Guest Post: Why a Blue Collar American Doesn’t Want A Living Wage

4 Feb

Reblogged from here, with kind permission. 

This is a guest post by the redoubtable Jonathan LaForce, who wrote it up and then let me publish it on my blog when I saw it and wanted it to have more platform than facebook. Thanks, Jon, and I look forward to seeing more like this from you.

Why a Blue Collar American Doesn’t Want A Living Wage

This article really is pretty sad. A business shouldn’t be shut down for this. But reality is that it is and will.

Now somebody is going to say “they just had a bad business model”. Hold that thought for a second.

1. Store sells books.

2. Books come from a publisher through a distributor.

3. In order for those books to arrive, they must be shipped, generally by truck, which means transportation- this is a variable cost, as fuel prices rise and fall.

4. Those books are printed which means you also have print cost, the editing, the advertising, storage facilities for unsold copies, any artwork, the author’s percentage (typically 15-20%).

5. Those prices are established by contract. This is how every business operates.

Now that we’ve established the previous 5 points, and we can pretty well agree on those, here’s three, maybe four more to consider.

6. You cannot force people to buy your product. They have the choice to not read. Borders and Waldenbooks understand this all too well. They went belly up and closed because of it. Barnes and Noble is hanging on by the skin of their teeth for the moment.

7. You can only pay your employees if you’re earning money. If a book cost $10, by the time you finish factoring everything applicable from points 3 & 4, how much is the store actually making off the book, before profit margin? About $1. Which means an hour of employee labor at the $15 living wage means you’ve sold 150 books.

And that’s to sustain one employee!

Now, a typical bookstore is going to have upwards of 20 employees in it working throughout the day. Let’s say you get a total of 160 man-hours at a flat $15 rate (not entirely realistic as it doesn’t allow for higher management pay). That’s $2,400 in salaries. Which means you’ve sold $24,000 worth of $10 books while you were open.

8. That doesn’t include operational costs for power and water. Add in another $10,000 in book sales to cover daily utilities.

$34,000 has to be made each day, at a minimum But you can’t guarantee that, can you? Let’s say you’re having a bad sales day and you only clear half that ($17,000) in merchandise. What do you do to make good the lack? Are your employees going to start press-ganging passers by from the street into the store and forcing them to buy books? I hope not. That’s a good way to get your flammable bookstore burned down around your ears.

What will more than likely happen is that the store will cut employee hours, because they cannot afford to keep that many people employed at the demanded $15 per hour living wage. Not without re-negotiating every single contract they have with publishers and distributors, so that the price is adjusted upwards to reflect an increase in the cost of goods and services- the price of the book goes up! What a surprise!

What this all means is that while theoretically the amount of money you’re earning has increased your actual buying power has stayed the same or worse- decreased! A living wage only sounds good in theory. What it actually gets you is a whole different set of unintended consequences.

At my current employer I make just over $10 an hour. I sell phones and their service for the largest wireless provider in the country. That wage is set based on what the employer feels is a reasonable price for my services. It’s not a government mandate either.

They are currently increasing the staff in our project to 200 sales agents taking instant messenger chats from customers, and we operate 24/7. Not only that, I’m now authorized to work up to 16 hours if I voluntarily wish! This means that I can theoretically make over $1,000 dollars a week before taxes. But it only works so long as I am able to sell phones. If the quality of the product I sell starts to slip, is superseded by something better, or customers refuse to buy, I am no longer authorized to work those hours. The company cannot justify that payroll expenditure. They have a profit margin to maintain. Why? Because if they are called upon to back their investments, those profits will be what does it. If they cannot justify keeping me employed, I get severed. Which in turn means my buying power goes down.

And that ladies and gents is why a fixed minimum living wage is neither practical nor desired. Deregulation of this, and allowing the market to decide would have a tremendous impact on our economy. Yes, it would be rough for some people. But for the vast majority of Americans, it would be an improvement. Certain companies would probably try to justify cutting their workers’ pay down to the bones- only to find that they can’t attract decent employees at $2 an hour with a 20-hour work week. Nor, do I suspect, would consumers stand for it.

End this living wage nonsense immediately, it will do nothing good for us in the long run.

