Service economy jobs at odds with cost of living in Orlando area

How do businesses artificially depress pay rates? And on what basis can you determine that they do so and by how much?

Value/worth is determined based on the price a willing buyer is willing to pay to a willing seller and that such seller is willing to accept. If you force the buyer to pay more than such a transaction would otherwise dictate, you have overvalued the given good/service.

Oligopsony - There are a few thousand companies purchasing labor. There are a few million workers offering labor. It is much easier for the companies to pit the workers against each other and make them compete than it is for the workers to pit the companies against each other. This leads to an unfair advantage on one side of the market vs. the other.

You could say, "Well then the labor must not be that valuable because there's so much of it." Maybe, but I certainly don't want to live in a world where oil companies are making trillions of dollars and raising prices at the pump to $20 a gallon just because many people will still buy it, all the while crushing any potential competition with price dumping, frivolous law suits, fear tactics, etc. That's the natural outcome of complete free market economics.

We regulate against monopolies/oligopolies and monopsonies/oligopsonies because they prevent competition (in the case of monopoly) or create unfair competition (in the case of monopsony) which undermines the common good for the benefit of the individual.

So intervention in the form of government and laws exists on some level to prevent the system from reaching the extremes. I think we all agree that's a good thing. No one is arguing that such protection shouldn't exist.

I think where we differ (greatly) is in our belief of whether or not the current minimum wage is even close to one of those extremes.

At the current levels, no one is being exploited.

There are 23 million small businesses in the US so I am not sure on what you base your statement that there are only a few thousand companies purchasing labor.

http://www.sba.gov/content/small-business-trends

That has been and pretty much always will be the case because unless we all work for our own single employee company, there will always be more workers than companies. I don't see that as providing an unfair advantage as much as I see it as reality.

On terms of oil, there isn't any more being produced (now that the dinos are gone) and worldwide demand continues to increase. As a matter of economics, what would you expect would happen to price? And how do you feel about companies with higher profit margins than the oil industry?

Lord Gonchar said:

So minimum wage should have no bearing on value delivered?

I think that the value delivered is worth at least a certain amount of money, a little bit more than what minimum wage is now. Just showing up and flipping burgers should be worth enough to live on. I am no economist, but I do know that that is the whole reason we have a mininum wage in the first place.

If you only create $7 per hour worth of value, I should have to pay you $10 because it's a "living wage"? I should lose $3 an hour because you don't bring anymore than that to the table?

Guess what? You're unemployed. It's not an employers fault that you offer them little value.

What determines the worth of value? Will customers really mind paying ¢99 instead of ¢98 for a box of Great Value macaroni and cheese? I bet if customers knew that the employees of the store made enough money that they didn't need public assistance, the value of that mac and cheese would be worth a whole lot more. The penny increase would not be a big deal.

I don't mind paying the extra penny if I know that the employees there are making enough money to live on. The value for me is knowing that more of my tax dollars are going to be used for something else other than helping them make ends meet.

If you really think about it, that's just the inverse of a business selling an item for $5, but you can only afford to pay $3 for it so the government forces the business to accept that.

You are going to pay for these employees to be able to live one way or another, dude. Either pay them a living wage, which I define as enough to not need public assistance, or pay the extra penny for the mac and cheese. Paying a living wage increases their motivation to do a good job, and their self-worth and enjoyment of life. Forcing them to go to the welfare office to get food stamps and HUD housing lowers their mood and causes health problems stemming from stress and depression.

I would even argue that a minimum wage that is not adjusted to the cost of living and is therefore NOT a minimum liveable income creates more unemployment. Why bust your ass for 80 hours a week for a company that does not value your service enough to pay the very least amount possible to sustain yourself when you can collect more from unemployment? I'm not saying I approve I of this mentality, but I know people who think like this and who have indeed collected more from unemployment than they did from their previous jobs.

Also, I know that companies usually only care for their profit margins and expansion, but I find it hard to believe that they wouldn't understand that to devalue their employees by not paying a liveable wage sends out a damaging and possibly damning message to consumers.

LostKause said:

Just showing up and flipping burgers should be worth enough to live on.

Should it? What about sweeping floors? What about answering phones? What about stuffing envelopes?

