There ain't no free lunch with increasing the minimum wage

Have you heard? San Jose, CA has raised its minimum wage (well, the government of San Jose, CA has passed a law that makes the minimum wage higher). Not bad for those poor minimum wage workers you say, but then again.....

On NPR they talked to a businesswoman about how this will impact her business. She said, "I was paying annual bonuses to my employees but now I will reduce the bonus size or cancel it all together." She also said that with the bonuses she was paying her employees receive more than the new minimum wage is going to be. That's OK because the government just wants all the business folks in San Jose to be 'fair'.....you know, one size fits all....everyone equally poor....

Oops, looks like the employees that were working hard and being productive will not get a bonus and will be paid the same as those employees that are not working as hard or were not as productive.

If you think about it, or if you have ever run a business, you know that employee compensation is usually the largest expense for a business, typically about half of all expenses. Bonuses are, by definition, variable compensation while wages are fixed (until the poor fellow is laid off) compensation. 

Now we talk about 'risk' here at Lucky and Good and to control risk, variable expenses are always better for a business than fixed expenses. Transferring more compensation into fixed expenses increases risk. The result is that if there is a business down turn then the business folks have to do something to reduce their expenses. In the case of variable compensations (such as bonuses) they could be reduced and most likely all the workers would still have jobs. If there are no variable compensations then the fixed compensations will need to be reduced. To do that you will cut the workers hours or reduce the workforce. Like the old adage states, There ain't no free lunch....

Jerry

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The Mall of America cashes in on North Dakota Black Gold

The Mall of America (Bloomington, Minnesota) is getting in on the North Dakota oil boom. They are running advertisements and YouTube videos to attract the rough-necks to “come on down.” A lot more to do at MOA than in Watford City, ND and many of the oil workers have left their families at home in other states to come to work in ND. So “come on down” and meet your family at the mall and stay in one of their fine hotels for a long weekend or longer.

According to Sara Coleman, director of the North Dakota Tourism Division "The wages are good. There's a lot of discretionary income there..."

BTW, the You Tube video also ends with a feel-good family reunion photo and a message on the screen that there is "No sales tax on clothing"....

Free market business, ain't it grand?

Jerry

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Please do not enter!

The Law of Supply and Demand as said in the 14th Century

"If desire for goods increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down."—Ibn Taymiyyah, 13^th-14^th-century Mamluk scholar

Here's how we show this principle in the 21st Century....

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We don't need no stinckin' identity card in Venezuela!

Just a short note about economics under a socialist government. Venezuela is one of the most oil-rich countries in the world yet under Hugo Chavez and now Nicolas Maduro this nation has and is having problems with its economy. There is a new government policy now where you not only have to have an identity card to buy items at the food store you now must have your fingerprints taken so as to keep you from buying too much of one product or another. Of course Madudro has blamed hoarders, smugglers, and the CIA for the food shortage.

Nothing like having a heavy-handed, socialist government intervening in a market....stick it to the rich, and when I say rich I mean those that have wealth but do not have friends in the government.

It seems that once again we have an example of socialism making everyone equal. Equally poor and hungry. Well, everyone except the leaders in the government and their friends.......

Jerry

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Governor Cuomo wants New York Jet Fans to pay for a Stadium in Buffalo

I have just been reading that New York Governor Andrew Cuomo is willing to do everything he can to keep the Buffalo Bills from moving out of the state. He will, he said, consider building a new Buffalo Bills stadium (The New York Times Aug. 8, 2014). The Governor is willing to consider public aid to help build the stadium if it is necessary. This means that the Governor will force other people, the state taxpayers, to pay for a bribe to the owners of a business that is worth $840,000,000 so that that business will stay in the state.

May I humbly suggest that Governot Cuomo is not doing everything he can. I have not seen where he has offered to spend his own personal money to help fund this project. He just wants to stick other folks with the bill for the Bills.

Once more we see the power of Big Government versus the power of the people.

And according to Scott Drummond, a top commenter at Cafe Hayek: “It doesn't matter how much money you have if the people who have the ability to hand out favors can't be bought. And if they can be bought, why are they allowed to be in a position to hand out favors?”

I am more of a Conservative/Libertarian than anything else and I must say that I agree with Greg Webb that: “...it is libertarians who argue to reduce government power and separate government powers to minimize political cronyism and government corruption. It is progressives who advocate for ever bigger government, which, quite logically, results in more political cronyism and government corruption.”

Jerry

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The Law of Supply and Demand and eBooks

I received this interesting email today from Kindle regarding their dispute with Hachette Publishing about eBook pricing.  As a regular buyer of eBooks I do pay attention to the price.  And as an author I have noticed a strong relationship between price and sales volumes.  The old Law of Supply and Demand applies to eBooks just like it did when paperback books were first introduced at 90% of the price of hardback books.