This article is the first in a series I’m going to do on de-regulation, and why or why not it should be applied to specific cases. Special thanks to Tom Kratman, Sanford Begley and Patrick Richardson for inspiring me to write these up. Michael Z. Williamson gets an honorable mention for unwittingly providing the article that serves as the basis for this. And before anybody asks, I’m neither a classical liberal, nor an extreme conservative. I can tell the difference between Obama, Bush, Hitler, Stalin, Lenin, Rand Paul and Satan.

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22 Responses to “Guest Post: Why a Blue Collar American Doesn’t Want A Living Wage”

  1. Dennis the Menace February 4, 2015 at 10:13 pm #

    Well, well, well…what a coincidence.

    I live in the Belly of the Liberal Beast (SF Bay Area) and work in its very heart (San Francisco). I know plenty of people who got into screaming matches at cocktail parties with me over this living wage nonsense when it was up for a vote. These are people who refuse to acknowledge basic economics EXCEPT when it supports their ‘side’ (i.e., raising gas taxes so people will drive less but ignoring the effect of taxes on wages or min wages have on employment, etc.) So, when I saw this article about the bookstore yesterday, I posted it on my FB feed along with following comment & quote from the article:

    ***

    San Franciscans get a much needed lesson in Basic Econ 101 the hard way:

    “The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.”

    ***

    It’s perfect and undeniable (so I thought) empirical proof otherwise known as ’cause & effect’.

    Two of my fellow conservative buddies ‘liked’ it but otherwise there was nothing. Total silence. Normally, my lib ‘friends’ rail into me when they see stories like this that doesn’t comply with their Borg Collective party line. But this time, they just ignored it.

    For those of you not sure what point I’m trying to make here, a little contextual education is in order:

    In the SF Bay Area and in particular SF itself, liberals treat conservative friends as ‘ideological fluffers’. I’m serious. Someone who is otherwise your best friend outside of politics ‘engages’ in ‘conversation’ with you along ideological lines like a pornstar uses a fluffer to keep hard. They don’t mean to do this but they all end up doing so. That and the fact that any conservatives they actually personally know are so few and far between out here means they start throwing all kinds of left wing ‘ahah!’ garbage at you all the time.

    [SIDE NOTE] How can I consider any of these people treating me as their ideological fluffer to be ‘friends’? Well, the difference between those who deliberately do that to be mean and those who don’t are instead unaware they are doing it pretty much disambiguates not-friends from friends, mostly. I know, I know. Sounds pathetic. But that is real life in the SF Bay Area, kiddies. I am not exaggerating in the least, either.[/SIDE NOTE]

    So when I got no response from any of them from that post, well…that was a Pretty Big Deal, let me tell you. Just to be sure it was read I called up one of my lib buddies who I decided long ago was the most tolerant and open minded of the lot to ask if he saw it. He said ‘yes’ but didn’t want to talk about it any further. When I finally coaxed it out of him, he just blurted out the Standard MoveOn.org Talking Point of Avoiding The Truth, “Oh I bet you are just LOVING this! People just lost their jobs but you are having a good time with it. We are friends and all but sometimes I do think you are like all the other heartless FoxNews bastards who won’t be happy until (blah, blah, blah…more blah, blah, blah, blah, blah).” I mean, he was blowing his stack big time.

    Cognitive Dissonance sure can be a bitch, eh? Especially when it causes you to blow your load and thus don’t have a need for a fluffer any more, I suppose. Yeah, you can see how that would be quite upsetting for the pornstar.

    The US is headed for another Civil War. It won’t be between Conservatives and Liberals but just between The Rational and The Irrationally Deluded. This little admittedly anecdotal account is just one of a constant stream of ongoing experience that support that prediction, I am sad to say.

    I am just soo glad that I am on the side that holds 90% of the guns in America. 🙂

    • Duncan Cairncross February 6, 2015 at 9:14 am #

      “I am just soo glad that I am on the side that holds 90% of the guns in America”

      But the other side knows what to do with them
      Who could be the most destructive
      An ignorant redneck or a trained engineer/scientist?

  2. William ross February 5, 2015 at 1:00 am #

    Just a small note blue collar should be white collar. Blue collar is a trade job like a welder, plumber, or electrician. White collar is a retail job.

    • William ross February 5, 2015 at 1:12 am #

      Now i realize that the previous comment makes me sound like a complete asshat i apologize.

  3. Jonathan LaForce February 5, 2015 at 9:56 am #

    Totally okay William Ross. It happens.

