Why Entry Level Workers Should Oppose Floors on Wages


There has been a new push through work centers – once only appearing in Southern states where unions were not represented – to organize workers in entry-level industries.  This has resulted in unionizing of car wash workers in New York and one-day strikes at fast food restaurants at a handful of cities.  Certainly the idea of doubling one’s wage might sound appealing.  Those in entry-level positions that require little training might also feel easily replaceable and therefore want some job security and see unionization as a way of getting that protection.

What those in these positions should consider, however, is that while their jobs are not likely to be sent overseas as have many factory jobs as wages and benefits in the US have risen and work rules have become more restrictive, they are more in competition with technology than are those in jobs that require more decision-making, creativity, and experience.  Indeed, if wages were doubled at fast food restaurants in big cities, I would expect to see cashiers replaced with kiosks to cut the staff from eight down to two to four in most restaurants.  The technology is certainly out there, and with many fast food restaurants now accepting credit cards the issue of accepting payment is largely gone.  At $8 per hour it is not worth going through the expense of acquiring the computers and software. At $15 per hour, it suddenly looks like an economic option.  At $20 per hour companies may even install the technology needed to cook and package the food.

Perhaps a franchisee would operate a restaurant by himself, periodically adding fries and burgers to a hopper.  Customers would go through a drive-thru or take-out window (cleaning the restaurant would require too much labor), and place an order through a touchscreen, smart phone app, or voice recognition software (“Did you say large burger with fries?  OK.”).  Once the order is placed various machines would send the burger down a conveyor belt over a gas grill, drop some fries from a hopper into the oil, and fill up the drinks.  This would all be packaged using the technology found in the manufacturing industry today.  The technology is ready – it just isn’t worth the price and the effort, yet.

Note that we have already seen this movement from wage workers to technology in other places.  One used to check baggage with a ticket agent.  Now you are directed to a set of kiosks.  Car rental agencies have also gone to kiosks.  While there are some bugs to work out, supermarkets and hardware stores are also experimenting with self checkout lanes to reduce the number of cashiers they need to hire.

More and more, companies are reducing labor by finding things that customers are willing to do themselves through the internet.  With school fund-raisers, rather than sending in a hand-written order form, parents are forced to enter the orders themselves online.  One wonders why the company collects anything at all since the parents make the sales, enter the orders, and then deliver the merchandise. When buying tickets one places the order and then even prints the tickets.  States are even going to web applications and kiosks for driver’s license renewals.

Worrying about job security in  entry-level jobs by a capricious boss are largely unnecessary.  Security from being replaced by others in any job is a matter of being more valuable to your boss than others. Luckily, in the entry-level job market, the competition is fairly lax.  If you show up on time, dressed and ready for work, and do your job efficiently while you are there you will be doing better than 80% of your peers and very unlikely to be replaced by someone else.

The secret to earning more money is to become more valuable than you were when you started and more valuable than others earning less.  Learn to work efficiently and reduce customer wait times and you will be pleasing customers and bringing in more revenue for your employer with shorter turn-over times.  Learn to manage people and you’ll have a rare and valuable set of skills that will be rewarded.  Show that you are responsible enough and capable of running things such that the owner can leave the business for periods of time and know it is being run well, and you will be invaluable.

In an environment such as this, where the technology is there to automate many processes, the worst thing employees could do is to raise the cost of keeping them on staff.  To keep these jobs from being automated, employees need to keep the cost of labor below the cost of the technology that could replace them.

The other thing to do is to add value that cannot be provided by a machine.  Give a smile and a greeting that brightens your customers’ day.  Make recommendations on the best way to order, say saving money or getting extra products for little more by getting a combo.  Put the service back into the service industry.  Do what you can to make the customers choose your restaurant over the one across the street. It may be cheaper by the hour to install a kiosk, but it will not be worth the trade if business and customer satisfaction will drop.

If all you are doing is entering customer orders, you could be easily replaced by a touch screen.  Humans have interpersonal skills, creativity, motor skills, and decision-making skills that are far beyond the capabilities of machines.  To keep from being replaced by them, don’t act like one.  Make use of what makes you human.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Is Your Income/Lifestyle Balance Sustainable?


