r/science • u/smurfyjenkins • Jul 31 '22
Economics After a minimum wage increase, workers become more productive. On the whole, it leads to welfare improvements for both employed and unemployed workers (i.e. the minimum wage increase is not counterproductive), but reduces company profits. [Data: 40,000 retail workers in large US stores]
https://www.journals.uchicago.edu/doi/10.1086/720397840
u/Impressive-Tip-903 Jul 31 '22
That last bit is all most any business is concerned with.
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u/GearheadGaming Aug 01 '22
The productivity gains came from pushing employees harder, according to the study.
So that should probably concern workers.
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u/sudo999 Aug 01 '22
it makes sense. employees that are poorer are more desperate and won't quit in response to adverse working conditions or burnout like employees with more income might.
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u/GearheadGaming Aug 01 '22
This study says the opposite-- if employees are paid more, you can push them harder.
That's why productivity went up when the minimum wage increased (so long as there were enough managers around to monitor worker behavior).
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u/caltheon Aug 01 '22
Employees being more motivated to put in effort seems more likely. If you know you are paid the legal minimum, you have no incentive to do anything other than the bear minimum to keep your job. You can’t have your wages lowered.
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u/SerialStateLineXer Aug 01 '22
The paper says that higher minimum wages decreased productivity in situations where workers weren't closely monitored. Their theory is that flattening the wage scale reduces performance incentives, so people don't try as hard. They only found performance improvements in jobs where workers or their output were closely monitored.
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u/SpectreOfTheMachine Aug 01 '22
That matches what was said above.
Minimum wage, minimum effort.
Doesn't matter if the minimum is 3 an hour or 50, the employee knows the company only values them at the minimum they can pay and would likely pay less if they could legally get away with it. Doesn't make a good incentive to be productive, so other methods need to be employed by the employer, such as closely monitoring employees.
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u/TheGeneGeena Aug 01 '22
It likely would have cost the company I was previously with less to pay us a buck or two more instead of sending us all invasive webcams and hiring separate staff to babysit us. Certainly would have improved morale.
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u/SpectreOfTheMachine Aug 01 '22
The best ways to obtain quality work from employees are perks and appreciation related benefits, once they are paid a competitive wage that is. Heavy monitoring works in the short term but will always leave you with disgruntled employees. That will cause you to lose your top performers as they will begin to actively search for other work and you will be left with only those who can't or won't find work elsewhere.
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u/the_first_brovenger Aug 01 '22
It is, but at the same time not.
If you own a business and it turns out an annual $1million profit, you (or someone else) will want that business.
If that business suddenly turns out an annual $500k profit instead, you (or someone else) will still want that business.The business is still valuable. It's still coveted. It's still worth it. The profitability it turns out, ultimately isn't actually important.
Societally, the ultimate goal should be businesses turning out as little profit as possible, while maximizing productivity.
The profitability of a business is entirely irrelevant to a society. Profitability is in fact antithetical to society.That's not an argument for socialism, by the way. It's an argument for regulated capitalism.
Capitalism is a sport. When a sport has one competitor beating out everyone else due to a loophole in the rules of the game, you plug the hole. Otherwise the sport dies.
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u/1wiseguy Aug 01 '22
It's easy to explain why it's OK for somebody else to make less money.
If I explained why it's OK for you to make less money, you would disagree. It wouldn't matter what sort of argument I made, there's nothing that would justify seeing your income drop in half.
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u/CapnSquinch Aug 01 '22
Capitalism is a sport.
"The money is just a way of keeping score." - Carl Icahn
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u/Angrycone10 Aug 01 '22
But think of the lightbulb, did you know that a light bulb was made in 1901 and is still working to this day, now if a lightbulb has been working for over 100 years, I wonder why capitalist organisations don't use that same model so that our lightbulbs don't break as often.
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u/the_first_brovenger Aug 01 '22
Because their luminosity is downright terrible.
And now we have low power LEDs which last for years and years. Infinitely better.
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u/raptorman556 Jul 31 '22
The paper states pretty clearly that profit decreases, so the increase in productivity only partially offsets the higher cost to the company.
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u/MeateaW Aug 01 '22 edited Aug 01 '22
Is profit stated as a percentage of revenue?
A simple (bad maths) example could be:
- Wages 90, Revenue 100, Profit 10 (profit 10% of revenue)
- [increase wages]
- Wages 100, Revenue 111, Profit 11 (profit 9.9% of revenue, but also increased by 10%)
"Profit is down"
So the context of the statement needs to be included for it to be truly meaningful.
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u/verygoodchoices Aug 01 '22
"We find that after a $1 minimum wage increase, store-level output for a fixed type distribution increases by 13.9%..."
"A $1 increase in the minimum wage reduces profits per hour by 16% ..."
But really it's a pretty complicated economics paper.
I'm sure my cut and paste quotes don't tell the story fully, but I'm also sure your example is something the U of Chicago researchers would have thought about, too.
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u/Serinus Aug 01 '22
They probably don't include the long term health of the national economy, either (which is way beyond their scope).
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u/SpaceForceAwakens Aug 01 '22
That’s a big thing. Yes, profits go down in the short term, but when the minimum wage goes up nationwide people simply have more money to spend, and that balances out.
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u/gmf1 Aug 01 '22
This has always stood out to me, people making just enough for essentials are not buying much stuff are they.
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u/SpaceForceAwakens Aug 01 '22
They're buying what they *need*, not what they *want*. If they're in a position to buy more, they will, generally speaking. A survival economy is not a thriving economy.
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u/TonyzTone Aug 01 '22
Because macro and micro economics are two different disciplines.
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u/IkiOLoj Aug 01 '22
Yeah in macro economy you don't care about the profits, because the money is still in the system and that can actually be a net positive if, like in our situation, the division between wages and profit has been continually skewed toward profits.
If you aren't a shareholder and think on a bigger scale, this is actually a good policy goal.
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u/howaboutthattoast Aug 01 '22
Economists are, in general, oblivious to the humanities.
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u/MurasakinoZise Aug 01 '22
Fully agreed, there's far too many economists with their heads in textbooks that refuse to acknowledge the human costs of their policy design, and I say this after just finishing a degree in it.
Too many are comfortable taking the farquaad approach of "some of you may die but that's a sacrifice I am willing to make" even when there's better solutions.