Each of these things will have an actual value that it creates for an employer. Just doing a job doesn't magically make it produce a 'living wage' in value to an employer. There are some jobs that, quite simply, probably aren't valuable enough to produce a 'living wage' (we still haven't defined that term).

What determines the worth of value?

Depends on the business and what you're doing. But you do realize that an employer hires because they need a task done and that task has a certain value to the company, right? It's not just some made up thing where we flip coins and randomly assign salaries to positions and hand them out by lottery. The more value you have to a company the more they pay you. And your skills compare to the business needs determine that value to the company.

Will customers really mind paying ¢99 instead of ¢98 for a box of Great Value macaroni and cheese?

1. I think someone already explained why the Mac & Cheese video is stupid. Or maybe I was just thinking it. I should go back and check but I'm being lazy.

2. Will they mind paying $1? How about $1.15? How about $1.50? How about $34.82?

3. This assumes Wal-Mart or McDonald's levels of business. What about my mythical small business that employs three people at minimum wage and after all expenses leaves me with a comfortable yearly salary of $60,000 for my family? Raising the minimum wage the $3 that is the current suggestion costs me an addition $9 per hour. At 40 hours per week. At 52 weeks per year. Suddenly that 'modest' increase has reduced my income by nearly $19,000. I'm supposed to reduce my income by almost a third? Odds are one of those employees is being let go, the second is going part time, the last one stays but is expected to pick up the extra slack and I'll eat the difference and take the $9,000 hit to my income and struggle to keep afloat.

Yeah, we're all better off there. Good move.

I suppose I could try to generate an addition $19,000 in revenue, but that's not going to translate to a penny a box for pasta because I don't move a gazillion boxes. I'm not Wal-Mart. It's going to translate into a real price increase that will affect both my business and my customers.

There's a lot more businesses like my mythical one out there than companies the size of Wal-Mart.

Your logic applies if we live in big box world. In fact, it pushes us closer to that world and we're already too close as it is. Don't create a situation where the Wal-Marts and McDonalds of the world are the only ones big enough to do business because of the employee costs involved.

A good counterargument would be to use my own 'raising the bar' thing against me. Maybe the bar has been raised so high that small business brings small income and just existing as a business doesn't guarantee a 'living wage' anymore.

And I'd be hard pressed to argue that.

But here's the thing. Your way creates a situation where we rely on employers. It's a big box world with lots of regulation to maintain equilibrium and you'll forever be at the whim of the system. My way gives you more freedom. More control. More of a chance.

It really feels like there's two distinct lines of thought here. Somebody help me vs I will help myself.

You are going to pay for these employees to be able to live one way or another, dude.

Yeah, just another flaw in the system. (winky - not really)

A full time minimum wage job pays a gross monthly income of $1256. The limit for a individual to receive assistance is $1245.

Unless I'm missing something? (and I might be)

Paying a living wage increases their motivation to do a good job, and their self-worth and enjoyment of life. Forcing them to go to the welfare office to get food stamps and HUD housing lowers their mood and causes health problems stemming from stress and depression.

Victim mentality. It's everybody else's fault my life sucks. You can play victim and fall into whatever weird self loathing spiral you'd like or you can do something about your situation.

You know what would motivate my ass? Having to rely on welfare. I'd be sure to get a second job or find a way to improve myself as quickly as possible...and, as I mentioned, I have.

Gonch, I would never want to be supported by welfare either, and it would be a huge motivator for me as well. I would also argue that yes, there are small businesses that would be hugely affected by a minimum wage increase. One WOULD think, however, that a successful small business would have some sort of plan or preparation for this kind of thing put into place to offset the impact a bit.

There are people in the world who by no fault of there own lack motivation or self-confidence. They don't think they are smart enough, or popular enough, or "good" enough to find a job that will make them more money. This may have been brought on by an unstable family life, bullying, abuse, or whatever. If they had me or you as a life coach, their lives could possibly be different, but they don't.

Businesses rely on people who don't think they are "good" enough. People have no idea that pretty much everyone is good enough, some just don't know it.

So yea, victim mentality may come into play there, but how does society snap everyone out of that? And even a better question, why would they want to? Who would flip the burgers or sweep the floor if everyone knew that they were good enough? The fight to get a step or two higher on the pay scale could get pretty bloody.