Once again we see fast food workers striking in New York City, Detroit, and elsewhere, demanding “living wages” of $15 per hour and the right to unionize.  Certainly it would be difficult to live in New York City on $8 per hour, but that doesn’t mean that the people visiting fast food restaurants would be able (or willing) to pay enough for their hamburgers to sustain workers at $15 per hour.   At some point people will decide to just cook at home or heat something up in the office microwave instead of going for fast food.  You can’t charge more for a service or product than it is worth to the people buying it, no matter what your cost of living is.   You would think that people in Detroit, of all places, would have figured this out by now.

The fact is, what your costs are has no bearing on the value of the product to the person buying it.  This is also true for the owners of the fast food restaurants.  Just because their labor costs are higher doesn’t mean that they can sell their products for more.  Cities can certainly pass laws to require high wages or labor unions can strike and force through high wages and other work rules.  This will force employers to raise prices, however, and as they raise prices to cover labor costs they will sell fewer products.  At some point they won’t be able to make enough money to cover costs at all.  At that point they will close up and open a restaurant somewhere else or just do something else to earn money. Then none of the workers will have a job anymore even if they were making a lot of money before.

So, if you can’t live on $8 an hour in New York City, and you can’t get paid $15 just because you need that much to get an apartment and buy food, maybe you shouldn’t be living in New York City.  Go just 100 miles up the road into upstate new York or rural New jersey and you can find apartments at one tenth the price of NYC apartments.  You can find food at 50-65% of NYC prices as well.  It might be that fast food restaurants can’t survive in New York City at all, or maybe they will only be staffed by teenagers and retirees who don’t depend on the job as their sole source of income.

While it is a lot less extreme that the NYC/fast food worker example, many other people attempt to maintain a lifestyle that they can’t maintain with their income.  They will complain about all of their bills and say there is no way they can live without maintaining a credit card balance.  They may live in an area where home mortgages consume 40% of their take-home pay each month and then wonder why they can’t afford to save for their kid’s college or retirement.

In many cases, the place you live has a big effect on your ability to grow wealthy.  Often a move down the road less than 100 miles could change your station in life entirely.  Perhaps instead of living in San Francisco, you live in Fresno and then drive into San Francisco when you want.  Or maybe conversely you live closer to work to reduce the costs of your daily commute (and the meals out you buy because you spend 2 hours a day in their car) and then dive back to visit friends in the small town you grew up in when you want.

Some may say, for them, the benefits of living in a big city or their small town outweight the additional costs.  If this is the case, that’s fine.  Becoming wealthy generally requires living in a different way from most people.  It requires sacrificing for a period of your life while you are building up assets.  You will not be able to do this if your living costs are large compared to your income.  Some are not willing to make the changes needed to bring these things in balance.  It is not for everyone.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Could the Healthcare Act End Upward Mobility?


One of the beautiful things about America and other economically free countries around the world is the ability for people to go from poverty to middle-class or middle-class to wealth in one generation.  As some of the recent minting of billionaires at Google, Amazon, and Facebook have shown, it is even possible to become insanely wealthy with a great idea, a whole lot of hard work, and a bit of luck.  Because people are rewarded for meeting the needs of others by getting to keep most of what they are paid and because there are property rights that keep others or the government from seizing the property they have amassed, there is the opportunity for virtually everyone to increase their station in life.

It is true that few people take advantage of this.  Most people in the middle-class spend just a little more than they make each month.  They therefore end up with little to show at the end of their careers.  Because of people living beyond their means they are also not able to pay for things like college for their children and major repairs like new roofs or air conditioners without taking out large loans, resulting in a lot of wasted labor going towards paying interest.  Still, contrast this with countries like Soviet-era Russia and India where the government or societal traditions dictate your station in life.  I maintain that any worker in the United States – at least the United States of 1990 – can become a millionaire by the time he retires.  Those in the middle and upper middle-class – those making $50,000-$150,000 per year, say – can become multi-millionaires.

