How to create variable from value in variable?

How much value ($) does the average fast food worker create per hour?

  • In the debate about minimum wage, people often talk about how minimum wage laws cause unemployment: By this basic argument, fast food workers are compensated in close proportion to the value that they create. In other words, a worker might only get paid $8 an hour, but he only produces $9 dollars of value per hour. If the minimum wage rises above $9, the owner of the burger joint has no incentive to hire or retain the worker. But there is at least one assumption in this argument that isn't supported by evidence. The argument assumes that the worker only produces slightly more value than his wage rate. I haven't found any evidence to confirm this assumption. Does anyone in Quora-land know how much value ($) the average fast food worker creates per hour?

  • Answer:

    Here's some info for Jack in the Box (selected because it is U.S. only and publicly traded).   According to Reuters' financial information (http://www.reuters.com/finance/stocks/financialHighlights?symbol=JACK.O), Jack in the Box's annual profit per employee is $4,314. The average front-line fast food worker works 24 hours/week; let's guess that most Jack in the Box workers are working about that much, and some of them work more, and use 30 hours/week average. That would be 1,560 hours worked per employee per year on average. Divide $4,314 by 1,560 and you get $2.77 profit per man-hour.   It appears, then, that Jack in the Box cannot afford to significantly raise workers' wages. Even if it were run as a non-profit, workers would only get a couple more bucks an hour. That's not nothing, but it's also not going to produce a drastic improvement in standard of living.   But remember, Jack in the Box isn't run as a non-profit. As a publicly traded company, it's run for the benefit of its shareholders. If Jack in the Box were to increase worker wages without increasing revenue, it would produce less profit, and shareholders would get less return on their investment. Shareholders tend to get peevish when that happens. They might sell their stock, driving the price down, or vote in a new board to bring back strong profits.   So just as there are market forces affecting the prices Jack in the Box can charge -- i.e., what consumers will pay for a hamburger -- and the wages it can pay -- i.e., what wages workers will accept -- there are also market forces affecting the profit Jack in the Box must make -- i.e., what return shareholders will accept.   That's not always a simple matter of squeezing out every drop of profit right this very minute, of course. Costco pays above-market wages and its stock is doing just fine. Perhaps it could pay its workers less and make even more profit, but its shareholders seem content, probably because of the perception that the company is here to stay (http://www.fool.com/investing/general/2013/05/21/why-costco-stock-keeps-rising.aspx). Alternatively, the higher-quality workforce may be an integral part of Costco's business model, and profits actually can't go any higher (http://www.bloomberg.com/news/2013-08-27/why-walmart-will-never-pay-like-costco.html). Either way, shareholders aren't buying Costco stock out of the goodness of their hearts.

Claire J. Vannette at Quora Visit the source

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Actually, the argument in the video does not depend on the assertion that fast food workers are compensated in close proportion to the value they produce. Think of it this way:  at $7.50/hour Bob can hire the most productive workers who are willing to work for $7.50/hour.  Some might produce more than that in value, some less, many will produce less at first and then get up to speed, etc.  There is no necessary proportion.   A good manager will try to hire the best people and train them to be productive. If the minimum wage goes to $10/hour, then Bob does not just pay the same workers more.  Not unless he totally lacks business sense.  Instead he now has a larger pool of potential workers, all those who are willing to do the work for $10/hours.  This pool will include more experienced and more productive workers.  So again, Bob will hire the best he can get at $10/hour, train them, etc.  That's all the argument depends on, that at the higher wage he has a larger pool of applicants to pick from, and this larger pool will include more productive workers. IMHO the weakness of the argument (or at least its weakest point -- I think it is a good argument overall) is that it doesn't account for training costs. Worker turnover is expensive.  For small wage increases Bob might not want to hire different people because of the needed retraining, lost productivity, etc.

Rob Weir

There's a bait and switch. Employers don't pay workers according to value added, they pay them according to cost. The cost of burger flipping is whatever you can induce people to flip burgers for. Now there's a correlation between cost and value adding, but only because of competition, and the dirty little secret is that no free market capitalist in their right mind tolerates competition if they can possibly squelch it, because it destroys value. If there were only one burger joint in the world, the value of a burger (what it can be sold for) would be somewhat higher because burgers are tasty and people would happily buy nearly as many of them even if they were somewhat more expensive. In this scenario, the owner doesn't suddenly have to pay the burger flippers more because they've somehow added more value, rather he/she gets to take home a larger profit. Of course, in reality there's more than one burger joint in the world, and the second and subsequent burger joints destroy some of the value of the first burger joint's burgers due to competition. (Even if people would pay $10 for a burger in isolation, you can't sell it for that if there's a joint down the street that will sell it for $5.) If the second, third, etc burger joints are constrained by minimum wage laws, then they're constrained in how much they can destroy the value of the first burger joint's burgers. Therefore much of the "value adding" seemingly done by burger flippers in a minimum-wage environment is sustained by the minimum wage in the first place.

Mark Barton

I worked at several fast food places between ages 18-24 on and off.  I remember one Christmastime at Sonic Drive-In - the way we did our holiday party was a spread in the back that the manager provided, and everyone on their break got to participate and the shift manager tried to schedule the breaks so as many people as possible could celebrate at one time.  The manager said he could have shut the store down for an hour, but we would all have to contribute enough to reach $250 or so to get him to turn the outside lights off.  That much would cover an hour of no business.  Of course we didn't go for that and didn't give enough of a damn anyway, because the manager was the only one who really cared about that workplace.  The rest of us would have let it burn down, let alone give up money for a silly cupcake party in the back of a crappy fast food joint.  There were 6 workers on night shift, one a shift manager making $2-4 more an hour than the rest of us, who were paid between .50 to 1.25 more than minimum based on experience.  Back then minimum was $5.15.  The store did pretty decetly in its sales, so yes, the workers were producing much more labor value, about 300-400% more than they were getting paid.  The workers don't contribute to sales, much, though.  It's all location.  If they are at least moderately steady, fast food joints are fairly profitable operations, more reliable than a low-end sit-down restaurant.  High volume FF makes very good money.  Ie: Chick-Fil-A and In&Out I'm sure do VERY well.

Murray Godfrey

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