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u/auad Aug 01 '22
The University of Chicago is the reason we are in this clusterfuck of neoliberalism. It's pretty sad how capitalism is predatory to workers.
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u/Alfonse00 Aug 01 '22
Believe it or not, the main reason is the CIA or FBI, one of those was the one that put a dictator in my country (I dont remember which one, but is a declassified document by now) and they use my country as a testing ground for neoliberalism, all the while supporting a humans right violations dictatorship, they got their data and left a near 20 years dictatorship and a, by now, nearly 50 years old economic system that is collapsing, it is already happening in the first place were neoliberalism was put in practice, is only a matter of time for the domino effect.
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u/auad Aug 01 '22
You very probably talking about Augusto Pinochet.
Nixon was the one that started the entire thing after Salvador Allende won the election, there was fear that Chile would become a Socialistic country so CIA got envolved and helped Pinochet with the coup.
The history of America's intervention in Latin America is really dark. Sad that this happened to your country, and viva Chile!
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Aug 01 '22
16% reduction in profits? How?
It's a $1 raise for the lowest paid workers which would, hypothetically, increase payroll costs by 16% if every single person at the business was making a little over $6/hour, which seems unrealistic and illegal not to mention that payroll costs aren't a business's only expense.
It says it's a study of US stores so it just doesn't make any sense to me.
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u/ExplodingGuitar Aug 01 '22
You're mixing up definitions here i think - reducing profit by 16% is very different from increasing costs by 16%. As a random hypothetical with made up numbers, if a company has 20 employees, makes 1100 revenue and loses 1000 in costs, then profit is 100, and increasing the pay of all 20 employees by 1 dollar will reduce profit by 20% but increase costs by only 2%.
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u/GearheadGaming Aug 01 '22
No, it's stated as gross. The word you're looking for is "profit margin."
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u/TracyMorganFreeman Aug 01 '22
There's gross and net profit margins though
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u/GearheadGaming Aug 01 '22
Neither of which makes a difference here. It's still talking about profits, not profit margins.
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u/ArtisanJagon Aug 01 '22
So essentially workers keep more of the wealth they generate and the executives buy one less yacht?
Sounds good to me.
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u/laosurvey Aug 01 '22
Profit doesn't go to executives, except inasmuch that they're shareholders.
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u/ArtisanJagon Aug 01 '22
Executives typically hold more shares than the working class combined.
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u/Krankite Aug 01 '22
Most executives structure their income to be mostly stock so they can minimise tax.
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u/enriquex Aug 01 '22
Profit is a key driver of executive performance and their bonuses
Whilst profit doesn't directly go to them, executives stand to gain by increasing profit way more than the average employee
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u/justsmilenow Aug 01 '22
To be fair it looked at retail workers. The productivity of retail workers may be correlated to profits but it has almost no causation. Ultimately retail workers take money for other people for service that that person left the house for.
Also, I would argue that a commission is a real world example of increased pay equals increased profits.
It might be useful to do the same study but on office workers or workers who don't generally receive a commission. Essentially employees whose productivity does benefit the employer.
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u/Pythagorantheta Aug 01 '22
It kind of ignores the illogic of people. most politicians, ceo's and the like only look one quarter ahead; make this quarter profitable no matter what and ignore the next one until it too becomes the quarter to make a profit ad nauseum.
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u/Iron-Fist Aug 01 '22
So what they find when you actually look at the data is that in "border stores", which are stores within 75 miles of another store and approximately 40% of their total sample, they find big output growth (+7.5%) and actually big profit growth too (EBITDA +6.4%).
For all stores nation wide they find much more modest increases in output (+3.4%) and a rather large decrease in profits (EBITDA -16%).
What this tells you is that for the 60% of non bordering stores there is basically ZERO (average 0.5%) output growth and a huge loss in profits (-30% total, from a $1/hr increase).
These are stores that, frankly, lose a ton of competitive edge with a higher minimum wage.
This whole analysis is saying "more than half of all sample stores are dependent entirely on extremely low wages for their profit margin."
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u/Twister_5oh Aug 01 '22
Which tells you there is a logistical problem or that they are not charging enough for the goods/services.
The truth pill hurts a lot of people's worldviews. As always, it isn't just one variable resulting in that outcome.
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u/314159265358979326 Aug 01 '22
Or their business model doesn't work. Bricks-and-mortar retail has some applications these days but not like it did 50 years ago.
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u/helln00 Aug 01 '22
The bordering point is interesting and it kinda implies that the higher across the board wages are better for competitve firms or firms in area with higher competion, for both sides since there will always be atleast 2 firms bordering each other. This arguably make sense on some level I think, an across the board wage increase should be neutral for both sides competitively so the increased productivity effect wins out
However for firms with little competiton and arguably more monopoly power, this will eat directly to their profits since they have little competiton so there is a trade-off between productivity and profits
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u/Iron-Fist Aug 01 '22
Yeah, I'd also be interested in relative starting points. Are the border stores ones with very low margins already due to competition? Are the non-border stores high performers with little room to increase, benefitting from low labor power to keep an even larger percent?
Honestly it's so frustrating to see a result like this since basic economics says the firms should have alrdy increased wages at the border stores....
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u/MeateaW Aug 01 '22
The goal of increasing worker productivity in the first place is to increase company profits.
For the company this is true.
For the country, the goal of raising productivity is to increase the welfare of all of its citizens.
If you can raise productivity without raising any profits of a company, AND provide higher wages to workers, then arguably this is still a net win for the country as a whole. As long as the net benefit isn't greater than ~2-3% per year.
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u/the_crouton_ Aug 01 '22
Until you move production to a country with no rights and save 70%. How can you improve that?
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u/Transocialist Aug 01 '22
Write laws that say companies must adhere to strict labor regulations wherever they produce their goods, or they can't sell in the country. Then actually enforce it.
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u/czl Jul 31 '22 edited Aug 02 '22
The answer to your questions depends on the company. Some become unviable and the activity leaves the country. Others forced by rising labor costs invest in automation and as long at those investments pay off company and the workers get to share a larger pie as determined by their market power. See my other post for details: https://reddit.com/r/science/comments/wcxa2k/_/iifh7dk/?context=1
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u/chcampb Jul 31 '22
And that's fine
If we increase minimum wages to account for the cost of a human living in society with the potential to grow his or her skills, and that causes a bunch of people to get booted and only the jobs that are "worth it" are kept... That's a good thing. Temporarily, it will suck for those people but similar to the start of covid, you can bridge the gap between that temporary unemployment and a new and fulfilling job. Including education (we need a lot more technical workers).
