Not That Hard

For some time now I’ve been saying, both in this space and in real life, that while I have no quarrel in principle with the $15/hour movement, I don’t believe that the people involved with it have really considered the economics of the situation. As a business consultant and a business teacher I don’t buy into any of the “robber-baron” mythology; business owners are driven by the desire (and occasionally need) to make money, not to make the lives of their employees difficult. No one is saying that capitalists are a bunch of saints and angels, but the concept of them as comic-opera villains, plotting the destruction of their workers, is every bit as silly as the far-right mythos, in that most people would rather work for a living than exist on handouts. Unfortunately, this also cuts both ways…

In most unskilled and labor-intensive jobs, people are used because they are cheaper to recruit and train than it would be to equip the business with automated equipment capable of doing the same tasks. There are exceptions, of course – some civic-minded companies will retain sub-optimal production systems, either out of concern for the communities in which they are based or because without job income their customers won’t be able to purchase their products. But for the most part, if any part of a company’s operations can be replaced or reorganized in such a way as to lower operating costs or increase revenue, one should expect them to do so…

The corollary, and the place where people seem to be having conceptual issues, is that any artificial change in the relative costs of different methods will also impact the desirability of operational changes, such as automation. That is, if the Federal Minimum Wage is increased to $15/hour, the breakeven point for new equipment will rise with it. To take a common example from the last few years, once it became possible to replace a crew member making $7.15 per hour ($14,872 per year, plus taxes and benefits where applicable) with a machine that could fill soft drink cups automatically for less than $14,800 per year, many of the larger fast food chains began buying such machines…

Even worse, however, are the automated ordering kiosks that McDonald’s has been testing, and that Wendy’s is apparently going to start installing starting later this year. Not every fast food location needs to have a dedicated person making drinks on every shift, but every such operation does require order takers whenever it is open for business. For a 24-hour location, that’s 8,760 hours per year, or a whopping $131,400 just on salaries for each available register position per calendar year. When you add in recruiting costs, training costs, retention costs (fast food counter positions turn over several times per year), employee-related shrinkage and accidents, and the aforementioned taxes and benefits, it becomes somewhat surprising that the automated kiosks haven’t already reached widespread deployment…

Now, no one is suggesting that people don’t deserve a living wage in return for a day’s work. Even to a business leader, the concept that you can’t sell goods and services to consumers if there aren’t any who can afford your products and/or services is fairly elementary. What appears to be getting lost in this conversation is that if costs rise, but revenue does not, eventually the company will go out of business. One could argue that if senior management and the stockholders were to accept lower incomes the company could divert those funds into higher salaries, but that isn’t realistic either; if investments with higher returns exist then the stockholders will invest in them, and if higher salaries exist then the top management personnel will pursue them. Unless you are planning to run the entire economy by government commandments – and the large-scale experiments on command economies conducted during the 20^th Century did not end well – then any artificial increase in costs is not the long-range solution to this problem…

And while finding a workable long-term solution to this problem may be difficult, identifying the problem and realizing that a simple artificial salary (cost) increase would not work really wasn’t that hard…