of operation by doubling up on cost of labor, you literally make it impossible to turn a profit in a business like this with already slim margins.
You do realize you've frequently stated the obvious in your reply don't you? Lets refrain from adversarial phrasing shall we?
To repeat, I expanded the scope beyond just Wendy's but have kept the franchises in mind.
Before reading your complete reply, I quoted and reformatted to make it more legible for myself and have since been replying as I read. Not ideal, but it's funny to see I've effectively made points in this reply above that come the paragraph above, you already made. BTW, I appreciate the effort you've gone to in your reply to provide pew and franchise data.
DangerDuke said
earthenstead said
I’m calling bullshit.-If it's all about more profit for the greedy fatcat business owners as you are advocating, why then did the move to automation not occur long ago (since the technology has existed for quite some time now), instead of happening just before a massive hike in labor costs?
It all comes down to profitability which is not solely about a balance sheet. Until very recently touchscreens have been very clunky, very expensive, and have had limited acceptance. Simply put, a business can not and will not implement something that will cost them customers.
The technology has been too expensive to justify until recently. It needed to reach a level of penetration into both culture and ubiquitous development and support. Now that we are there the blame game has begun. The fight for increased wages is nothing new, the push has had increases before the technology was ready, now the two have converged, but it is convenient timing.
You are arguing for small businesses. I can appreciate that, but as I said earlier, capitalism is a two-way street and businesses take on risk voluntarily in pursuit of reward believing that they will prevail. Some do, and others don't. (Yes, more stating the obvious.) I took a different tack to point out the greed factor. Incidentally, as you already illustrated for me, to think of a franchise as a small business can be relative. Franchises can be costly to get into and profit margins can be small. Overhead is increased by franchise costs, but that is the decision of the owner who in return gets a turn-key business with name recognition, branding, marketing, and advertising all which must be considered before crying foul about franchise costs.
That said, owning a franchise also entails many requirements and restrictions. Many designed to increase profitability for the franchise corporations thereby reducing not only profit margins of franchise owners but limiting their business agility. The automated order machines may be optional, but while the corporations are providing another turnkey solution, they are also restricting the agility of the franchise owners by limiting the choices.
Franchise owners are not all "smaller businesses". Often they are part of a larger business portfolio which often include multiple franchises, different franchises, and different businesses. Those larger owners are better able to reduce overhead and leverage assets. While not every franchise has a large corporation behind it, most are the large corporate franchises. Where these larger companies are concerned, the greed factor absolutely can apply, and they pass the pressures to those under them be it from corporations to franchise owners or franchise owners to employees.
The fact that wages have been stagnant for so long while inflation has risen so much only proves that it is possible to run a business when wages are closer to a living wage.
15 Feb ’12
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DangerDuke said
Thanks for the insight K, I was hoping you would chime in on this. I didn't know you had actual experience with Wendy's.
Since you're qualified to give an experienced opinion on this, I have a couple questions for you if you don't mind.
Would an increase in wages have a net positive or negative effect on your ability to employ people?
Would an increase in wages affect your ability to expand your business, or open another location?
Would an increase in wages potentially be a cause for you to raise prices, or find another way to offset those increased costs?
When you opened your business, what was the intention behind you making that substantial investment and incurring that level of risk? (I'm asking about your personal motivation for starting that business)
Yeah, I worked with them before we moved to Maine
Depends on how much of an increase it is, I might have to trim a couple of positions if it is too high
Not really, bigger concern for expansion would having to provide insurance under the affordable care act, I believe the magic number is 50 employees before you are required to provide it.
I would have to raise prices significantly to offset those costs.
You can read about why and how here.
21 Feb ’12
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Ok Earthen, we're kind of all over the place here so I'm going to try and streamline this.
First off, I'm not sure what you consider "adversarial phrasing", but I'll just go ahead and use this time to give a fair trigger warning that some of the stuff you see below you might not agree with. I'm not looking to start a keyboard deathmatch with anyone so and I apologize if i came off as rude or otherwise disrespectful in my last response.