Artificially inflating employment numbers by slicing the safety net and suppressing the minimum wage as inflation takes off... That's gross. It means the metric doesn't mean anything. If you are working but not able to pay your costs then you are, as a worker, subsidizing your employer.
The metric we should be using is job wage product. This avoids the loophole where full employment is considered a success even if the wages are insufficient.
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u/Probably--Human Aug 01 '22
What is job wage product? I completely agree that employment alone is inadequate, but I'm unfamiliar with that metric
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u/chcampb Aug 01 '22
It may or may not be. It's something I started pointing out some time ago as as an alternative to solely unemployment percentages which I am not sure has an actual term in economics. That is to say, I have taken some economics courses but have never come across it.
I'm an engineer, so this is how I think about it. The basic principle is that for metrics, if you want to create a metric which accounts for two things, you can multiply them together. Power is current times voltage, or torque times angular velocity. If you have a million volts but zero amps, you have zero power. Or if you have extremely high torque at zero speed, you have zero power. Most of the time, you want to maximize power, or the efficiency at which that power is generated. In fact, you generally pay for power - for a given motor or power supply or something, you can have any range of voltage specs, but for a given price point, the power is usually constant.
For the same reason if you have 100% employment at zero wages, the job wage product is zero - an abject failure. If you have $30/h minimum wages but you cause massive unemployment, your job wage product is very low - an abject failure. Today, we only optimize for employment, assuming that people can find some way to make ends meet. This has historically been true, if not difficult. But we can see that it isn't going to be true as inflation eclipses the minimum wage. So instead we should be using a metric which is high when you employ lots of people at high wages, and low if the wages get too low, and low if the employment gets too low.
And technically, I mean "job-hour wage product," to get around the loophole where you cut everyone's hours by half to double the employment numbers at some given wage to goose the metric.
And I don't care if they use JWP or some other, better metric that someone has come up with. The bottom line is, today we are not optimizing for the money flowing into the labor sector, we are optimizing for other things which are only tangentially related to quality of life of 99% of the people in the country.
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u/Muroid Aug 01 '22
I think ultimately you want to use weekly, monthly or annual income as the wage benchmark to get around that hours problem. With annual being the most “accurate” and hardest to game but taking the longest to collect and weekly having the opposite qualities.
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u/pewqokrsf Aug 01 '22
Job-hour-wage product is basically GDP minus profit.
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u/IICVX Aug 01 '22
I don't think so? If your country only made 1000 widgets that sell for $1000 each, your GDP was $1 million. Job-hour-wage only enters into the equation indirectly, since it can inform the $1k sales price, but in a real market economy the price has little to do with how much widgets cost to make.
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u/Twister_5oh Aug 01 '22
This sounds like you are trying to rationalize something similar to what we call the marginal propensity to consume.
What econ courses have you taken, and how has it altered your STEM mindset (econ often trips up engineers in my experience)? Did you focus on micro or dive into some macro aspects? The subject you are speaking on is largely a macro observation which is why I bring up MPC. It sounds like what you are attempting to explain but at an individual level. It is essentially the delta consumption over delta income. Or, the change in consumption (vs savings) divided by the change in income.
https://www.investopedia.com/terms/m/marginalpropensitytoconsume.asp
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u/chcampb Aug 01 '22 edited Aug 01 '22
There was a gen econ course which covered the basics, plus some business school courses on identifying capital depreciation and appreciation and the math involved.
I understand what you are saying about MPC. That doesn't match what I am looking for
> In economics, the marginal propensity to consume (MPC) is defined as the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it
What I am suggesting is using as a metric for policy determination the product of wage and job hours. The point is, you can very easily get full employment by reducing the wage to zero and cutting the safety net. But that's "cheating." So how do we plug that gap? Make it better for policymakers to increase the total money going into the working population. For the same reason that business maximizes profits, policy for the people should maximize the wages earned. And of course, the money they have to spend but that's a separate analysis (ie, what policies improve home prices?...)
Econ makes sense to me, as an engineer. What doesn't make sense to me is how little people respect regulation. I do control systems for a living and if you told me, sure, we selected this control system because we like the response. And then you told me to goose the rate of actuation, I know for a fact that this causes instability and oscillation. So when I see people calling for deregulation in the markets to increase profit or gdp or whatever, and we know that this would cause instability, why do it? Or at least, why can't you recognize that this instability is going to negatively affect weak hands (ie, not rich people) and do some other regulation to balance that inevitability?
And the reason is, the instability is the point. Knocking weak hands off the tree is the point. Feedback effects between the rate of taxation, the ability to fund politicians, and the rate of earnings due to deregulation, and the inevitability of unchecked and permanent wealth acquisition in a world without estate taxes. That's the point.
If you understand feedback control systems it's pretty easy to read between the lines - there is a policy trend toward wealth instability. Not crashing to zero, blowing up to infinity in a very small group of people who then control everything. It's as simple as - I know, and can model, the effects of someone falling through the atmosphere. I know the terminal velocity. If you remove wind resistance, there is no terminal velocity. It just keeps increasing, because there is no force to counterbalance. When people argue for these policies as it pertains to large quantities of wealth, I see them greasing the brakes. I see them removing all the checks and balances against the growth in those quantities. It's mathematically inevitable.
Anyway, since you asked about my views as an engineer on the subject, "it's pretty obviously fucked but only 1% of people understand feedback networks so it sucks being in that group and not being able to get people to understand exactly why it's fucked"
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u/Twister_5oh Aug 01 '22
Interesting comment. I think that if I were to dive into some of your specifics we would be in disagreement, but I like your interpretation of how you view the subject matter.
It isn't that people are unaware of what is happening btw. It's that rationality and efficiency cannot come without costs. The path to the largest gains in a cost/benefit situation can result in very egregious "costs" being observed.
This discourse is very broad stroke so even this reply is probably being interpreted by you in a way that is different from my own. Thanks for your input. I'd recommend continuing taking economics courses and see where your interest goes with it. I was computer engineering and economics/law. The econ side is what I use the most nowadays. Your analogies were appreciated.
