> But there are growing fears of a wage-price spiral in which workers, seeing rising prices, demand higher pay — and companies, having to pay their workers more, start charging higher prices. These higher prices lead workers to demand even higher pay, leading companies to charge higher prices, and so on. It's the inflationary cycle of nightmares.
Can someone explain to me how this works? I'd assume wages to prices are a bit asymmetric. E.g., McD's sells 100 burgers per employee per hour at $2 each. It raises wages from $10 to $15/hour. To keep margin, it now needs to charge $2.05 - which is an increase, sure, but asymmetric: a 50% increase in wages implies a 2.5% increase in prices.
Assuming that occurs everywhere - why do workers need to now demand still-higher pay?
also they have to account for the ever increasing bonuses to the c-suite.
See Chipotle.
"While Chipotle attributes raising menu prices to the growing price of labor, some analysts point to high CEO compensation as another factor. In 2020 CEO Brian Niccol took home $38 million, $1.24 million of which was his base salary. The rest was made up of other incentives and an annual bonus."
>So that CEO bonus costs ~$0.13 per salad sold. [...] but that seems like a lot. I doubt the CEO's value is irreplaceable.
The flaw in this analysis is that you think chipotle only sells salads. They obviously don't. At least based off my experience most people order burritos/bowls, not salads.
Here's my analysis: per wikipedia, chipotle has revenue of $5.586 billion in 2019. If we divide CEO's salary by that, we arrive at 0.68 cents per dollar of revenue. According to wikipedia, chipotle doesn't franchise, so we can assume that's all food revenue. Assuming a salad that costs $10, that's 6.8 cents of CEO comp per salad sold.
no idea but I would wager that McDonalds sells a ton more burgers than Chipotle does burritos.
Funny addition to this is that the NY times just published an article on this topic with this funny anecdote:
"On a chilly Tuesday afternoon this month, James Marsh stopped by a Chipotle near his suburban Chicago home to grab something to eat.
It had been a while since Mr. Marsh had been to Chipotle — he estimated he goes five times a year — and he stopped cold when he saw the prices.
“I had been getting my usual, a steak burrito, which had been maybe in the mid-$8 range,” said Mr. Marsh, who trades stock options at his home in Hinsdale, Ill. “Now it was more than $9.”
You're assuming McDonald's has a much higher profit margin than it actually does - it's a restaurant chain, not a software company. In other words, the wages for the guy making the burger isn't the only input to cost. E.g., if the beef in that $2 burger used to cost $0.50, it might cost $0.75 now, partly as a response to the need for the farmer to pay himself more. There's also the people working at the meat processing plant, everything that went into the bun, the transportation costs, marketing costs, etc.
Also, I am only going to pay so much for a McDonald's sandwich before I decide the cost to quality ratio is too high, and either make it myself or go to a restaurant that has a better cost to quality ratio.
I find the making it myself option to be much better due to the increased volatility of quality. Sure, I might spend 2 hours cooking and cleaning, but I know the quality will be good 100% of the time, whereas spending $25 per person may or may not get me a decent meal because the restaurant does not have steady employee and/or is cutting corners on quality ingredients to make up for other cost increases.
I think this would hurt the middle restaurants more than McDonalds though. McDonald's has it all streamlined so they can manage costs and still delivery consistency at a low price, but the restaurants in the middle that are okay, but not top tier no longer make sense.
> I find the making it myself option to be much better due to the increased volatility of quality.
I am not a good cook, but I did learn to cook the things I like to eat out specifically because of this consideration. In the beginning, it was a more difficult decision, but now I wouldn't for the world trade my certain home cooked dishes for restaurant ones.
Labor is a tiny fraction of the total cost of most products. We could double wages at the low end ($30 minimum wage) and not affect inflation significantly.
I'd say that a service industry that can't pay workers (primary producers of the service, that can't be replaced) a "living wage" is exploitative and should probably be reworked or disbanded.
Do we want to be cooked for and served by folks who can't make ends meet? Do we want our kids taught by folks who can't afford to buy a home?
I'd love to, but my search fu has failed me this morning. (All I could find were corporate blogspam and investopedia definitions and such.)
To be perfectly frank with you, I was just talking out my behind above. I view economists as the modern equivalent of court astrologers, and having no respect for their "science", I feel no need to honor it or refer to its conclusions. I believe that econ papers say whatever the person paying for them wants to hear, so I personally don't see any point in referring to them.
Presumably if the meat packers also raise wages to keep up with inflation, they will have to charge McDonald’s higher prices for patties. Similarly for lettuce growers, beverage bottlers, etc. All these would put small amounts of pressure on the price of a burger. If the ultimate price ends up going from 2$ to 3$, suddenly the 10$ to 15$ wage hike doesn’t mean anything (except for people who didn’t get the wage hike in the first place).
Tripled sounds like a lot, so I trawled through some old pictures of the BK menu. I think the NJ price from 2011 is probably the closest to Seattle (price varies by location), so the whopper meal price is ~1.66x. Inflation is ~1.27x
Ah, so it's necessarily a compounding effect across the supply chain, then? E.g. assuming 2.5% price increases: energy costs are 1.025x as expensive > fertilizer is now (1.025^2)x as expensive > crops are (1.025^3)x > beef is ^4 > patties ^5 > so now McDs pays 1.025^5 = 13% more on beef, pushing prices up >13% of their avg previous beef cost. The argument is that it could easily get above 50% given cycles in the economy.
Can someone explain to me how this works? I'd assume wages to prices are a bit asymmetric. E.g., McD's sells 100 burgers per employee per hour at $2 each. It raises wages from $10 to $15/hour. To keep margin, it now needs to charge $2.05 - which is an increase, sure, but asymmetric: a 50% increase in wages implies a 2.5% increase in prices.
Assuming that occurs everywhere - why do workers need to now demand still-higher pay?