There are lots of people out there every day, working hard to support their families, and through no fault of their own they get paid a really low wage.

Let’s assume we agree that we need some kind of minimum wage, to ensure these guys are able to do a fair day’s work for a fair day’s pay, without some fat cat paying them a pittance and waltzing off with loads of profit without lifting a finger.

The most popular model amongst the well-meaning is for the government to get involved and change the law, so that you can’t legally pay someone less than a set amount of money for an hour of their toil.

An industry with lots of low-paying jobs is the fast food industry – loads of young people working in hot kitchens for eight hours a day for maybe £5 an hour.

Let’s assume we think they deserve a bit more, and see if changing the law to try to help them actually works.

Let’s imagine the Prime Minister stands up tomorrow and says “For too long our young people and low skilled workers have had a raw deal, earning too little working for businesses that profit too much. I am proud to announce that effective tomorrow, the minimum wage in the U.K will rise to £10 an hour for all workers. Thank You.”

She sits down.

As journalists sharpen their pencils and young people watching at home heave a sigh of relief that they will get a little help to get on, some ominous noises are already coming from the business machinery.

And here’s one reason why.

A typical fast food restaurant might have 100 employees.

To keep the numbers easy, let’s say perhaps eighty of them will be on the minimum wage of £5 an hour. Taken as a team, their combined hourly cost is therefore……….

£400

Another ten might be junior managers on £10 an hour………..

£100

There might be a few middle managers on £20 an hour……….

£60

And then a senior manager running the joint……..

£40

Add this labour force together – £500 to run the show for an hour.

Now let’s look at what impact the Prime Minister is about to have with her Minimum Wage sledgehammer.

The eighty on the minimum wage just got a pay rise, from £5 to £10 an hour.

£400 has become £800.

Hang on – we have a problem.

The guys flipping the burgers are now earning the same as the junior managers. Before, they were earning double what the burger flippers were. The junior managers are going to want pay rises too. To keep things fair we put them back as they were, earning double…….

£100 has become £200

Hang on – we have another problem.

The middle managers are unhappy – to keep it fair we give them a pay rise too, back to earning double their more junior colleagues……..

£60 has become £120

That’s right.

The guy running the show is up in arms – he thinks it’s all unfair too:

£40 has become £80

We just doubled the cost of the entire workforce.

But hey – all the workers are now a lot more cheerful, and the customers are happier as a result. The place soon gets a reputation for treating its staff well, and more customers start arriving to give the place a try. More customers equals more staff and more tills ringing, so the owner of the place is happy too, right?

Guess again.

Somewhere many miles from the restaurant, some joyless accountant is fiddling with a calculator and looking sad.

He calls the owner.

“Er…….you have a slight problem.

Total labour costs before were 30% of revenue.

Profit margin before was 10% of revenue. All was well.

Total labour costs now are 60% of revenue!

Profit margin now………..well it’s gone. You’re 20% underwater. Byeeeeee”

Result?

Restaurant closed – everyone fired.

Oh very good Prime Minister.

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Tommydog
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Tommydog

To which many proponents of substantial increases to the minimum wage would argue that business closures are a feature and not a bug because of all the new businesses that will take over the facilities and take advantage of the opportunities to run more profitable businesses enabled due to the increased spending ability of all those workers on higher minimum wage. I kid you not.

Spike
Member

I am less charitable than the author. It is not “through no fault of their own” that they earned such little pay. It is wholly their fault that they did not attend night school, learn better English, arrive at work on time, hide their contempt for the customer, show aptitude at doing something higher than flipping burgers, and so on. Some employees’ value to their employers is very negative, requiring full-time effort of several good employees to undo. This too is not “through no fault of their own,” though after they are fired, they will tell you it was over… Read more »

Tommydog
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Tommydog

Many such employees are teenagers and are often doing what you advocate. For those, this is a first job and they’ll move on. From the US Bureau of Labor Statistics “Age. Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the federal minimum wage or less. Among employed teenagers (ages 16 to 19) paid by the hour, about 10 percent earned the minimum wage or less, compared with about 2 percent of workers age 25 and older. ” So, even among… Read more »

Spike
Member

I agree entirely. By the way, this means that the unions’ stereotype of the minimum-wage employee desperately “supporting a family” is a lie.

Tommydog
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Tommydog

you’d have to look hard.

GR8M8S
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GR8M8S

Not really, think of all those teenage pregnancies. As an aside the government also loses out when said business goes under – no profits to tax!

Rhyds
Guest
Rhyds

The other option of course is automation. Order taking is already automated at McDonalds.

