I run a small business. I know other small business owners. An MBA-like focus on hyperefficiency is rare. Usually people have their views about how the world should work and act in accordance with that.
Some people will come around, but plenty of others will fail to adapt, go out of business and blame "the economy".
This entire thread is totally out of touch with reality.
It does take razor-sharp focus and constant innovation to work out how you can increase margin, though. You can't just arbitrarily raise prices without offering any additional value and expect your business to stay alive.
It seems to be especially popular in the street food business and food industry in general over here: someone thinks that surely one can produce decent <insert whatever here> at reasonable cost and earn some good profit from it, and indeed they can, the customers are happy, the business is growing a-a-and then something happens and the market self-corrects: the price grows to the level of the competitors', and the quality drops to the competitors' level too, now the "playing field" is level again (all products are more or less equally mediocre and equally expensive), wait about a year for another entrepreneur to rinse and repeat this cycle.
There must be some objective reason why that happens though I am really not sure what it is. But whatever that reason is, it seems to have been working pretty much without exceptions for the past ten years at least.
I think I understand the miscommunication now. Sorry for that!
I didn't mean to suggest that you need an MBA to run a small business, just that you need to be constantly optimising, innovating and focusing on raw numbers. I don't have an MBA, but from what I understand this is how MBAs are taught to think.
>I find your take slighly condescending but I want to give you a benefit of the doubt - what makes you think small businesses aren't focused on optmizing their margins?
Maybe it's the people we talk to? I definitely do know guys that are creative and sharp, but for every one of them there are 3 or 4 people who stubbornly refuse to adapt to changes in the market, fail to capture even low hanging fruit in terms of margin (big one is eCommerce businesses that make no effort to minimise postage costs), spend huge amounts of time on activities that bring in minimal value to the business and make no effort to expand into new product categories/markets or make use of new technology. It's just not how many people think.
The small business I worked at previously was closer, but the owner worked longer hours, possibly for less pay, and absolutely had more responsibilities, than I ever did working there. And I assume that led to a divided focus, and in turn, not being able to focus solely on optimizing every dollar.
Distrust in their employees coupled with excessive monitoring on consumables and the like, I think is the most common.
I've patronized, worked at, or know people who worked at places where the employees are doing everything they can to keep a business running despite the owner....often doing what they can to keep said owner from getting their hands too deep into daily operations or in contact with customers.
If they can't give a decent wage [1] then they were not a viable business to begin with, regardless whether they can find some poor souls to work for them. If it takes a mandatory minimum wage to reveal that and bring their demise, so be it - let them stop putting a band-aid on part of the economy and have better businesses take their place.
[1] Which is not the same as: a wage someone will capitulate and agree to work for - there are always e.g. unregistered immigrants, single mothers working 2 jobs, people in emergecy desperately needing anything they can get, kids who just see it as a temp gig to get some pocket money but otherwise live with their parents, and so on, that are desparate for near substinence - or even below substinence...
Yep. 1000%. If your workers need to be on any form of government assistance, you're being subsidized.
Mr. Factory Owner does all sorts of bullshit like paying unlivable wages, not having any employees working over the number of hours at which they'd have to pay benefits, and so on.
But guess who's always got enough money to donate to republican and libertarian campaigns, and has very strong opinions about 'pulling yourself up by your bootstraps' and how wasteful government assistance is?
I can perfectly see a dysfunctional small company draining their business away by just not changing. Happens all the time on Kitchen Nightmares.
I suspect that some business owners will need to take a paycut in order to stay in business.
(I'm sure there are plenty of founders reading this article who sometimes pay their employees more than they pay themselves.)
Had to help a number of people applying to the local equivalent of a labour small claims court.
I for one support raising minimum wage, but the automation / negative outcomes of menial labor being too expensive to hire for will happen whether or not the official minimum wage is increased. UBI is another debate entirely, however I'd also argue that UBI in time harms poor people more than it really helps them and just enriches huge companies and land-lords.
This is true, but obviously the rate at which this happens will matter.
In 1900, 41 percent of the US workforce was employed in agriculture. Due to increasing use of technology, 70 years later only 4 percent of the labor force worked in agriculture. If that loss of jobs had happened in say 20 years instead of 70 years, it obviously would have been a much more painful transition.
https://www.ers.usda.gov/webdocs/publications/44197/13566_ei...
Labor force participation has been falling for a long time as labor sellers (employees) fail to find an adequate price for their labor from employers (the buyer). Many economists assumed this was the fault of the labor seller for not having skills attractive to buyers. It's also possible that in certain segments employers were using labor in-efficiently, or simply miss-pricing the value of a worker.
Which is a long winded way of saying that a higher minimum wage may bring more labor into the market, while simultaneously forcing businesses to leverage automation to improve the productivity of said labor.
Given the massive redistribution of wealth in the US for the last half a century it's pretty clear that's not true, and that what's really been going on is businesses have been squeezing "labor sellers" to death.