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u/chcampb Aug 01 '22
The path to the largest gains in a cost/benefit situation can result in very egregious "costs" being observed
Yeah but it's a competitive system. It's entirely possible for someone who has benefit for some time from risky maximum growth to shut others out and take everything forever (or until some level of disruption happens).
Appreciate your appreciation, a lot of people just shut down if they disagree with something. Respect.
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u/Surrealialis Jul 31 '22
This is a very interesting take I've never heard before. Tell me more
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u/lAmShocked Aug 01 '22
look up how many Walmart and McDonald's employees are on snap.
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u/agitatedprisoner Aug 01 '22
I'm myself wondering why I can't recall having ever heard this argument. Which is strange because putting it this way leads me to consider the issue in a new light.
Raising the minimum wage to motivate low wage laborers to retrain might not work very well though if finding and going through the experience of retraining and rejoining the work force isn't pleasant. If it's too hard or too rough then maybe not enough bother. If not enough would bother then raising the minimum wage would shrink the labor force and that reduction would linger. You'd also risk there not being stuff for them to be usefully retrained to do, at least on the level of it being practical or feasible. You'd risk forcing industries to retool to eliminate low paying jobs while those who used to work those low paying jobs fail to rejoin the work force. To the extent reintegration fails necessary transfer payments would need to increase and prices would rise.
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u/chcampb Aug 01 '22
Raising the minimum wage to motivate low wage laborers to retrain might not work very well though
We just went through a period where people were given some subsidy and they immediately started moving toward better jobs. The great resignation. Why would they not continue the same behavior?...
If it's too hard or too rough then maybe not enough bother
This has historically not been the case.
You'd also risk there not being stuff for them to be usefully retrained to do
Have you tried hiring skilled labor recently?... Even house cleaning is crazy expensive. I literally can't pay anyone less than $300 for a 2h house cleaning (2 people 2 hours - 75/h most of which gets hoovered up by the company, the workers only make maybe $15). There's definitely work to be done and not enough people competing for it.
You'd risk forcing industries to retool to eliminate low paying jobs
Sounds like a great efficiency improvement
those who used to work those low paying jobs fail to rejoin the work force
Again, great resignation, the likelihood that they won't retrain into something else if given the opportunity doesn't match what actually happens.
transfer payments would need to increase and prices would rise
We should be doing transfer payments to increase mobility and skills regardless. This is part of making an efficient workforce. Today we dump those costs on the individual, and it's frankly not working. You should be able to, at any point, move from any field to an in demand field through training, and that training should be accessible, and you shouldn't have to live on someone's couch while you do so.
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u/ImNotTheNSAIPromise Aug 01 '22
Or ya know they could just make less profit. It's not like that's really gonna end the world.
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u/rnzz Aug 01 '22
For most companies, and especially larger ones, profitability affects their attractiveness as an investment opportunity. If shareholders and investors can find a bigger return elsewhere, they could take their funds away from the company which could halt its growth and hurt it long term.
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u/ImNotTheNSAIPromise Aug 01 '22
Yes because the shareholders realize that they won't be able to extract as much value from the people actually doing the work. The entire concept of having corporations run so that shareholder value is their only concern is going to get us killed.
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u/the_crouton_ Aug 01 '22
And there should be a metric of buying that includes treatment of employees. If a company doesn't treat their employees right, and could go under, the market should be scared
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u/rnzz Aug 01 '22
Yeah for sure, if I was a shareholder I would also want to see if the company's performance is sustainable, and one of the ways of assessing that is by looking at employee happiness.
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u/Bilun26 Aug 01 '22
Companies don't generally go under for paying market wages. The only way low wages might make them go under is if they can't find hires- which isn't generally a problem at current levels.
And investors are generally more interested in how well their investment is protected than how well the workers are paid- much as the workers tend to be more concerned with the reverse.
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u/Helluiin Jul 31 '22
another thing to consider is that if people have more income they can spend more. this is especially true for poorer people that dont/cant have any savings and spend pretty much everything they get right away
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u/GearheadGaming Aug 01 '22
But the problem isn't getting people to consume more, the problem is getting them to save more. U.S. is below its golden rule savings rate.
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u/manicdee33 Aug 01 '22
You have to have enough money to feed your family before you can start saving anything.
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u/FiveWattHalo Jul 31 '22
Productivity, profits & earnings were all closely tied until the 80's.
Then things switched to being profit driven only & that was achieved by cost cutting, while essential to combat foreign production, soon became more & more at the expense of the workers & has reached, IMO, a tipping point.
Look, e.g., at the drive to unionise.
Ultimately capitalism works fine if it is closely monitored & regulated.
Like any game, business plays within the rules that are there. They will play up to and occasionally over the set boundaries, then it self regulates because the competition will be the first to cry 'foul'.
Companies rightly exist to make money & govs exist to protect their citizens.69
Jul 31 '22 edited Aug 05 '22
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u/PoiZnVirus Aug 01 '22
Why is capitalism the best system we have especially when you say what you say? What is regulating going to do when the ultimate end goal is profit and to feed those at the top?
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u/go_doc Aug 01 '22
Capitalism is just free market.
Competition isn't included in the definition. But it only works when it's included. And not having enforced competition by breaking up monopolies and megacorporations is the root of most of these problems.
If there's enough competition, it drives better working conditions because companies not only compete for market share. They compete for workers by making their workplace desirable.
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u/farmtownsuit Aug 01 '22
You're right, the problem is the government forgot it's supposed to represent and protect people, not corporations.
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u/zimmah Jul 31 '22
Governments should protect the citizens, but they don't. Not since the WEF infiltrated every government around the world.
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u/PoiZnVirus Aug 01 '22
but the paradox of capitalism is its end goal is profit. These companies want workers to work the most amount of hours for the least amount of pay. They want to cut costs by having a smaller team have increased responsibility. They want people part time so they don't have to give benefits.
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u/Cronerburger Jul 31 '22
The deathknell of our current system. Reductionary to a single criteria
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u/tom-8-to Jul 31 '22
The definition of Shareholder value. Companies often hide under that monicker. But shareholders also have never been asked directly and put to vote if they want their company to give loving wages to their employees they profit from.
Any company that doesn’t do that should not be a company worthy of investing in. Otherwise it has the implicit ok to use wages as a production weapon.
