This is an incredible performance and superbly done special effects. I have a hard time believing not everyone is in on the show and that they are all actors, not real customers.
I enjoy teaching about labor markets and things like why fair trade brand coffee cannot prop up the wages of low-skilled coffee farmers like it is intended to do. When entry into a market is easy (i.e., low barriers to entry and only a rudimentary skill set is required), any rents (i.e., income beyond someones opportunity cost) earned will quickly be competed away.
For example, suppose you saw a neighbor buy a lawnmower for $200 and begin mowing lawns for people. Prior to this, you and the neighbor were waiters at a nearby restaurant, which he quit to start this business, both drive small older cars, and both live in the same apartment building. After a few months, you see this person drive up in a new Mercedes and tell you that he's moving to the new neighborhood down the street with moderately expensive homes. Your obvious response is to quit your job and buy a mower and begin mowing lawns. As more and more of you do this, you compete the rents away until you (and your neighbor and everyone else who followed) are earning no more than what you had been earning at the restaurant (assuming most people are indifferent between both jobs).
Art Carden argues (I think correctly) that if you raise the price of meals at fast food restaurants in order to increase the wages of fast food restaurant workers, the only response is that at the margin people substitute away from healthier to to other prepared meals, an unintended consequence of the plan.
But there's a more obvious problem (at least to me), also brought up by commentator Camilo. If wages in the fast food industry rise as a result of increasing the price of food (i.e., half of the value of marginal product increases, but not the marginal product of labor), more people who work in other sectors that pay similar wages and require similar skill sets will opt to work in the fast food industry. This increase in the supply of labor drives down the wages until fast food restaurant workers are no better off than they were before the price hike.
So who benefits? It depends on who has more market power. If there are few substitutes for the fast food in that area, then possibly the owners of the restaurant benefit in the form of increased profits. If the land upon which the restaurant sits has market power (i.e., a mall or other exclusive real estate), then the supplier of land will extract the rents. Lastly, though not likely, it could be the patrons in the form of higher quality food, or the price simply retreats to where it had been before the ploy.
In 1876, bananas were first introduced to the United States public through the Philadelphia Centennial Exposition of America. They sold for 10 cents apiece.
Let's look at a couple of miracles of market capitalism.
First, look at the map below showing all the countries where bananas are produced for consumption in the U.S. Why would anyone living in, say, Honduras, who has probably never met a U.S. resident and is likely to never do so in his or her life, ever spend their time and resources growing and harvesting, and then shipping, bananas for our pleasure?
Second, adjusted for inflation, the price of bananas in 1876 would be about 1.8 U.S. dollars today (i.e., $1.80). And yet I went to the store the other day and paid just 55¢ per pound of bananas, getting nine bananas for $2.14, less than 24¢ each. The standard of living in the U.S. increased roughly eighteen-fold since 1876, but the price of bananas increased by only about 2.4 times.
I do not smoke, and quite frankly, cigarette smoke annoys me. But I do not favor legislation like that passed in North Carolina in 2010 that bans restaurants and bars from setting their own rules about smoking in their establishments. Paternalistic bullies like this group push for such legislation. I would not dine at a restaurant (I don't frequent bars) that allowed smoking, but I believe that the owners are in a better position than am I to determine the true value to themselves and to their patrons of allowing smoking.
Starbucks, which has never permitted smoking inside their restaurants (at least as long as I have ever gone) is now banning smoking within 25 feet of its stores, even in their outside patio areas. Good for them!
This presents an opportune time to bring up Ronald Coase's great insight, and for what he was awarded the Nobel Prize in 1991.
The general consensus is that if someone is smoking, say, in a restaurant, and it bothers me, then that person is harming me. I am having a cost imposed on me by a person who lights up and we must therefore stop the infraction of my right to be free from such externality. Coase's great insight was that harm is not unilateral in that that person's smoke wafting in my direction is bothering me; it's a bilateral harm in that my face (or nose) got in the way of that person's smoke. Had I not been there and no one else cared about the smoke, then there would be no harm done. It's not just that their smoke interfered with my olfactory nerves (?), but that my olfactory nerves got in the way of their smoke.