Spike
Member

Likewise order fulfillment. “Flippy” the $60,000 burger-flipping robot has been all over the news. We have come a long way since Michael Dukakis disparaged this job and told us that, with him as President, we would have “good jobs at good wages.”

Bloke in Cyprus
Guest

Quite.

They’ve introduced the auto order things at one of the McDonald’s in Limassol.

They’ve also replaced the (excellent) order taking staff with mongs that are completely incapable of taking your order…

Well played!

Twatting on Tim
Guest

That reminds me I have to pay the lady that does for me an hours overtime for cos she cleared my drive of snow before I took the dog for walk. Then there’s the other one – the feral one, if you like (feral as in wild and out of control) – existing way beyond the limits of the real economy and only loosely related to it, made up of the enormous financial balances denominated in cash of various sorts, existing only as entries in computer ledgers. Some of these cash balances are backed up by supposed assets, which are… Read more »

Fred Z
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Fred Z

Whole lot of words to say nothing.

Gamecock
Guest
Gamecock

Word salad, it is.

BniC
Guest
BniC

I look forward as minimum wages raise to five guys burger and fries rebranding to four guys burgers and fries, though I’m surprised they are allowed to use guys in the business name these days

BniC
Guest
BniC

let’s all worry about robots taking peoples jobs and let’s also make those jobs expensive enough that it’s worth investing in robots….expecting joined up thinking is futile

Dave
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Dave

You can make any point you like with imaginary numbers. In reality, fast food franchises don’t have anything like a 100% difference between pay grades.

Not that it matters, because economics happens at the margins. This imaginary example is as absurd and unpersuasive as when my wife complains about the way I might do things she’s imagined.

Am I reading the Guardian now? Or is CT going to try and exercise some editorial oversight and prevent arrant nonsense cluttering the pages?

Diogenes
Guest
Diogenes

I guess Dave is referring to the interminably dull screed from Twatting.

Dave
Guest
Dave

No, I was referring to the Guardian-quality drivel masquerading as an article. Just because some idiot is broadly following the path one agrees with because it’s correct, doesn’t mean one should suspend all critical faculties when assessing how well or otherwise they argue the case.

Of course the minimum wage is a bad idea, but this quality of writing actually works to persuade people otherwise. ‘Why is he fabricating a case if there’s a good argument to make instead?’ is the question that springs to mind. Most people will end up assuming there isn’t the alternative good argument.

Diogenes
Guest
Diogenes

Twatting is getting worse. It only took 3 sentences for me to realise he was way off topic and the mark

HopsNotHats
Guest
HopsNotHats

“Add this labour force together – £500 to run the show for an hour.”
Is this what they’re teaching in schools these days? When I went to school, 400 + 100 + 60 + 40 = 600. Oh well, you live and learn.

BniC
Guest
BniC

I assumed the simplistic nature of the exercise was just to illustrate the point that changing wages is not an isolated event and that there will be consequences of some sort.
If minimum wages go up and employees pay more tax and receive less in work benefits I wonder if that’s a net gain to the tax take after if you were just to net the lower Corp tax off assuming it all flowed to bottom line

jgh
Guest
jgh

“The guys flipping the burgers are now earning the same as the junior managers”

NO THEY’RE NOT. They’re being ****PAID**** the same as junior managers. That’s the whole point of a minimum wage, to set a floor on what people are ****PAID***** regardless of what they EARN.

Gamecock
Guest
Gamecock

“Let’s assume we agree that we need some kind of minimum wage”

Nope.

And what’s this ‘we’ shit? What the boss and employee agree to is none of WE’S business.

Bloke in North Dorset
Guest
Bloke in North Dorset

The other advantage of using flipper and firing half the workforce is that labour productivity improves, hooray! Everybody’s happy, except the poor sods who can’t get an entry level job to demonstrate an ability to turn up time, work as part of a team and deal with customers.

We’re then back to the old lament that you can’t get a job without experience and you can’t get experience without a job.

Mr Ecks
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Mr Ecks

Tim–Twatty is just using Contins to reprint Murph’s shite. I would normally–ie on the proper blog– enjoy fisking the shit out of the both the idiots. I started on yesterday’s Murphbollocks but –one third of the way thro’–trying to get rid of one of Contins POS pop-ups caused me to delete the lot. I have deleted stuff on the old blog many times thro’ my own mistake and always started again but I don’t like this ADD mess over here and I am not inclined to do so. I suggest that you remove from Twatty’s postings anything that his not… Read more »