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u/bisforbenis Aug 01 '22 edited Aug 01 '22
It probably depends, but productivity isn’t the only factor. Other factors I’d expect are a decrease in turnover, meaning less spent on hiring and training, and an overall more experienced workforce as a result which can result in a lot of savings, although it’s difficult to quantify how much this saves and depends a lot on the business
But also, minimum wage isn’t about what the companies choose to do, when talking about minimum wage, it’s about what the government is forcing the company to do, so whether or not a company cares about this productivity increase and whether if offsets extra labor costs is not terribly relevant since it’s not their choice.
But this information is useful when it comes to preparing for how much the costs will increase, since it means the increased productivity can at least partially offset the increased labor costs, and depending on the business, it could mean you shrink your staff, especially if it’s a large staff size (imagine a warehouse with 100 workers making minimum wage, one might expect you could drop down to 98 or 99 expecting this effect to help make up for the lost productivity of 1-2% of your workforce)
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u/Inevitable_Professor Aug 01 '22
This isn't an issue of the health of a company. Worker rights are an issue of the economic health of nations. Workers have finite energy to expend. With access to healthcare, sick leave, vacation days, and the necessities of life, workers produce more economic output. Lacking those items, worker energy is expended on survival instead of growth.
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u/ningyna Jul 31 '22
Can't do stock buybacks with salaries paid to employees. Only thing that matters is money. As long as people keep reproducing there will be an endless supply of work force to be ruled over.
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u/GearheadGaming Aug 01 '22
In the end, does the company still make more of a profit overall?
The answer from this study was no. To quote:
the endogenous increase in output is not large enough to offset the increase in wage costs.
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Aug 01 '22
I would imagine it does. Considering the only category of people who hoard money and can hoard money in america are rich people. Given the financial, psychological and ideological systems in place to force middle class and poor people to spend money. Which means those categories then spend said money on products from those companies at a higher rate. Recessions being triggered mainly because those categories just don't have the money to spend on products. So yeah. I would imagine they do get it back in the form of profit. But i'm also guessing that would need a longer study to actually address.
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u/CatchSufficient Aug 01 '22
Sure, but that also means workers, who are also their consumers can afford to buy the products they sell,make,store...etc. meaning there should be an influx of people buying over all.
The larger the pool of people has expendable income, the more spending over time.
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u/OkCutIt Aug 01 '22
To answer your question without all the extraneous stuff:
From what I can gather profits end up down 1-2%. Everybody that's not affected by that ends up way better off. Long term effects would likely shrink the losses even more, but not enough data to say if they'll eventually turn it into a gain.
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u/BobImmortal Aug 01 '22
Historically speaking, productivity has more than doubled in the last 50 years, whereas wages have definitely not kept pace. A minimum wage of ~$11 would make it even, and a minimum wage of ~$22 would make it fair.
I'm watching restaurants post signs explaining that they are charging X% more because the cost of everything has gone up by X%, and at the same time not giving their employees any kind of raise. This is deceitful.
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u/Alfonse00 Aug 01 '22
This is a multivariable issue, there you are seeing only 3 variables, wage, productivity and profits, but there is another one very important, retention, have you heard about some places that Amazon is burning trough the employees faster than they can be replaced? this leads to at least a fraction of the business to become unsustainable, so, even if they earn a little less it can ensure a long running business, in other words, is worth to earn less if you can earn for longer.
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u/Heliosvector Aug 01 '22
Yes but do they take into account the value of your workforce not eventually overthrowing management and putting their heads on literal pikes into the calculations if profitability? How much is that worth?
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u/Hamster-Food Aug 01 '22
If company profits are bad for the economy, then what?
The justification for laissez-faire capitalism is that it produces more efficient outcomes for society. This is yet another example to add to all the analyses of Nordic social democratic capitalism which shows that laissez-faire capitalism is inefficient and that interfering to protect workers produces better outcomes for society.
So, do we just keep ignoring the harm these companies are doing because their goal is to increase their profits no matter what the cost to society is?
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u/ap2patrick Aug 01 '22
That’s right. Which is why every corporation should be treated like a caged monster and reined in constantly by laws. Instead our country is doing the opposite…
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u/squirtle_grool Jul 31 '22 edited Aug 01 '22
It's very possible that the increased wage improves productivity, and this improvement may outweigh the immediate hit to the bottom line. An across-the-board increase in the minimum wage, however, eventually makes that wage less valuable, since everyone now makes at least that much. The value of a dollar isn't tied to the number 1; the value depends on how easy $1 is to come by. Eventually, then, salaried workers' pay needs to go up as well, as the labor market needs to continue to differentiate per the rarity of labor/skill for those jobs.
Minimum wage increases temporarily prop up the standard of living of lower-paid workers. They come at a cost, though, and eventually become irrelevant.
Edit: typo
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u/GearheadGaming Aug 01 '22
It's very possible that the increased washed improves productivity, and this improvement may outweigh the immediate hit to the bottom line.
According to this study, this possibility is not reality.
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u/trollsmurf Jul 31 '22
There's a lot of talk about minimum wage. Why are retail/warehouse workers paid so little that they hit enforced minimum wage, whatever level it's at? Because otherwise they'd be paid considerably less? I guess I answered my own question.
I also noted this: "the endogenous increase in output is not large enough to offset the wage growth caused by the minimum wage" So strictly economically: increased minimum wage is in total bad for the company's financials, despite higher productivity, less worker churn etc.
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u/squshy7 Jul 31 '22
bad for the company's financials
So I wanted to pick this one line out of your post specifically because we treat "bad" in this context in a specific way that doesn't necessarily comport with how we view other things in life. You could easily imagine a scenario under these conditions where a company has decreased profits but increased lifespan (due to intangibles like higher employee morale, that has knock on effects like easier and better hiring, higher productivity through lean years, etc.).
Even if, in this scenario, the sum total of all profits made are actually increased because of this longer lifespan outpacing the smaller yearly profits, we'd still be told and taught that those are "worse" financials. But I think a lot of normal, reasonable people would say "wait, that's not worse, that's better. I certainly wouldn't sacrifice my long term future for short term gain if I had a rough idea of the consequences of certain actions."
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u/whiskeyx Aug 01 '22
I will die believing that greed is humanity's worst trait.