    Before I worked retail I was a Marine in 12th Marine regiment, before that a security guard, and from the time I was 12 till I was 19, I worked every kind of landscaping job but cement laying.

  4. R Godfrey February 5, 2015 at 3:32 pm #

    Given that it will be choice between slow starvation at $2-3 an hour vs faster starvation at 0, what makes you think employers wont leap on the chance like rabid dogs? I can see no reason they would not, cheap disposable workers with no need to pay severance as they died? Perfect.

  5. Duncan Cairncross February 6, 2015 at 1:19 am #

    What a lot of bollocks
    What actually happens is if you pay less than a living wage somebody – (the government) end up paying the difference
    So when you make your profit from employing your below living wage employees effectively a part (or all) of that profit is MY tax money

    As a working guy I am paying you to be an employer!

  6. David P. Graf February 6, 2015 at 4:35 am #

    You take care of having increased expenses in the same way as you always have – you raise prices or you cut other expenses or you provide a lower return to your stockholders. At one time, it was thought fine for people to work 18 hours or more a day to make the owners happy. That got changed and surprisingly the economy did not collapse. It is no different than with the living wage. It’s about time we decided whether Wall Street or Main Street runs this country. As long as businesses ship the good paying jobs overseas, they ought to pay a price instead of expecting us to subsidize workers paid less than a living wage.

  7. Duncan Cairncross February 6, 2015 at 9:11 am #

    Couple more issues here
    (1) Margin
    I simply don’t believe in a 10% margin
    Retail margins are in the 40+% range
    The only thing I can think of with such a low margin is petrol

    (2) – 20 staff – In a bookshop????
    Do the numbers on this
    First you start with single shift operation
    Your till guy can service 60 customers an hour – 8 hours 480 customers – $4800 spent – $1920 profit
    Till guy – 8 X $15 = $120
    Guy to stack shelves and tidy up = $120
    So $240 wages and $1920 profit
    You only need more people when you can’t service your customers
    If you have 20 people then half of them should be on the tills bringing in more money

    Paying a living wage won’t make the economy fold

    If you put the minimum wage too high then YES it will cost jobs
    But what is too high?
    Here (NZ) it’s $15/hr
    In the likes of Sweden it higher – $25/hr

    If you put the minimum wage at $50/hr – that’s too high!
    $15/hr is too low

    • Jonathan LaForce February 11, 2015 at 3:47 am #

      You’re forgetting an important variable, two really- what do customers actually buy, and what hours do employees actually work.

      Not everybody is going to be full time, nor would I want only one employee working the floor. At Barnes & Noble they typically have half a dozen plus roaming, restocking and assisting. There’s usually two at a minimum standing post at the tills.

      And how exactly do you plan on forcing customers to buy your products?

      • chrishanger February 11, 2015 at 7:21 pm #

        That’s the problem. Put prices too high and customers leave in droves.

        Chris

        My Site: http://www.chrishanger.net/
        My Blog: https://chrishanger.wordpress.com/
        My Facebook Fan Page: https://www.facebook.com/ChristopherGNuttall

      • Steven February 15, 2015 at 11:34 am #

        If your customer base has a higher level of discretionary spending (such as on a living wage) they will buy more things like books.

      • chrishanger February 15, 2015 at 2:30 pm #

        That’s questionable.

        The problem here is that the bookshop is competing against amazon and other online resellers who aren’t so affected by the law. If prices go up, sales go down. Realistically, would you go for the £10 book from your nearest bookshop or the £5 book from amazon?

        Chris

        My Site: http://www.chrishanger.net/
        My Blog: https://chrishanger.wordpress.com/
        My Facebook Fan Page: https://www.facebook.com/ChristopherGNuttall

      • Paul (Drak Bibliophile) Howard February 15, 2015 at 2:57 pm #

        Nod.

        There’s also the question of “will your customers be helped by the raise in the minimum wage”?

        If your customers are already making more than the minimum wage, the raise in the minimum may not be a factor in what they make.

        Of course, if your customers are “just making” minimum wage before the raise, then their employers might be in the same boat as the bookstore so would face the problem of being laid off.

      • Steven February 16, 2015 at 3:21 am #

        Have bookstores died in countries that pay a high minimum wage? No.

        Does having discretionary funds on hand increase impulse buying at physical retail locations? No

        Is competition from online sellers a factor regardless of minimum wage levels? Yes

        Are most people debating against a living wage going to continue to hold their views regardless of any point shown to them? Probably.