If you get X money per month of unemployment and X+20% to work, then yeah, if it's not a fulfilling work (and let's be honest, what work at that price is fulfilling), you'll rather stay at home. Once the "free money" dries up, people will be forced to take the shitty jobs too, but due to many failed businesses, there will be even less jobs available, and this skews the jobs-vs-workers ratio, making wages even lower.
Making it easier (and cheaper) to start a business would create more jobs, raising the price of work, and replace the shitty jobs with better one (in terms of pay and conditions).
Enforcement is a farce.
Interestingly, the illegal immigrants generally got paid way more per hour (~30% higher) and also generally paid taxes via ITIN number. Eventually our restaurant got “raided” and the owners called around to find them new jobs at other places around town.
One guy lived with me for awhile. He eventually went back to Mexico because he saved a bunch of money and wanted to spend it on a real degree/career. The universities in our area told him they’d take his money and let him audit classes but wouldn’t be able to give him any proper documentation like a transcript or degree.
The reason republicans are so hardline on immigration is because "illegal" workers are really easy to coerce and exploit.
They don't call the health department when you make them shit in a hole in the field. They don't call OSHA when you deny them access to water out in the field. They don't call the attorney general when you pay them by what they pick, or only start counting their hours after they've walked half an hour to the field they're picking, and stop paying them the second they stop picking instead of when they get back to their vehicle...because you're too cheap to provide a truck or bus and they'll walk for free. They don't call the police when one of the supervisors smacks them around for accidentally damaging some equipment. Etc.
I don't think many companies are powerful against ICE, especially small restaurants... there are probably political reasons why they choose to target employees and not employers.
If we replaced every millenial deadbeat who complains about how hard it is to be a barista with a hard working immigrant our country would be better off!
Conservatives will block any rise in the minimum wage, but couldn't completely block additional unemployment benefits.
Progressives would back a rise in the minimum wage, but had to deliver on relief for the unemployed working class, so they did just that.
The secondary effect of rising wages was probably only something that conservatives were expecting.
The alternative of forcing people to go to work while covid-19 sick, or being laid off and facing total abject poverty, and such... well not very attractive.
Prices & wages going up was going to be inevitable with inflation, which was on the plate, even if unemployment was never expanded and we forced the working poor to work, or eat our of dumpsters.
I'm a supporter of the idea of UBI but I just can't see the incentives panning out realistically.
Whereas if the federal government creates more money (via debt) and gives it out direct aid to the people, it goes right into the consumer market. Prices rise across the board, getting the CPI to the target level without the Federal Reserve having to lower rates.
There will always be inflation as long as the monetary policy is to create inflation. But government spending at least chooses somewhere explicit for it to end up, rather than the default option of just inflating financial assets (which we've had quite enough of).
In fact their time can be far more valuable (into what money they can command by doing some extra work), so that the opportunity cost between cooking and buying lunch to make it not worth to cook.
I also simply choose to eat out a maximum of 1 or 2 times a month. I can afford 20GBP, I just have better options.
So I guess restaurants that sells food are having a hard time, but restaurants that sells a service have a different story to tell.
[1] See how in the first case it's "to eat in a restaurant" and in the second it's "to go to a restaurant". To me that's the big difference : when you are here to fulfill a natural need (eating), you don't want to pay a lot for it, while you are here to have a nice time out, you will gladly pay more.
Others will change their product offerings to maintain margins.
And some will misjudge the situation, or were too close to the bone to survive in this environment and fold.
If everyone raises wages, they have to raise prices. For the restaurant, this means they have to charge more for the same service, and they have to pay more for their supply chain (because they also increased their prices).
For the worker, that means they will pay more for things and services they need/want, because every other business will suffer from the same issues and be forced to raise their prices.
All this to say, the worker's purchasing power decreases if everyone raises wages, and that is the definition of inflation.
https://www.cbo.gov/system/files/2021-02/56975-Minimum-Wage....
The second point, in the first paragraph:
> Higher prices for goods and services—stemming from the higher wages of workers paid at or near the minimum wage, such as those providing long-term health care—would contribute to increases in federal spending.
The whole thing is an interesting read, actually
Not really. The relative elasticity of various goods and services (including labour) will determine which parties ultimately shoulder the cost. The additional costs could cut through margins or they could be passed on.
This only holds if a restaurant's costs are entirely wages, but actual average labor costs for restaurants (at least in the US) are only about 30%.
That’s only if everyone makes about the same, which is less and less true due to rising wealth inequality. As it stands now, there are people making $200k/year and people making $30k/year, raising prepared food prices isn’t going to chip off everyone’s income the same way.
A rise in interest rates would have much more effect on upper income buying power than a $5 increase in the cost of lunch.
Depends heavily on specifics. Like, which goods and services? How much of someone's purchases do they represent? Are they substitutable? Restaurants deal in the substitutable and minority part.
The relationship between per-unit price and labor cost per unit also matters quite a bit. If labor costs per unit are small, it may not take a big per-unit price bump in order to give labor a substantial raise.
So they need to adjust their prices.
I'm skeptical that a business would choose to go out of business rather that give raises. Have you considered that margins are tighter than you think? I know small businesses like that.