And now that I think about it, it's not always how people perceive themselves. I just decided recently to not apply for a new promotion that paid more because I am very comfortable where I am now. I know I could handle the new responsibilities, but I already make enough, so it wouldn't be worth it to me to move. Not a lack of motivation or self-confidence in that situation.

So I suppose everyone is different.

GoBucks89 said:

There are 23 million small businesses in the US so I am not sure on what you base your statement that there are only a few thousand companies purchasing labor.

But in any given labor market, (i.e. city) there aren't even close to 23 million buyers. If that figure's accurate, there's approx. 1 small business for every 20 people in the US. So a city of 100,000 has about 5,000 small businesses. Yeah, so my numbers were not great, but my point still stands.

A more concrete example: Say you live in a city where there are X unskilled small business jobs and X unskilled people. Great! Probably supply and demand makes those jobs pay pretty much what they're worth (I could even argue that, based on inelastic demand, etc. but I won't). Now MegaCorp moves in and provides 1/4 X jobs and runs 1/4 X mom and pop stores out of business. 25% of the population is now at the mercy of MegaCorp's pay scale. They have no option but to submit to whatever MegaCorp offers, regardless of what it is. They can't not take the job. They can't move to another city (because MegaCorp is dominating there as well). So MegaCorp offers them an unskilled job at whatever wage it wants (just barely above what the govt. will pay you to sit on your ass).

Now what do the remaining mom and pop stores have to do? They're already losing to MegaCorp because of economies of scale (and MegaCorps monopsony in the manufactured goods market) so in order to compete they have to cut costs somewhere. They probably hate to do it, but one of the places they have to is on labor. Now every single job in the city is below what it "should be" because MegaCorp came in and didn't have a viable competitor for labor. (Don't even get me started on all the tax breaks they got). (I'm being generous to Mom and Pop for the sake of argument. Maybe they also love the fact that they can get away with paying less, but they probably know their employees and their employees kids so...)

Even if there are 2 or 3 MegaCorps, and 997 mom and pop stores in a city, this scenario will play out in the same way if MegaCorps control a large portion of the buyer side of the labor market.

Its problematic when government benefits pay more work. I read something a few weeks back which indicated that in something like 30-35 states, individuals/families who qualify for all poverty programs (some people don't) receive more in government benefits than they would with a minimum wage job. One way to help remedy this would be to increase the earned income tax credit. Would actually subsidize something we want more of. Would also be less regressive than price increases resulting from minimum wage increases because the poor tend to spend a higher percentage of what they earn than higher income folks.

What plans do small businesses have in place when costs increase? Sometimes they pass the increased costs onto customers. Sometimes that isn't an option (or at least 100% of costs cannot be passed on). In those cases, they cut other costs or live with reduced profits.

What do businesses do when they can't find enough people willing to work for a given wage? They either manage with fewer employees or increase compensation until they get enough workers.

If a living wage means earning enough not to be on public assistance, what level of public assistance? Food stamps? Medicaid? ACA healthcare subsidies? Any of the various low income tax credits?

I hate to say it, but Gonch is making a point that there is plenty of nuance and shades of gray between exploitation and acceptable labor markets. And I agree also that I don't believe we're anywhere near the point of exploitation. Andy is right that we regulate against these bad things, and I agree that we're not at the bad things.

And again, if we dial it back to the news story, let's not forget that the specific Disney case is pretty unique. Remember when Matt Ouimet described people working in theme parks as a somewhat self-selecting group of people? That's a really important thing to consider, that people are willing to blow pixie dust at people all day, drive 20 miles each way to do it, and get paid whatever they can. That's awesome, but if those are conditions are what people are willing to take, then I think Disney is being more than generous, especially if they're bumping the starting wage to $10.

ApolloAndy said:
Now MegaCorp moves in and provides 1/4 X jobs and runs 1/4 X mom and pop stores out of business. 25% of the population is now at the mercy of MegaCorp's pay scale. They have no option but to submit to whatever MegaCorp offers, regardless of what it is. They can't not take the job. They can't move to another city (because MegaCorp is dominating there as well). So MegaCorp offers them an unskilled job at whatever wage it wants (just barely above what the govt. will pay you to sit on your ass).