Now, people have a hard time conceiving of this argument. A exhaled smoke in the direction of B, which changed the environment in and around B, therefore A is a fault for changing some percieved natural environment surrounding B. I think if it weren't about smoking, which has such a negative perception at this time, we might see this differently. So let me offer a different example.
My daughter is repulsed by the smell of peanuts and peanut butter. (I know, this should be illegal in this country. At least in my house.) She is not allergic to peanuts (which is actually not a nut, but a legume), but she has allergic reactions to many tree nuts and a total aversion to peanuts. If I were to sit down next to her at the table to eat our lunches, and I had a peanut butter sandwich, she is made worse off by the smell from both my sandwich and from the residue inside my mouth as I talk in a totally breathy voice directed at her. (All right, not really that last part, but indeed from the smell coming from the peanut butter in my sandwich.) It's not that she just doesn't like the smell, the smell of peanuts and peanut butter makes her nauseous. I therefore tend not to eat peanut butter sandwiches for lunch when she is around.
So my question is, who is harming whom? Am I harming my daughter by eating a peanut butter sandwich for luch, a seemingly innocuous activity? Or is she harming me by limiting my enjoyment of eating a peanut butter sandwich at lunch, opting instead for a lesser desired ham sandwich?
Employees from McDonald’s, Wendy’s, Burger King, Taco Bell and KFC staged protests Thursday in locations around New York City, demanding $15 an hour in pay – more than double the minimum wage some receive – and the right to form a union.
“What we’re finding is that there’s huge support among fast-food workers to form a union and to fight back against the poverty wages that they’re being paid,” said Jonathan Westin, organizing director of New York Communities for Change, which is helping to organize the strike.
“Most workers are being paid minimum wage, they can’t afford rent, they can’t afford to put food on the table,” he said. “Many people rely on public assistance to subsidize their wages.”
The story is here.
The value I place on obtaining a gallon of milk is, say, $10. When I go to the grocery store though, I only pay around $3. Better yet, I place enormous value on a gallon of water—it sustains my life—but I pay less than $1 for a gallon of it. Why is our value for water so high, but the price we pay for it so low?
It is not how much I or any other individual values something individually that necessarily determines its price, but instead its price is determined by the marginal value placed of the last unit produced of that good or service. (Depending on the nature of competition in a specific market, the marginal value of that last unit is equal to the marginal cost of producing that last unit.) The case with McDonald's is no different than the example of milk and water above. Without labor, McDonald's would have to shutter its restaurants, costing the average franchisee about $2.7 million in lost revenue. It therefore seems that any given employee is very valuable to a McDonald's franchisee—they stand to lose a lot of money without workers. But it's the value of the marginal worker that is relevant here, not the absolute or average value of any given worker.
There is such an abundance of people with the skills needed to do the job of a McDonald's worker that the marginal value of a fast-food worker is relatively low. (Note, it’s the marginal value of such workers that is low, not their absolute value of any given worker.) McDonald's will continue hiring workers up to the point that the last dollar it earns from hiring a worker equals the last dollar required to hire her. In other words, if a franchisee can hire a worker for a total hourly compensation of, say, $9 (there are more than just money wages to consider here), then that franchisee must see his or her total sales increase by at least $9 per hour or they will not hire the additional worker. If the hourly compensation increases to, say, $21, then the firm responds by decreasing the number of workers it hires until the marginal revenue product equals $21. (See the chart below. Remember, all workers are assumed to be equally productive.)
Again, much like the example of water above, there are so many people with the skills needed to do the job of a McDonald's worker that the marginal value (not the absolute value) of that McDonald's worker is low relative to higher paid workers in other fields.
Similarily, lacking additional skills that provides a worker alternative employment options, the opportunity cost of a McDonald's worker is quite low. This means that McDonald’s can hire, say, six workers at $9 per hour each, and since no other firms are competing for the labor services of these workers, McDonald's does not have to make them a higher wage offer in order to retain them.