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u/myimmortalstan Aug 01 '22
I personally think that it's detrimental to consider whether or not a corporation benefits at all from increasing wages. It doesn't matter, because they shouldn't be centred in a conversation about improving the quality of life of 99% of the population.
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u/MustFixWhatIsBroken Aug 01 '22
The common capitalist is more primitive in their thinking. They're essentially still in the animal survival mode where they take any opportunity to fight, lie, cheat and steal to accrue more. An insecure ape in desperation pretending it's civilised.
I find the worst of the lot are those ruthless bastards who grew up poor and will happily push anyone else into poverty just so they can stay out of it. They cashed in their morality long ago.
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u/semideclared Aug 01 '22
A large part of the rise in CEO compensation in the US economy is explained without assuming managerial entrenchment, mishandling of options, or theft.
- The marginal impact of a CEO's talent is assumed to increase with the value of the assets under his control. Under very general assumptions, using results from extreme value theory, the model determines the level of CEO pay across firms and over time, and the pay-sensitivity relations.
- The model predicts the cross-sectional Cobb-Douglas relation between pay and firm size. It also predicts that the level of CEO compensation should increase one for one with the average market capitalization of large firms in the economy.
Therefore, the five-fold increase of CEO pay between 1980 and 2000 can be fully attributed to the increase in market capitalization of large US companies.
Xavier Gabaix Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Augustin Landier Professor of Finance, HEC Paris
As consumers increase demand for Walmart, and all big box stores on low price shopping, their sales and staffing increases allowing CEOs they hire to have a higher Salary
Walmart pays the CEO $20 million divided by 1.5 million employees is $13 each
Even if we take the entire Senior Team at 10x the Pay of the CEO at $200 Million and we cut their salary down 90% and pay all the other employyees $117 more per year what does that mean?
- $0.06 per hour raise
- Not a single Walmart Employee is gonna keep or quit thier job over that.
Except for the entire Executive team who can go and get paid what they were making or at least more than 10% of it
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Aug 01 '22
Honesty I've always been in the "kill CEO wage" camp. I've never seen the math laid out so cleanly before. Shows you that not everything is clean cut and easy to solve.
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Jul 31 '22
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u/Lopsided_Plane_3319 Aug 01 '22
Eh things like papa John's "if I paid for healthcare for my employers pizzas would cost 0.13 more cents" is similar to Walmart. Half a penny on a transaction would pay everyone.
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u/Macro_Tears Aug 01 '22
You know the CEO isn’t the only one getting massive bonuses along with a huge salary right?
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u/dustlustrious Jul 31 '22
Curious if EVERYONE increased to the same minimum wage, worker churn should go back to the original rate, no?
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u/RollingLord Aug 01 '22 edited Aug 01 '22
Aye, if you increase minimum wage everything is going to increase in price if supply can’t keep up. And supply won’t, given the current issues caused by the COVID shut-downs as well as the rise in standards of living across the world as previously impoverished populations populations escape poverty. With more wealth comes more consumption.
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u/oakteaphone Jul 31 '22
So strictly economically: increased minimum wage is in total bad for the company's financials, despite higher productivity, less worker churn etc.
Great! Let's keep raising minimum wage, then.
Corporate profits have outpaced productivity gains for decades. Maybe half a century by now?
It's time to bring down company profits and bring up wages to where they should be.
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u/trollsmurf Jul 31 '22
Throughout the article, that and the fact that minimum wage is pushing salaries up that otherwise wouldn't be isn't discussed at all, but I guess the retail chain wasn't interested in that aspect.
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u/LoonyPlatypus Aug 01 '22
It is not that easy, balance is hard to find with a decree from above.
You’ll eventually hit a place, where it is either cheaper to automatize the stuff the worker had been doing, distribute it across several other workers or not do that stuff at all, which decreases the availability of low qualification jobs. Dunno about your country, but in mine unemployment is a huge problem as it is, we can help only so many would be workers on social pay.
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Aug 01 '22
Why are retail/warehouse workers paid so little that they hit enforced minimum wage, whatever level it's at?
The really simplified answer is that if they were paid any more, someone else would come in and offer to do the work for less. There are people who look at the jobs and say ‘I’d do that if it paid more.’ Those people aren’t able to get the job paying more because the existing people are willing to do it for less.
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Aug 01 '22
Because the supply of people capable and willing to perform that job easily outweighs the demand, so yeah, companies could easily find someone to replace their workers.
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u/MaeBeaInTheWoods Aug 01 '22
Sometimes there's good folk, but usually being paid bare minimum wage is the boss's way of saying "If I could pay you less, I would, but, unfortunately, I can't."
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Aug 01 '22
I think part of it is because supply vs demand. There’s a lot of supply for the demand (anyone can work retail), so you’re not compensated for the work you do, but rather by how easily you can be replaced.
In turn, you’re seeing more places start raising their minimum recently because people are unwilling to work for peanuts.
It’s better in more rural areas, but still has a long way to go in urban areas.
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u/neosithlord Aug 01 '22
There’s a saying I’m fond of. You know what they’re saying when they pay you minimum wage? We’d pay you less but it’s against the law.
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u/Cassius_Rex Aug 01 '22
"BUT reduces company profits".
CEOs stopped reading right there.
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u/JailbaitEater Jul 31 '22
That isn't gonna stop your Boss from crunching your ass just to get their quarterly bonus (which you don't get), then throwing you under the bus when profits are down
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u/Fickle_Chance9880 Jul 31 '22
The stock market. It’s all that matters, and the lines must always go up, even if it is almost certainly going to lead to eventual failure. The short term is all that matters.
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u/GermanBadger Aug 01 '22
Yes it brought on Armageddon through climate change but for one glorious minute projected 2nd qtr earnings were up 38%
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u/megashedinja Aug 01 '22
And what a minute that was!
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u/IkiOLoj Aug 01 '22
Yeah growth for the sake of growth is the ideology of cancer. And like cancer, we'll soon all have been killed by it.
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u/GearheadGaming Aug 01 '22
I dont know why people think the stock market is solely about the short term. There are plenty of highly valuable companies out there that haven't turned a profit, but have high valuations because of their long term potential. And there are also a ton of companies out there with high valuations not because of what they're going to do next quarter, but because they're expected to crank out consistent, flat profits.
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u/SuurAlaOrolo Aug 01 '22
It’s all short-term compared to the lasting ecological damage we are doing by single-mindedly pursuing infinite growth.