      • Paul (Drak Bibliophile) Howard February 16, 2015 at 3:31 am #

        Steven, I consider “living wage” just rhetorical nonsense.

        Especially since that years ago “minimum wage” was just the “beginning wage” for people just entering the job market.

        Nothing more nothing less.

        Nobody expected to be working “minimum wage” for the rest of their life.

        “Minimum wage” was for young people especially singles and was most often the wage teens, still living in their parents home, would get in summer jobs.

        In short “minimum wage” wasn’t expected to the income for a family.

      • Steven February 16, 2015 at 3:50 am #

        That may be one of the justifications used by those currently lobbying but it is untrue.

        “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.”

        President Franklin Delano Roosevelt, 1933

        Regardless, even if what you say was true it would clearly no longer be the case now with the taxpayer in effect having to subsidise business with welfare payments as the minimum wage has fallen far behind inflation.

    • Steven February 15, 2015 at 11:32 am #

      The big problem I have with the example in this post? Even if the laughable numbers were accurate, the one thing that would make the business work would be….the minimum wage of their customer base being increased to a living wage.

  8. voradams February 13, 2015 at 11:55 pm #

    I live in a country that has good workplace laws, and currently facing challenges from the business and the government to wind back some hard won benefits

    Part of the problem is when business claim wages are too high, or penalty rates need to be abolished they show both lack of economic ability and a sort of contempt for free markets.

    Because while not a perfect marketplace, wages are in fact set buy demand and supply.

    The hospitality industry in Australia is a classic example. They industry want to abolish penalty rates and increase special visas to make it easier to employ foreign workers.

    They also criticise the local jobseekers for not falling over themselves to work for the wages being offered for the hours worked.

    However, you look at the Australian workplace, you see that the emphasis on better education and the strong demand for university education means that the supply of people willing to be wait staff is shrinking. The opportunity cost for a young job seeker to work as wait staff or working in the mines (which until recently was paying comparatively obscene wages for unskilled labour) or even in the finance or government sector meant that the hospitality industry had to offer better wages in order to compete. So instead they seek to increase supply of labour from overseas.

    As someone who believes in both workplace protection and free markets, I have no issue for a staff member to be paid more for working outside of normal working hours. And I would be willing to pay a loading on my consumption to do so, But business owners refuse to do this in mistaken belief that it will reduce sales. A good business will gain loyalty for good service even if they pay a premium on the cost of goods. Because it is not just basic supply and demand, it is the opportunity cost of going somewhere for good service rather than something served by badly motivated staff selling cheap food.

    Wages need to be set at a level to allow workers to be able to engage the market themselves. The idea of working poor is an abomination. How can companies like Walmart run businesses that thier workers can not purchase the goods on sales? Where do business believe consumers come from?

    And unemployment benefits and universal healfcare act as a economic stabilizer. The fact unemployed can still purchase goods and services means that companies do not face a collapsing user base during economic downturns.

    It is not just about wages. And anyone who says they will have better profits if they cut wages, all they need to do is ask the workers of Borders Australia about lowering wages. Oh wait…..

    • chrishanger February 14, 2015 at 10:33 am #

      It’s a matter of degree. Somewhere like Wal-Mart can probably afford to pay higher wages (I say probably because I have no idea about how their gross and net profits work.) A small bookshop may not be in such a good position.

      Frankly, I think many critics don’t understand the situation. The average bookshop cannot sell books, I think, below the Recommended Retail Price, unless the books are purchased and owned by the store. If prices are slashed in half, profits are also slashed in half. However, they’re in direct competition with Amazon and other mail order services. If they put their prices UP, customers will take their custom elsewhere.

      In this case, at least, costs cannot be passed on to the consumer.

      Chris

      My Site: http://www.chrishanger.net/
      My Blog: https://chrishanger.wordpress.com/
      My Facebook Fan Page: https://www.facebook.com/ChristopherGNuttall

  9. jccarlton April 13, 2015 at 5:35 pm #

    Reblogged this on The Arts Mechanical and commented:
    A living wage means different things to different people. And the real minimum wage is zero.

Trackbacks/Pingbacks

  1. Economics, Again | The Chrishanger - March 15, 2015

    […] I mention this because of some of the comments made about the recent guest post; Why a Blue Collar American Doesn’t Want A Living Wage. […]

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