The Minimum wage

ash28

jamesmorgan wrote: »

Tesco's profits of £2.5b equate to a net profit margin of only 4.6%. This is pretty poor for a commercial organisation and is borderline acceptable for any shareholder. It is not surprising that their share price has fallen by around 30% in the past year. To suggest that they should pay their employees higher salaries is somewhat naive. I suspect that Tesco's problems are the opposite. Labour costs are a huge issue to them as they employ around 500,000 employees. They need to look at ways of reducing their wage bill - or try to improve productivity from their current employees.

For any commercial organistion, they are not going to be driven by whether the wages they pay their staff provide a certain standard of living. They are purely driven by whether they can provide an acceptable profit for their owners/shareholders - in this regard they are currently failing.

£2.5bn is UK profit?

£3.5bn profit worldwide.

500k employees is world wide it's 200k in the UK.

It's just as well the taxpayer does top up the lower paid workers wages then - couldn't have Tesco struggle too much.

jamesmorgan

ash28 wrote: »

£2.5bn is UK profit?

£3.5bn profit worldwide.

500k employees is world wide it's 200k in the UK.

It's just as well the taxpayer does top up the lower paid workers wages then - couldn't have Tesco struggle too much.

UK profit is largely irrelevant to an investor as I can't buy shares in Tesco UK. Total worldwide sales were £72b, total net profit after tax £2.9b. Net profit margin is 4%.

I think you are somewhat optimistic hoping that Tesco will operate more like a charity.

StevieJ

jamesmorgan wrote: »

We are now starting to get close to the real issue facing the UK at the moment. If a worker wants to receive a higher income than his value then something has to give. There are broadly one of 3 possible outcomes:

a) Employer pays the worker what he wants, make a loss and eventually goes out of business

b) Employers pays the worker what he wants, but raises prices to reflect this. This causes inflation and the workers £10/hr may still only be worth £6.30/hr in real terms

c) Worker lowers their aspiration and accepts a lower standard of living.

All 3 of these outcomes are happening at the moment in the UK.

You forgot d) Employer pays £6.30 and says to the worker 'don't worry the social will top it up with benefits' Subsidy for working people corrupts wage levels because the employer is under no pressure to pay the employees optimum wage rate, I don't understand why you can't see that?

Thrugelmir

ash28 wrote: »

Perhaps - but accord to Tesco it's UK retail productivity -

http://www.tescoplc.com/index.asp?pageid=30#ref_investors/financials/five-year-summary

Thanks for the information.

jamesmorgan

StevieJ wrote: »

You forgot d) Employer pays £6.30 and says to the worker 'don't worry the social will top it up with benefits' Subsidy for working people corrupts wage levels because the employer is under no pressure to pay the employees optimum wage rate, I don't understand why you can't see that?

The reason that I disagree with this is that we have fundamentally different views on the economics of employment. Your beliefs appear to be more aligned to socialist views that employers control the labour market. They ration jobs and pay the lowest salary they can to tempt workers out of unemployment. My beliefs are aligned to free market philosophies. This assumes that labour is a scarce commodity and that employees only provide their services to the highest bidder. As we come from opposite ends of the spectrum we are unlikely to reach agreement.

PS. This isn't intended as a criticism of your beliefs and I recognise that many highly educated individuals hold similar views to your own. I just happen to disagree with them, but then the world would be a much less interesting place if we all thought the same.

Going4TheDream

jamesmorgan wrote: »

My beliefs are aligned to free market philosophies. This assumes that labour is a scarce commodity and that employees only provide their services to the highest bidder.

Unfortunately in this day and age labour isnt a scarce commodity, and this does mean that employers can pay less and expect more in the way of skills and experience.

Long gone are the days when people could walk out of a job Friday and into a better position on Monday

How many people have had to take a pay cut or less preferable conditions to get a job these days - beliefs and principals dont feed you when you dont have a job, that is the harsh reality in todays market

jamesmorgan

Going4TheDream wrote: »

Unfortunately in this day and age labour isnt a scarce commodity, and this does mean that employers can pay less and expect more in the way of skills and experience.

It is certainly true that unemployment has risen during the recession, but there is still a finite amount of labour and this still means that it is a scarce resource. In a recession, demand for goods/services declines which in turn lowers employee productivity. This means that employers can afford to pay less for each employee. Employees either accept this and employment remains stable, or they don't and unemployment rises.

Take the example of a pub providing meals. They employ a chef to cook the meals and pay him £10/hr. They have calculated this figure based on the maximum they can afford to pay him and still generate a profit assuming he cooks 10 meals per day. Now assume we enter a recession and the pub only sells 7 meals per day. The productivity of the chef has fallen by 30%. On this basis, the maximum the pub can afford to pay him is £7/hr. If the chef accepts this, the demand for labour remains the same, the pub still makes the same profit margins and customers still pay the same for meals. However, if the chef refuses to accept this (which is clearly within his right) a number of outcomes are possible;

a) The pub still pays him £10/hr but starts to make a loss. If this carries on long enough the pub goes out of business and he loses his job.

b) The pub still pays him £10/hr but puts up the cost of meals to retain profit margins. Remaining customers have to pay more for their meals. This is unlikely to be sustainable.

c) The pub decide they can no longer afford to provide meals. The lay off the chef. Customers no longer have access to this service.

As long as employees accept that in a recession, everyone's standard of living goes down, then demand for labour remains stable. It is only when this doesn't happen that unemployment rises.

oldtractor

The minimum wage is a disgrace. It should be at least £8.50 an hour for all ages. People are being used as slave labour .

Thrugelmir

ash28 wrote: »

£2.5bn is UK profit?

£3.5bn profit worldwide.

500k employees is world wide it's 200k in the UK.

It's just as well the taxpayer does top up the lower paid workers wages then - couldn't have Tesco struggle too much.

And the other benefits for UK employees?

10% discount card, pension etc.

As a Company they are better than most private sector employers.

StevieJ

jamesmorgan wrote: »

The reason that I disagree with this is that we have fundamentally different views on the economics of employment.

Absolutely nothing to do with that, your view is based on the perfect market which is merely a hypothesis, whereas mine is based the on the reality of govt intereference in the bargaining process i.e. removing the incentive from the employee to secure the best possible rate of pay and thus corrupting the free market.

Perfect Market

The following assumptions hold:
(a) there is a large number of buyers;
(b) there is a large number of sellers;
(c) the quantity of goods bought by any individual transactor is so small relative to the total quatity traded that individual trades leave the market unaffected;
(d) the units of goods sold by different sellers are the same - the product is homogeneous;
(e) there is perfect information = all buyers and sellers have complete information on the prices being asked and offered in other parts of the market; and
(f) there is perfect freedom of entry to and exit from the market.

http://www.lse.co.uk/financeglossary.asp?searchTerm=perfect&iArticleID=1095&definition=perfect_market