21 Feb ’12
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Now that that's out of the way, I'll address your claim that Wendy's in this particular case, as well as the assertion that other businesses will outsource jobs to technology based strictly on greed as the motivation. This is not true at all. It comes down to basic supply and demand economics. When you increase the price of something, in this case labor, demand goes down. There are many different schools of economics and they generally don't agree on much, with the exception of the laws of supply and demand. Higher prices, lower demand. Lower prices, higher demand. Businesses automate in order to save money and remain competitive in the marketplace. We've both come to the agreement that this happens organically over time, as technology improves and it has nothing to do with greed. Where you're getting off track is in this specific example, where the cost of labor to the business is being artificially increased, and automation is occurring prematurely in an effort to remain competitive. This is done because the other alternative is to raise prices, thus reducing demand for their product. You can take this to a macro level and apply it to the US manufacturing sector and see the same results. The cost of labor has gone up in the US, and manufacturing jobs have moved overseas in an effort for the businesses to remain competitive. It's very hard for a firm to hire US workers, at $15 per work hour, when they can get a worker in Taiwan, or China, or Malaysia for 15 cents an hour, work them 16 hours a day, not have to provide health care, workers comp or any other benefits, and still have their products remain competitively priced. You've made the point that it becomes greed when "net profits are substantial and there is no point that is never enough", but I would counter that profit growth, by nature is what a business is meant to accomplish. If I open a business with the intent of creating a stream of income for myself, whether I wind up having employees or not, the function of that business is to create a profit for me. That's it. It doesn't matter if that profit is five bucks a month or five million, the function of that business remains the same. On the flip side, there are many organizations out there whose intent is to help people and create jobs under 501(3)(c) non profit status. They are totally different beasts with different functions. But it's not greed for a privately or publicly owned company to seek profit growth, in fact that business has a fiduciary responsibility to the owner(s) to do so.
In regards to risk in business, I completely agree that businesses fail for many different reasons. I'm not singling out workers or wages in particular, they just happen to be at the forefront of this particular discussion. For our purposes, automation and the reduction of viable employment are coming to be due to an artificial rise in the cost of labor. This isn't the workers fault, the blame rests on the legislation its self. As for businesses failing, it's 100% true that they fail all the time. This is part of the natural business cycle in a market economy. A business makes a poor decision of one nature or another, and they are no longer able to remain competitive and return a profit to the owner. This business is then forced to liquidate assets, that capital flows back into the market by way of payments creditors (banks), and is then re-loaned out. The void in the market is either filled by an existing competitor with a more efficient business model, or by a new business starting up to obtain that share of the market. In this competitive manner, prices go down and quality goes up, because in order to remain competitive, a business must offer the highest quality product at the lowest possible price to retain their share of the market (this applies to cheaper, lower quality goods as well, because they retain a different dynamic of consumer than the higher quality, higher cost products). Artificially increasing the costs of doing business by inflating the cost of labor through legislation will cause a business to search for alternatives to save money, allowing them to keep their prices consistent, and thus, retain their market share. It has nothing to do with a business being "agile enough", seeking to retain market share by reducing operating costs in a changing environment is a natural behavior for a business.
On touchscreens, I've seen them successfully in use for over ten years now. It's not a very recent thing, as self checkout in grocers, and places like Home Depot and Lowes have been common for almost a decade. There are entire franchises based around this technology which have been around for 5, 8 or even over ten years. Fresh and Easy grocers don't even have cashiers at all. Sheetz convenience stores made to order food service has utilized touch screens for as long as I can remember and the food business is so profitable for them, that gas has become a secondary product. Additionally, your statement that "Simply put, a business can not and will not implement something that will cost them customers" is simply not true. They can, have and will behave in a manner that will cost them customers if they believe that behavior will produce more profit growth for them in the future. A great example of this is changing locations. If I have a lemonade stand on my block, and I have regular customers from my neighborhood who buy my lemonade, then great. If I decide to move my stand to a busier area, I will probably lose the regular customer base I've built, but with the higher volume of traffic near my stand, the chances that I will see profit growth are reasonably high, and probably worth the risk.
Now I do agree that the technology of touch screens has been too expensive for some businesses, Wendy's and other fast food chains in particular, to make it profitable to use. However, I will point out that it would still be more economical for these businesses to use a person for this job without the increase in wages that's right around the corner. It's that specific wage increase that is making these machines more economical than the person, and while automation was certainly on the horizon, the minimum wage bump has also certainly brought automation to bear prematurely in this particular case.
I didn't mean to seem like I was crying about franchise costs, I mentioned those simply to point out that there are considerable expenses and overhead costs involved in running an operation like a Wendy's, and to demonstrate that the greed and huge profits you've been referring to might not quite be the case.
I get your point about not considering a franchise a small business. I also totally agree that as a franchise owner you're pretty much at the whim of corporate mandate. However, the pursuit of profit that you consider to be greed, once again is actually the pursuit of growth. Wendy's as a corporation, (and many others) is a publicly traded company, and as such has a very real, fiduciary responsibility to it's shareholders to remain profitable, and produce dividends.
Finally, I'd like to take a moment to thank you for this discussion so far, as challenging, intelligent conversation from an opposing viewpoint is in short supply these days. Additionally, if you haven't already read it, there's a great book on business cycle that I really enjoyed and you might too. you can find it here, and I highly recommend this one.
4 Mar ’12
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not able to keep up with the current conversation, as it is quiet lengthy ...
but to add my .02, I will say if the 15.00 per hour passes, expect to see MOST of these fast food places to use automated robots to service their customers. Just like at the home depot, you can use the self-checkout line. YOU scan your products and YOU scan your card and YOU bag your stuff.
I've already seen fully automated fast food places popping up, in expectation of minimum wage increases.
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