Later On

A blog written for those whose interests more or less match mine.

Externalizing costs: Payroll edition

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Businesses work hard to increase profits, and any reduction in cost drops right to the bottom line. Revenue increases are subject to all sorts of deductions before the profit emerges, much smaller than the revenue increase: there’s the cost of goods sold (the cost of materials and manufacturing), overhead charges for R&D, administration, marketing, and so on. Cut $10 from costs, and profits go up $10; add $10 in revenue, profits may go up as little as $1 (depending on the margin).

One way to wipe out some costs is to get them paid by others. That’s why companies like GE and others do not want to clean up their pollution: they want the public (or at least someone else) to pay those costs, because if the company paid the costs for cleaning up its own environmental mess, that would hurt profits.

Sometimes externalizing costs is relatively benign: AT&T realized early on, looking at the rate at which call volumes were increasing, eventually they would have to hire millions of new telephone operators. So they figured out the dial system, and then direct-dial long distance. And they do require millions of operators, but now we are the operators: we place our own calls. Similarly the supermarket externalized clerical costs by having customers fetch their own groceries to the counter: externalizing those costs.

So the externalization of costs is not always bad. But, as in the case of companies dumping toxins for the public to pay to clean up, it can indeed be very bad.

In the Washington Post Michael Fletcher looks at how low-wage companies like fast-food companies externalize payroll costs:

Taxpayers are spending nearly $7 billion a year to supplement the wages of fast-food workers, even as the leading fast-food companies earn billions of dollars in annual profits, according to a pair of reports released Tuesday.

More than half of the nation’s 1.8 million “core” fast-food workers rely on the federal safety net to make ends meet, the reports said. Together, they collect nearly $1.9 billion through the earned income tax credit, $1 billion in food stamps and $3.9 billion through Medicaid and the Children’s Health Insurance Program, according to a report by economists at the University of California at Berkeley’s Labor Center and the University of Illinois.

Overall, the “core” fast-food workers are twice as likely to rely on public assistance than workers in other fields, said one of the reports, which examined nonmanagerial fast-food employees who work at least 11 hours a week and 27 weeks a year.

Even among the 28 percent of fast-food workers who were on the job 40 hours a week, the report said, more than half relied on the federal safety net to get by.

“These statistics paint a picture of workers not being able to get their fair share of the largest, richest economy in the world,” said Sylvia A. Allegretto, lead author of the report by the university economists, which was paid for by Fast Food Forward, a group that supports walkouts by fast-food workers. “It is a good thing that we have these work supports, but they should be a last resort.”

Those workers are left to rely on the public safety net even though the nation’s seven largest publicly traded fast-food companies netted a combined $7.4 billion in profits last year, while paying out $53 million in salaries to their top executives and distributing $7.7 billion to shareholders, according to the second report, by the National Employment Law Project, a worker advocacy group. . .

Continue reading. And it’s not just fast-food companies: Wal-Mart does much the same.

Written by Leisureguy

16 October 2013 at 10:58 am

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