25% of the work force. (just saying)

Seems to me in the scenario described above (unskilled labor at the 'mercy' of MegaCorp), that the key is to change the situation.

You suggest regulation (force MegaCorp to pay these people a "living wage"). I suggest personal responsibility (change your situation so you're no longer reliant on the power MegaCorp wields). Reality lies somewhere in the middle.

Which is where we are right now.

This seems like a good time to quote Jeff's summary of the thread:

Jeff said:

I hate to say it, but Gonch is making a point that there is plenty of nuance and shades of gray between exploitation and acceptable labor markets. And I agree also that I don't believe we're anywhere near the point of exploitation. Andy is right that we regulate against these bad things, and I agree that we're not at the bad things.

ApolloAndy said:
But in any given labor market, (i.e. city) there aren't even close to 23 million buyers. If that figure's accurate, there's approx. 1 small business for every 20 people in the US. So a city of 100,000 has about 5,000 small businesses. Yeah, so my numbers were not great, but my point still stands.

Yes it still stands though I still disagree with it (at least in terms of your point establishing that there is unfair competition resulting in the undervaluing of any given portion of the labor pool).

A more concrete example: Say you live in a city where there are X unskilled small business jobs and X unskilled people. Great! Probably supply and demand makes those jobs pay pretty much what they're worth (I could even argue that, based on inelastic demand, etc. but I won't). Now MegaCorp moves in and provides 1/4 X jobs and runs 1/4 X mom and pop stores out of business. 25% of the population is now at the mercy of MegaCorp's pay scale. They have no option but to submit to whatever MegaCorp offers, regardless of what it is. They can't not take the job. They can't move to another city (because MegaCorp is dominating there as well). So MegaCorp offers them an unskilled job at whatever wage it wants (just barely above what the govt. will pay you to sit on your ass).

But people often do have other options (and I think its more often than they would like to admit). They can move to find a job (much of population growth (and lack thereof in certain parts of the country) over the past couple decades has been with eyes towards finding jobs). They can take steps toward obtaining skills that take them out of the minimum wage market. They can work their way up to making more than minimum wage.

(Don't even get me started on all the tax breaks they got).

I suspect that in the majority of cases when those tax breaks were enacted, there was at least one politician championing community benefit, common good or something similar. Without some way of objectively determining "common good" and then implementing it, you are left with pretty much anyone able to claim the concept to do just about anything that they favor.

Even if there are 2 or 3 MegaCorps, and 997 mom and pop stores in a city, this scenario will play out in the same way if MegaCorps control a large portion of the buyer side of the labor market.

Seems to me you could use this reasoning to argue most (if not all) employees in any given market are underpaid as MegaCorps don't just look to reduce labor costs at the low end of the labor pool and will thus drive down comp for everyone. And anyone who sells any good or service in that market undervalued because MegaCorp will seek to drive down the prices of everything it buys. And in markets where sellers have leverage, all goods and services are overvalued.

GoBucks89 said:

But people often do have other options (and I think its more often than they would like to admit).

They can move to find a job

To find *a* job yes. To find a job with decent pay, no.

They can take steps toward obtaining skills that take them out of the minimum wage market.

If they're not working two jobs at 29 hours/week each to barely keep food on the table.

They can work their way up to making more than minimum wage.

Not in most of the MegaCorps I have (anecdotally) heard about. In fact, my anecdotal evidence suggests that there's super high turnover specifically to prevent anyone from gaining seniority or expecting a pay increase.

Without some way of objectively determining "common good" and then implementing it, you are left with pretty much anyone able to claim the concept to do just about anything that they favor.

I feel like there probably is some objective way of determining this, but MegaCorp putting mom and pop out of business, driving down prices and wages across the board, all the while creating dead end jobs with no potential for a living wage probably doesn't fit it. Politicians love to give them tax breaks because "they create jobs" but the jobs they're creating are crappy, low end, dead end jobs and often come at the cost of decent paying jobs from small businesses.

Even if there are 2 or 3 MegaCorps, and 997 mom and pop stores in a city, this scenario will play out in the same way if MegaCorps control a large portion of the buyer side of the labor market.

Seems to me you could use this reasoning to argue most (if not all) employees in any given market are underpaid as MegaCorps don't just look to reduce labor costs at the low end of the labor pool and will thus drive down comp for everyone.

