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willbeurdaddy -> RE: Post Columnist: Wages Are Too Low (7/21/2011 11:41:53 AM)
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ORIGINAL: DomKen
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ORIGINAL: willbeurdaddy
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ORIGINAL: DomKen
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ORIGINAL: willbeurdaddy
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ORIGINAL: WyldHrt
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No, Ford's ability to raise wages was due to increased profitability due to automation and recognition that they would be more productive if they had a shorter workday. Since automobiles hadnt established a large market base it would also enable more sales and "keeping up with the Joneses". It was fine at the time but has no applicability to established markets.
None of the above actually addressed my point, which is applicable to today's markets, esp regarding labor. I'll make it easy: how can your employees also be your customers if their wages are so low that they can barely afford basics like food and rent?
They directly address your point, apparently you dont understand it. Lets use your numbers. You can build and market a car for say $12,500 , consisting of $10,000 materials, $1000 labor costs at $10 an hour, $1500 administration and marketing. You can sell it for $17,500 and make $5,000 profit per unit, and sell 1 million of them, for $5 billion of profit. You have 50,000 employees.
Now you get the brilliant idea of raising their wage to $35 so they can afford to buy your car. Each car now only profits $2,500, and the first million you sell total profit is $2.5 billion. But wait...we have a brand new captive market of 50,000 employees. Lets sell it to them. And we can actually profit $4,000 per car for them because we can knock off the marketing and administration costs for this captive market. And being consipicuous consumers they are going to buy a new car every year. We just picked up another $200 million in profits to offset that...$2.5 BILLION increase in cost per vehicle. OOPS.
So I repeat what I said in the other post. Ford's idea only works when the market for your product is so immature that adding your own employees to the market significantly increases that market.
WTF!
If you cannot do basic math you shouldn't pretend like you can.
Taking your numbers an increase in wages from 10 to 35 (with a consumate change in labor costs per unit from 1000 to 3500) then selling an extra 50k units increases labor cost by 175 million. Company profits goes from 5 billion down to 2.625 billion.
WTF? The cost of the exta 50k units was encompassed in the extra profits for the captive market. The drop to $2.5 billion profits was the increased labor on the first million units. And if you want to quibble about the 175 million labor on those units it doesnt ADD profits to the $2.5 billion it reduces them.
You claimed
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$2.5 BILLION increase in cost per vehicle.
The increased labor cost is 2500 per not 2.5 billion per.
If the company will sell 1 million units whether or not it raises wages then raising wages is obviously a bad idea but if those sales are additional sales the company could not otherwise make it is obviously a good thng and is very obvious if you use real world numbers where a modest increase in salaries does not cut unit profit in half.
Last time I checked 2500 times 1 million is 2.5 billion. And your last sentence substantiates exactly what I said. In a mature market where your employees stepping up and buying leads to insignificant revenues, then raising their wages "so they can buy" your product is a fallacy. My numbers are very real world except for the $10 and $35 that I was given to use. Make the spread narrower and no employee is stepping up to a buy a car they wouldnt have bought. Make it wider and the losses are even bigger.
QED
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