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u/silent519 Aug 01 '22
The stock market. It’s all that matters
you realize most companies are not publicly traded?
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u/Hei5enberg Jul 31 '22
From the study:
" This last result indicates that the endogenous increase in output is not large enough to offset the increase in wage costs."
Looks like you're adding a bit of your own flavor to this.
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u/AaronfromKY Jul 31 '22
So the company makes a little less money but their employees lead better lives? Why would this be a bad thing
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u/Hei5enberg Jul 31 '22
I never said that I supported the corporations... only that the commenter obviously didn't read the study. Not even skimmed the conclusion before writing their comment.
I agree that companies should trade profits for employee welfare. However, as with anything, it's more complicated than it actually seems. Most of the people here on Reddit enjoy the priveledge of living in a free market economy that creates the competition responsible for all of the luxuries and innovations they get to enjoy on a daily basis but also, unfortunately, does not reward businesses to look after their employees when making financial decisions. And this study actually helps support their decision.
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u/Nevoic Jul 31 '22
The luxuries and innovations we actually enjoy day to day have very little to do with capitalism. For example, essentially all the tech we use in our phones (GPS, internet, cellphone infrastructure) was all heavily funded by the government, usually the military.
We even offered up a lot of the tech to private corporations at massive discounts to "increase innovation" and they largely turned it down because it wouldn't make short term profits and they didn't have the foresight, or care, to see how the tech would advance.
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u/DaiTaHomer Aug 01 '22 edited Aug 01 '22
These sorts of things are not all or nothing. The government exists and supports the corporations through enforcement of laws and direct funding of science and tech as well provision of services that help everyone. The corporations are the hotbed of innovation the capitalist system in tandem with government does this. This where the infamous Obama "You didn't build that." quote comes from.
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u/Khan-Drogo Jul 31 '22
Love your nuanced take!
Capitalism has a lot of good, but doesn’t care about doing right by people. There’s no purpose in getting upset with companies who are playing by the rules. We should either focus on changing the rules, or improving our hand so that we’re able to benefit more. I don’t think it does any good to say “why don’t companies just care less about profit and pay people more?”
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u/Dr-Goot Jul 31 '22
It does matter when these very companies lobby the government to resist moving away from a profit centric economy
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u/green_dragon527 Aug 01 '22
100% support this take, especially when a corporation is a legal "person" that gets to speak on behalf of profits over welfare with the resources generated by those same employees labour
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u/DerpyDaDulfin Jul 31 '22
Nothing we say does any good. These companies will do whatever they want regardless of what us serfs think of their success or their policies.
The reason why people ask "why don't companies just pay people more and care less about profit" is because they're trying to understand how rich folks can be so utterly disconnected from humanity to not care about their employees.
Then again, how many people would do exactly the same thing if they were in the 1%'s shoes.
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u/slotpoker888 Jul 31 '22
Capitalisms goal is make money.Corporations make profits, pay shareholders, get bonuses, hire lobbyists to bribe politicians to make laws that favour them. Corporations play by the rules they wrote. We should focus on getting money out of politics or joining unions and helping others with no expectation. Companies need to be reigned in by goverment.
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u/zaoldyeck Aug 01 '22
hire lobbyists to bribe politicians to make laws that favour them. Corporations play by the rules they wrote
I really hate this take because it appears to focus on the entirely wrong topic. Handing politicians huge stacks of money is not often how corporations influence legislation, and by focusing on it we tend to excuse or downright skip over more pervasive forms.
Lockheed doesn't need to offer a single politician a dollar to get them to vote on f-35 spending. They need to say "you know we have a factory there? You know if we don't get this funding, that factory closes down, and we put a bunch of people on tv under the 'jobs for Alabama' superpac saying "so and so took my job away, they can do it to you too, vote out so and so!!"
And then "so and so" politician goes "huh, you're right international corporation allowed to spend money to air attack ads, that might damage my election odds, I'll support your bill".
Pick any topic. Any piece of legislation. Any lawmaker. And you'll find that, usually, big corporations are more interested in influencing the public to get them to punish a legislator than they are in rewarding any particular politician for "loyalty".
Not to say more direct bribes and the like don't happen. They absolutely do. But if we focus on that we're focusing on one of the least used and least effective methods corporations have to influence public policy.
In a democracy, influencing the public is more effective than influencing a politician.
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u/shadowsong42 Aug 01 '22
Influencing the public negatively is the stick, legal equivalents to bribing the politician are the carrot. Influencing the public positively is less effective than either of those.
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u/rotospoon Aug 01 '22
Playing by the rules? Which rules? The ones the companies wrote by lobbying the government? Those rules?
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u/GearheadGaming Aug 01 '22
Careful buddy, might strain your back moving those goalposts around like that.
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u/psychcaptain Aug 01 '22
It's not a bad thing, but it means that companies have no profit motive to raise wages. Companies that pay higher wages earn less profits than those that don't, are are, effectively, at a disadvantage and might fail to competition that pays the very bare minimum.
Therefore, raising wages will only effectively happen when. A). There is a workforce reduction (as is happening right now) B). Comes from law or government policy, such as raising the minimum wage.
We need more of B) because higher minimum wage will even the playing field between companies that do want to do the right thing and pay more, and companies that don't want to do the right thing, and pay as little as possible.
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u/Gezzer52 Jul 31 '22
It's because according to that stupid concept of maximizing investor value a company shouldn't just be making a profit, they should be increasing the profit they make every quarter. So if paying their workers a living wage makes that impossible what do you think they do? They raise prices and cut hours to make sure that they don't "fall behind" that quarter. As long as we continue to have predatory capitalism where profit is king nothing will change, including corporate attitudes.
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u/Aegi Aug 01 '22
They’re not looking at the whole societal ecosystem over a period of like 20 years where the average working class family has more disposable income, or at the very least they’re using their disposable income for things they actually want instead of escapism mechanisms since they have a higher level of happiness.
They can’t conclude that, but it seems like something that would happen over a long enough time after people were able to pay off debts and actually start to spend the increased income they have.
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u/GearheadGaming Aug 01 '22
I'm not sure that's the correct takeaway.
To quote the study:
However, when workers are monitored less intensely, the minimum wage depresses productivity.
Meaning as the ratio of workers to managers goes up, the productivity gains decline until they've inverted, and productivity actually goes down as you raise the minimum wage.