Except that there are a hell of a lot less skilled workers in a given market than unskilled. The skilled workers are not as easily pitted against each other because they have other options.

It sounds like the bottom line of our disagreement is how much these unskilled laborers really do or do not have other options aside from bending over and taking it from MegaCorp.

GoBucks89 said:
Without some way of objectively determining "common good" and then implementing it, you are left with pretty much anyone able to claim the concept to do just about anything that they favor.

Let me give you a better response, which probably informs my entire position here.

MegaCorp has self interests. The Jones family has self interests. Often times these interests are aligned. Great! So far, so good. Nothing wrong.

When these self interests are in opposition, who do you think will prevail? Who has the power to make sure their self interests are served? I'm not passing judgment - if I were in MegaCorp's position, I would do the same thing. But their self interest will be served the vast, vast majority of the time. You can take out "Jones family" and swap in "neighborhood association", or "local school", or "local church", or "small business", or "non-profit", or "low income part of town" or "local government" and if MegaCorp is Mega enough, you can even swap in "federal government." The people with the big money will always have the power to serve their interests when they're in conflict with the interests of those without money.

So my real answer to your question is that there has to be accountability. Someone - the government, the civic organizations, the churches, the schools, the Jones families - someone has to gather the power to fight for the self interests of those who don't have money and hold accountable those who do. When such accountability exists, I claim we have the greatest chance of serving the actual common good.

ApolloAndy said:
I feel like there probably is some objective way of determining this, but MegaCorp putting mom and pop out of business, driving down prices and wages across the board, all the while creating dead end jobs with no potential for a living wage probably doesn't fit it.

Hindsight is 20/20. Its easy to look back with knowledge of how things developed and see what wasn't desirable and what might have been done differently. But that knowledge wasn't available at the time the initial decision was made.

There isn't a lot that anyone can do in terms of controlling the types of businesses we have. Zoning can be used in some instances but you typically do not see different types of zoning based on expected wage levels of the related jobs.

Politicians love to give them tax breaks because "they create jobs" but the jobs they're creating are crappy, low end, dead end jobs and often come at the cost of decent paying jobs from small businesses.

I agree that politicians will pretty much do anything at this point if it will create a handful of jobs. In large part that is due to the weak labor market for the past several years though in parts of the country (certainly Ohio), that view has been common for a lot longer. Biggest driver there IMO is short term views of politicians (no reason to think beyond the next election cycle which now usually starts the day after they take office).

Except that there are a hell of a lot less skilled workers in a given market than unskilled. The skilled workers are not as easily pitted against each other because they have other options.

I know some skillled folks in certain industries and markets who would disagree with the notion that they have many other options and aren't being pitted against each other. But I agree there are more options available to them than unskilled folks. Though at what point does the number of options diminish sufficiently to warrant intervention?

It sounds like the bottom line of our disagreement is how much these unskilled laborers really do or do not have other options aside from bending over and taking it from MegaCorp.

Seems to me we are talking about a number of different but related issues so I am not sure if there is a bottom line to them. But I do agree that we disagree on the number of options for unskilled laborers.

To me, that IS the bottom line - too many different and seemingly unrelated topics that all seem to suggest "the free market will take care of things better than any of us (or even all of us) could." Of course, that completely ignores the fact that "the free market" is anything BUT what we have - the government, for good and for ill, determines winners and loser every single day. The difference is that those in possession of legal authority now receive such extraordinary backing or opposition from those in possession of extreme wealth that no legal decisions or rules are made that curtail that economic power - lest the legislators/judiciary be taken out in a primary or general election for failing to "play the game."

Does anyone REALLY wonder why the Kochs and Adelsons sink billions into our elections? It's not out of the goodness of their heart, or of their concern for our democracy. They're *investing* in the future (and before anyone can even say George Soros, show me the laws he had a hand in crafting that he wanted enacted in exchange for campaign contributions). I'm not saying there's nothing there, I honestly don't know, but it sure CANNOT compare to the vast untraceable network of money funneled through Chamber of Commerce, American Enterprise Institute, Americans for Prosperity, Americans for Tax Reform, etc., etc., etc.).

I went back and poked around the first few pages of this thread. It's interesting (to me, at least) how the discussion has grown and evolved.