The low wage for fast-food workers signals that we have too many people with the skills required to work at McDonald's and not enough people with more advanced skills needed to work in other higher paying fields. Without these lower paid workers increasing their skills, any arbitrary change in their wages is likely to have adverse consequences. The most obvious is that fewer workers are hired, leaving unemployable more people without the skills needed for existing higher paying jobs, or even the now-higher wage fast-food jobs. Additionally, firms will find substitutes for labor as its labor costs increase, therefore hiring fewer workers. In either case, low skilled workers lose what few employment opportunities they have.
Lastly, if, in order to reap some of the surplus enjoyed by consumers, milk and/or water producers colluded to raise the price of their products closer to the value I place on them, consumers would be up in arms and call for government to step in and limit the prices these producers can charge for their products. Why are we irate when firms collude to raise prices, and consequently our cost of obtaining their products or services, but not irate when labor does exactly the same?
In a market capitalist system properly conceived, in order to make me better off I have to make you better off relative to what anyone else is offering you with similar resources. Competition forces me to continually improve on quality at any given price, which also means discovering ways of producing the same quality at reduced cost, and therefore reduced price. Failing to do so, I go out of business and people quit dealing with me.
Why does this seem so foreign to government school bureaucrats and those with egalitarian mindsets?
Annica Eriksson, the head cook at the Falun school, received an order from the municipality to decrease the quality of her cooking after it discovered she served a variety of 15 vegetables and freshly baked bread to students each day. The municipality claims that these offerings are “unfair” to students at other local schools, who consume meals of a lesser quality, The Local reported.
School choice (and I mean total school choice - free schools from any state mandates, including curriculum requirements) forces schools to compete for students by continually innovating and discovering ways to serve students' needs rather than the interests of teachers and public school bureaucrats.
This egalitarian ideology has had tragic consequences, leading to mass murdering of millions of people around the world throughout the Twentieth Century. This is not to say that forcing the lunch lady to reduce the quality of her meals is going to lead to mass genocide in Sweden. But egalitarianism is a slippery slope, and if it's important that something as trivial as school lunches be equal, and you're willing to force one school to degrade the quality of its lunches so students at other schools don't feel slighted, you're probably pretty far down that slope.
Here is an old post on the travesty of choice in North Carolina schools.
I'm not getting in the middle of this other than to say that the responses of the moronic mayors (Rahm Emanuel of Chicago, Edwin Lee of San Francisco, and Thomas Menino of Boston), who supposedly serve the interests of all residents of their cities not just the majority, were despicable. As Voltaire stated, "I disapprove of what you say, but I'll defend to the death your right to say it." This should be the response of any politician, but these guys instead took on the typical politician's stance, falling to the ground and kowtowing to their political base rather than standing up for principle and defending the rights of even those with whom they disagree, as they swore to do when they took office.
But the primary lesson is for managers to refrain from putting the reputations of their companies they manage and own on the line by making political statements. Although Chick-Fil-A is privately owned, a CEO of a publicly traded company jeopardizes the investments of shareholders.
The other lesson is the response Mr. Cathy's statements generated. They appeared to have backfired. But then again, here is an interesting history of boycotts.
But beyond their commercial effect, boycotts, even losing ones, have a way of highlighting a cause. They connect individuals to larger political forces that otherwise feel abstract and distant. For Chick-fil-A, that means the broader question of gay rights. Huckabee’s consumer action could generate more debate about same-sex unions than a ballot initiative would have -- and far more direct reflection on individual responsibility and agency. The boycott and counter-boycott gave consumers a stark choice, and a clear connection between their actions and their beliefs.
Whether you agree with the baker or the gay couple, it is true that when you discriminate you impose a cost on yourself. The couple in the video below were willing to pay up to $1,000 for a wedding cake (WOW!@!) and the baker refused to make one for them.