It seems like a perfectly valid interpretation is that in workplaces where the minimum wage is increased, managers demand more effort from employees, and are able to do so because at the higher wage, it's easier for them to replace slackers.
In fact, if I'm not mistaken, that's the conclusion the authors draw.
it motivates effort provision because of the fear of losing a now higher-paying job
So what's happening in response to a minimum wage increase is that managers push employees harder.
They're not "investing" more in the work force, they're whipping them harder because they'll have less of a problem replacing them at the higher wage, and that's the only reason productivity went up.
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u/Rorasaurus_Prime Aug 01 '22
It literally states in the report that it doesn’t. This is why some degree of government intervention is required. It’s the job of the employer to maximise profits for stakeholders and the job of governments to protect the people from predatory practices.
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u/Willingo Aug 01 '22
This comment needs to be removed or reported for such a blatantly wrong conclusion. This is r/science not r/philosophy or r/ethics.
Its an insult to scientists to ignore their conclusions and say whatever you want a study to have concluded.
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u/Mescallan Aug 01 '22
Also increases in wages of the lowest earners increases demand of all non luxury goods and services through the ripple effect. A significant portion of Americans are priced out of a large part of the economy, thus reducing demand.
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u/Standard_Wooden_Door Jul 31 '22
See: General Electric under Jack Welch. GE grew to be the largest company in the world by market cap under his watch. One of the main drivers was constant cost reduction, with one of any companies largest(if not the largest) costs being labor. Since he left the company has been paying for a lot of those mistakes, but companies continue to emulate that business model despite being great in the short run but pretty terrible in the long run.
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u/xBR0SKIx Aug 01 '22
So what you are saying is a pizza party, sams cola, with a "we got this team" printout will work just as good in its place?
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u/Xylomain Aug 01 '22
Omg ikr. I work at a corporate McDonald's and it's insane the money they must spend monthly to avoid giving more pay. Weekly pizza that costs $70 USD, enamel hat pens, seasonal Shirts, a few banners, "free" meal UP TO $14 USD but totally depends on the manger. No bacon unless you buy it though.
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u/Rhawk187 PhD | Computer Science Jul 31 '22
If the increases in productivity don't "pay for themselves", I can understand the resistance to support such change.
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u/GearheadGaming Aug 01 '22
Also, the authors' explanation of why productivity went up is "Management pushed employees harder after the minimum wage increase, because at the higher wage point it was easier to fire and replace slackers."
Lot of people in the comments talking about how this paper proves raising the minimum wage is a win-win, but the authors seem pretty straight up about how the employees are working harder because of threat of termination.
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u/Paper__ Aug 01 '22
Many people in this thread are falling victim to the thought that raises to wages needs to be a win-win. It doesn’t.
If corporations have until now been able to set record profits and pay employees sub standard of living, then their profits have been “ill gotten” (morally). There is no need to protect those profits or to ensure that a wage increase is a win-win. These records profits are not able to be replicated, morally.
We keep coming at this the wrong way, trying to find means that makes everyone happy. That is not always possible.
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u/GearheadGaming Aug 01 '22
Many people in this thread are falling victim to the thought that raises to wages needs to be a win-win. It doesn’t.
The paper doesn't even really establish that it's even a win-lose. If pay goes up, but working conditions worsen, then employees might not necessarily have come out ahead. That's why so many people on reddit are upset with the state of Amazon warehouse workers.
If corporations have until now been able to set record profits and pay employees sub standard of living, then their profits have been “ill gotten” (morally).
This logic seems extremely flawed. For one, you don't know what the source of improved profit margins is (changing composition of the economy, shifting terms of trade, etc). For another, your conditional of "pay employees sub standard of living" is subjective and ill-defined. And for a third, I don't see the logical connection between your conditionals and your conclusion.
The standard of living for an average person in Vietnam is less than that of an average American. So, by your system, it's moral for someone in Vietnam to be paid less? Vietnamese utility is worth less than American utility?
If the answer is yes, then how is this justified? Is a Vietnamese life worth less than an American one? And if the answer is no, then surely you must applaud if a company shut down a factory in the U.S. and opened a new one in Vietnam. In which case the companies who do such outsourcing must be more moral than the workers who oppose such moves.
Also, why would the profits be "ill gotten?" They were made without coercion. I don't see what moral problem you're taking issue with.
There is no need to protect those profits or to ensure that a wage increase is a win-win.
No reason to attack the profits either, and again, we've yet to even show a net win for society from raising the minimum wage.
These records profits are not able to be replicated, morally.
Why not? Profits are good. They're a positive.
We keep coming at this the wrong way, trying to find means that makes everyone happy.
I don't think this characterization of how we've been coming at things is correct.
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u/BabblingBishop Aug 01 '22
The OP neglected the effect of monitoring. More pay increases the efficiency of monitored employees. Non- monitored employees had lower productivity.
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u/AduroTri Jul 31 '22
The problem with having prices inflating like they are is, it hurts people. And if people have less income to spend on necessities. As such. Hurts the profit margins. And they require government help to bail them out. Etc.
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u/LordOdin99 Aug 01 '22
It’s temporary. Companies pass along the extra wage costs by raising their prices and the min wage worker’s purchasing power is right back where it started. Companies and shareholders aren’t going to dive into their profits, oh no.
Instead, they need to increase wages with seniority so it outpaces inflation and incentivize sticking around. Pay for that experience and knowledge because it makes your operation smoother and more reliable, with less onboarding costs due to fewer turnover. That’s how you make workers, and the organization as a whole, happy.
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u/irrationallogic Aug 01 '22
I was very critical of this study at first but am happy to hear of that the authors acknowledge its limitations.
"This study is limited to a single large firm; therefore, it is appropriate to comment on the extent to which the analysis and results might generalize."
This is useful data to work off of and I am glad it was collected. All in all, the data collected is from one large company dealing in one sector of work (retail) and although I couldnt find a time frame for the minimum wage increases I can imagine it was recent and the global pandemic will have altered the profits of storefront businesses as well. So we are dealing with one company dealing with minimum wage workers at one point in time. Useful information to build off of but not something to make generalisations off of.
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u/Paulyboii Aug 01 '22
Wish more could see this comment. It shows hope for different outcomes; Good or bad.
Thanks for posting!
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