They haven’t. But if labor is already one of your biggest costs, increasing compensation will also mean increasing prices.

If you increase your prices, then all the rational thinking in the world isn’t going to save you if your customers don’t think it’s worth the price you’re asking because they’re not thinking in terms of inflation versus a year or ten years ago, they’re thinking in terms of the number in front of them versus what they’ve paid in the past and what’s in their bank accounts right now.

Only if the company is barely hanging on as is. If they're profitable, they still have room to increase wages. There is no law out there saying a company has to make as much or more money this year than last year.

Increased labor costs without the headroom to raise prices is more likely to kill small and medium sized businesses, read: most businesses. Even if it doesn’t make them profitless, it’s the same result of the owners decide what they take home at the end of the year is no longer worth their time, shut down or sell (so now the employees are out their jobs) and take a W2 salary for themselves somewhere else.

The market won’t care, we’ll just further consolidate under fewer corporate banners and move on with our lives. I mean I like having a diverse array of businesses to choose from, but maybe you feel differently?

I don't think this reduces down that far. That's part of it, but it's not all of it.

Even if this is true, why is it true? Why are these businesses getting so much less return per employee? Is the only solution to sacrifice wages? Is it worth sacrificing wages for everybody?

We can't just declare a thing presumably bad for smaller businesses and then say end of discussion, there's nothing else worth considering here.

Because most businesses are low margin, and they’re low margin because of basic supply and demand in a competitive business environment. Some places might get away with charging novelty prices for stupid crap, but the coffee shop that charges $10 for a cappuccino and passes the extra margins to their employees is going to receive fewer customers than the place that charges $3 and produces a roughly equivalent cappuccino. Maybe it’s not as good, but is the other one really $7 better?

You can demand higher employee compensation all you like, but customers will be the ones paying for it, as they pay for all costs that the business incurs (if the owners want to stay in business anyway).

Again, customers do not need to pay for all cost increases. Businesses are not non-profits. They take costs, and then some. The amount of "and then some" is variable. Cost increases that do not exceed "and then some" do not necessarily need to be paid by customers.

Low margin is not no margin. As long as there is a margin, this remains true for some level of cost increases.

And your example is excessively reductive. Say the $3 company can't actually retain any workers because their pay is so bad. They will not be serving any $3 coffees, so it's not a threat to the $10 coffees. Also, your example prices sure are, uh, interesting and hard not to read in to.

Customers will pay for all the costs though, in order for the business to stay profitable. The “and then some” you’re referring to is the profit margin, which businesses can reduce, but if revenue (money paid by customers) goes below costs, then the business is now losing money.

> Say the $3 company can't actually retain any workers because their pay is so bad. They will not be serving any $3 coffees, so it's not a threat to the $10 coffees.

The $3/coffee company will likely still find workers who are willing to work for what the company is willing to pay. Thus there is a market-established price for the labor and the floor is a legislatively-established price-control called the minimum wage. It’s not high skill work and you can train someone in a day to operate a drip brewer and an espresso machine.

> Also, your example prices sure are, uh, interesting and hard not to read in to.

There’s nothing much to read into there. I rounded up the $3 option to be generous to the opposition and overstated with the $10 option as a point of comparison that you cannot simply arbitrarily charge more without additional value-add and expect to retain your customers. Seniors on fixed incomes will complain all day about coffee costing even $2, or a single cappuccino going from $2.25 to $3.5 over the course of a few years.

Or, here’s a radical idea, companies could reduce their profit margins and shareholder returns.

But we all know those shareholders would quickly fall into poverty if their returns reduced.

Equally if that’s not possible, the company should fold. We shouldn’t prop up companies with cheap labor, that’s just forcing the poorest in society to provide corporate well fare, and basically the same excuse that was given for preventing the abolishment of slavery.

The restaurant and bar industry has always been notoriously tough. Most fail. Competition is fierce. Successful owners have to hustle to get top line revenue and maintain cost discipline down to individual shifts and boxes of napkins.

My opinion is that the US has an oversupply of restaurants. It’s fundamentally a luxury service. People have come to expect to eat out often at rock bottom prices. We have even bent our labor laws ($2.13) to perpetuate the current market equilibrium.

I think when people mention ideas like taking a hit to business profit margins vs the new boiler plate "it will increase consumer costs" they're typically not talking about Bill's Steak House down the street, they're talking about businesses with massive profit margins that are ruling over larger and generalized markets, at least that's what I read.

With that said the resutraunt labor rate is a bit misleading because businesses are required to pay the standard minimum wage or more in some areas. $2.13 is only what's paid if $2.13 + total tips average out to more or above what the person would earn at minimum wage. This means it's returaunt goers subsidizing business labor expenses. Now, one could argue if that's good/not or if the minimum wage is too low and I'd agree with them but the whole $2.13 or whatever figure touted around is misleading, it's absolutely not that low and if it is, it's illegal and wage theft.

> Or, here’s a radical idea, companies could reduce their profit margins and shareholder returns.

> But we all know those shareholders would quickly fall into poverty if their returns reduced.

That isn't true. Investors will simply move their capital over to other things with better returns. So restaurants will simply close down if they aren't worth running and no one is going to fund them.

> Equally if that’s not possible, the company should fold. We shouldn’t prop up companies with cheap labor, that’s just forcing the poorest in society to provide corporate well fare, and basically the same excuse that was given for preventing the abolishment of slavery.