This may very well end if the Healthcare Act, a.k.a. Obamacare, is implemented over the next few years.  We are already starting to see some of the effects of this law as businesses get ready.  For example, a lot of businesses are cutting the number of fulltime workers so that they will not need to provide heath insurance.  This is resulting in a lot of 24 to 30-hour per week workers, either cutting incomes or forcing people to take two jobs.  Perhaps this is by design – many in the Communist party advocate for a 30-hour week so that employers will need to hire more workers to do the same amount of work.  They fail to understand that an employer cannot afford to pay a worker full-time wages for part-time work.

Indeed, the reason businesses are cutting worker’s hours and positions isn’t because they are heartless and don’t want to see their profits cut.  The issue is that the profits from each worker are so low in those businesses that they cannot provide the comprehensive insurance required by the law and make any profit.  After all, no one will go to a fast food place and pay $10 for a hamburger.  At some point the cost of labor will become so high that people will stop going out to eat and cook at home, meaning these jobs will disappear.

The largest flaw in the healthcare law isn’t the requirement that people get insurance.  Everyone should get insurance unless they have enough money to self-insure.  (In other words, you have a few million dollars in the bank and can just pay for virtually all medical procedures.)  The reasons that healthcare costs are so high, however, are that:

1)Healthcare plans cover everything, and people go to the doctor and pick the highest cost options without thinking about anything more than the co-pay if there is one.

2) Rates listed on bills are a lot more than insurance companies actually pay, making it difficult to determine what the real prices are.  If you don’t believe me, try asking what the price is for a procedure – chances are even the front desk at the doctor’s office won’t know.  Aspirin may be listed at $10 each in the hospital, but they are probably happy just getting $2 each for them.  There is a lot of hassle and negiotiation involved for those without insurance to get these rates, however.

3) A lot of people don’t pay for their healthcare, particularly at hospitals, meaning that those who do pay and up paying a lot more than the true cost plus a reasonable profit.  You’re paying for both your procedure and that of ten others who don’t pay.

Obamacare goes in exactly the wrong direction, however.  The right direction would be to require everyone to save money in a health savings account so that they can pay cash for the little things and to have a high deductible plan for the big procedures that don’t happen very often.  This is true insurance because most people don’t have heart surgery in any given year, as opposed to what is called health insurance now which is really just paying for expected healthcare through insurance companies rather than just paying directly.  Because everyone would be paying the doctors, the prices would drop.  Insurance rates would also drop because they would only be paying for the big things and everyone would be paying the hospitals through insurance so hospital rates would drop.

Obamacare will just add a large government workforce on top of this with its own costs.  People will still be going to the doctor for everything and not caring about the cost of their procedures since they will be paying the same amount no matter what the insurance, or the tax payers, pay.  This will eventually result in the government trying to cut costs by deciding who gets what procedures, and you can bet politicians will be the first in line.  (I haven’t heard any calls to eliminate the Senate physician role and government workers unions are fighting not to be put on Obamacare.)

Under the new law, young people will see the cost of their health insurance rise by about $5000 per year during the early years, and probably by a lot more within a few years.  This will not be because the cost of their healthcare will be anything more than a few hundred dollars per year before they are about 50.  It is because a lot of their money will be used to pay for the older generation who will be using a lot of healthcare.  Indeed, like Social Security, this is a huge transfer of wealth from the young to the old.  At least in this case they elected the officials who enacted the law, unlike Social Security in which they had no vote because their grandparents weren’t even born yet.  (You do have a vote now, however, hint, hint.)

Some will simply not pay for insurance because they can’t afford it or don’t want to see so much of their money going to something they will not use for years.  Instead they will pay a couple of thousand dollars in fines or lie about their income to get higher subsidies.  This will drive the costs for those who are paying higher.  Other will see a huge new cost when they don’t have a lot of extra money left over after each paycheck.

The real unfortunate thing about this is that young people will not have the money needed to save and invest with this huge new cost on their plates.  A few thousand dollars per year is all that is needed to become wealthy.  With Obamacare, this money instead will be going to fines or healthcare that they will not use while they are young.  When they are older, they will be forced to take whatever they can get from the system because they will not have money saved up and therefore not have any choice.  They had better hope the system is as great as supporters of the law say, because they will have no other choice.  If the plan is to prevent people from moving up in society, this is the way.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.