That is the likely result. Or the companies will invest in automation to make (automated) labor costs predictable. More likely, services that are easier to automate will survive while those that aren't will not.

> More likely, services that are easier to automate will survive while those that aren't will not.

This seems like the most likely thing to happen, and there will probably be many more of the later than the former.

None of this though is obvious to me that will lead to broad based wage increases wrt cost of living out side of those exposed to sectors that are going to become increasing automated and we'll continue to see downward trend in LFP from those exposed to the later.

There is a fear that automation is becoming more affordable, and that eventually most jobs at the low end of the economy will be gone. It is not like technology is standing still here, the problem is what will we do with our labor surplus after that happens (something like a UBI will really be needed or society is in deep trouble).

> There is a fear that automation is becoming more affordable

From whom? Not from me… i welcome it and understand that the incentives are in place to drive this, just like it really always has (like you said: "It is not like technology is standing still here").

> and that eventually most jobs at the low end of the economy will be gone.

Probably true in general, eventually at least.

> (something like a UBI will really be needed.

With our current form of governance (centralized, easily corruptible, lack of provenance/accountability in the decision making chain of bureaucracy, tendency to be opaque from the public) and resource allocation, this is untenable.

> the problem is what will we do with our labor surplus after that happens

And this cannot be a top down thing, if it is, expect heavy resistance when things start to go sideways.

> or society is in deep trouble)

This likely true imo, I think things need to get worse before they get better.

If a peaceful solution through our governments can’t be found, either the poor people will revolt and somehow nationalize the robots, or the capitalists will use the robots eliminate the poor people whose labor they don’t need anymore. Either is a dystopian future that is more likely than most think.

> If a peaceful solution through our existing forms of centralized governments can’t be found, either some people will revolt while most sit to the side and just follow/or killed and somehow those who survive will do something else like people have always have

FTFY, I'm personally not interested in "binning" the future into simple extremes, and the odds of it being anything else than what is encompassed by either:

> nationalize the robots, or the capitalists will use the robots eliminate the poor people whose labor they don’t need anymore

are very high imo.

> basically the same excuse that was given for preventing the abolishment of slavery.

Histrionic sophistry alert

If 5% of your revenue is profit (a very healthy number), and half your costs are labor, an 11% hike in labor costs will wipe out all your profits. Corporate profit margins are smaller than most people think, and labor is usually their largest cost.

That really depends on how “expenses” are counted and deducted.

I'm counting 5% EBIT, to simplify things, so 47.5% of revenues go back out the door as wages.

> basically the same excuse that was given for preventing the abolishment of slavery.

Any point you may have had was lost right here.

What about reducing your profit margins? Why is it "pass it to the consumer" all the time? What about slowing down salary increases for people _not_ making minimum wage? "Costs get passed to consumer" seems to happen way more than "savings get passed to consumer" in the discourse.

When you have someone at HQ making 5 times what your lowest-earning person makes, you could let go of that person, increase wages for 25 people by 20%, and probably improve a hell of a lot of stuff. And that's cost-neutral!

Because that’s more often than not the better outcome for the owners.

A profitless venture is one that won’t sustain itself in the long run. Small business owners as it is often take home less than minimum wage for the hours they put in when you factor in what they receive at the end of the year. Medium business owners often have it rougher because they’re in that awkward place in the market where they have both a high headcount and low margins.

Big businesses can often do what they want within reason, but it’s not like every corporate out there is Apple with massive margins to work with. Big businesses also fail, or have to sell off profitless parts of their business, or get taken over by some holding company.

Also: it doesn’t matter what you or I would prefer them to do. The owners of a business are going to look at their costs, the economics of the market and make a determination for themselves. If they’re put in a position where they have to raise prices just to continue earning a small profit at all, and they lose enough customers, then they’re just going to go out of business anyway.

You clearly know what’s up. Just go apply for some CEO positions, be the change you want to see in the world.

I just understand that people who run companies aren't looking to have a 0% profit margin.

A restaurant that’s closed due to lack of staff is taking a much bigger loss than one that hiked wages to $15. Complaints about worker shirking become less severe as you move up market a bit. Sometimes you don’t have to out run the bear, just a faster than the slowest person.

Why do we feel sorry for the restaurant and not the waiter? The waiter getting more money is good.

When executive compensation has sky-rocketed over the past few decades it's disingenuous to say there is no place to make cuts to avoid raising prices.

You’re thinking of Wall Street while I’m talking about Main Street.

If wages are higher customers will have more money to spend on goods and services.

That right there is the rational argument that doesn’t work if they’re not willing to part with those extra bucks and spend $3 on a cup of black coffee instead of $2.

Customers do not always do what you think they will do. Besides, a lot of daytime customers are on fixed incomes.

Inflation is good for debtors. America is a debtor nation. That’s the other prong of the plutocratic pincer. Inflation ≠ hyperinflation

Well, considering you didn’t have to pay rent for the last 15 months and you were getting $1200 more per month for not working it’s no wonder plenty of people decided to not work anymore.

UBI was tried the last year and I think it mainly failed.

What does increasing wages have to do with free money? Are you suggesting we should work for free? Earning money is entirely different. And I paid my mortgage every month. No break for us.

Just arguing that many (not all) people aren’t choosing not to work because the pay isn’t good enough but rather that because they can’t be evicted while also receiving an additional $1200/month on top of various stimulus checks.

So we should get rid of those things first before we make the argument wages need to be lifted to incentivize people to work.