Here is the email:

Dear KDP Author,

Just ahead of World War II, there was a radical invention that shook the foundations of book publishing. It was the paperback book. This was a time when movie tickets cost 10 or 20 cents, and books cost $2.50. The new paperback cost 25 cents – it was ten times cheaper. Readers loved the paperback and millions of copies were sold in just the first year.

With it being so inexpensive and with so many more people able to afford to buy and read books, you would think the literary establishment of the day would have celebrated the invention of the paperback, yes? Nope. Instead, they dug in and circled the wagons. They believed low cost paperbacks would destroy literary culture and harm the industry (not to mention their own bank accounts). Many bookstores refused to stock them, and the early paperback publishers had to use unconventional methods of distribution – places like newsstands and drugstores. The famous author George Orwell came out publicly and said about the new paperback format, if “publishers had any sense, they would combine against them and suppress them.” Yes, George Orwell was suggesting collusion.

Well… history doesn’t repeat itself, but it does rhyme.

Fast forward to today, and it’s the e-book’s turn to be opposed by the literary establishment. Amazon and Hachette – a big US publisher and part of a $10 billion media conglomerate – are in the middle of a business dispute about e-books. We want lower e-book prices. Hachette does not. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market – e-books cannot be resold as used books. E-books can and should be less expensive.

Perhaps channeling Orwell’s decades old suggestion, Hachette has already been caught illegally colluding with its competitors to raise e-book prices. So far those parties have paid $166 million in penalties and restitution. Colluding with its competitors to raise prices wasn’t only illegal, it was also highly disrespectful to Hachette’s readers.

The fact is many established incumbents in the industry have taken the position that lower e-book prices will “devalue books” and hurt “Arts and Letters.” They’re wrong. Just as paperbacks did not destroy book culture despite being ten times cheaper, neither will e-books. On the contrary, paperbacks ended up rejuvenating the book industry and making it stronger. The same will happen with e-books.

Many inside the echo-chamber of the industry often draw the box too small. They think books only compete against books. But in reality, books compete against mobile games, television, movies, Facebook, blogs, free news sites and more. If we want a healthy reading culture, we have to work hard to be sure books actually are competitive against these other media types, and a big part of that is working hard to make books less expensive.

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. We've quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger.

But when a thing has been done a certain way for a long time, resisting change can be a reflexive instinct, and the powerful interests of the status quo are hard to move. It was never in George Orwell’s interest to suppress paperback books – he was wrong about that.

And despite what some would have you believe, authors are not united on this issue. When the Authors Guild recently wrote on this, they titled their post: “Amazon-Hachette Debate Yields Diverse Opinions Among Authors” (the comments to this post are worth a read).  A petition started by another group of authors and aimed at Hachette, titled “Stop Fighting Low Prices and Fair Wages,” garnered over 7,600 signatures.  And there are myriad articles and posts, by authors and readers alike, supporting us in our effort to keep prices low and build a healthy reading culture. Author David Gaughran’s recent interview is another piece worth reading.

We recognize that writers reasonably want to be left out of a dispute between large companies. Some have suggested that we “just talk.” We tried that. Hachette spent three months stonewalling and only grudgingly began to even acknowledge our concerns when we took action to reduce sales of their titles in our store. Since then Amazon has made three separate offers to Hachette to take authors out of the middle. We first suggested that we (Amazon and Hachette) jointly make author royalties whole during the term of the dispute. Then we suggested that authors receive 100% of all sales of their titles until this dispute is resolved. Then we suggested that we would return to normal business operations if Amazon and Hachette’s normal share of revenue went to a literacy charity. But Hachette, and their parent company Lagardere, have quickly and repeatedly dismissed these offers even though e-books represent 1% of their revenues and they could easily agree to do so. They believe they get leverage from keeping their authors in the middle.

We will never give up our fight for reasonable e-book prices. We know making books more affordable is good for book culture. We’d like your help. Please email Hachette and copy us.

Hachette CEO, Michael Pietsch: Michael.Pietsch@hbgusa.com

Copy us at: readers-united@amazon.com

Please consider including these points:

- We have noted your illegal collusion. Please stop working so hard to overcharge for ebooks. They can and should be less expensive.
- Lowering e-book prices will help – not hurt – the reading culture, just like paperbacks did.
- Stop using your authors as leverage and accept one of Amazon’s offers to take them out of the middle.
- Especially if you’re an author yourself: Remind them that authors are not united on this issue.

Thanks for your support.

The Amazon Books Team

P.S. You can also find this letter at www.readersunited.com

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What Gender Pay Gap?

More information about the "Gender Pay Gap" reported this week.

We have all heard about the difference in pay for men and women. Even the President is getting in on it by paying his women staffers less than the men staffers ($.77 on the dollar at last count). It seems that everyone agrees that men are being paid more than women.

I have not read any arguments that men should earn more for doing the same work but this is no road block to politicians, feminists, academics, and others that call for "financial justice". In the UK last week the headlines were that women in London earn 13% less than men, and according to the story the pay gap is widening.

Well, I do misspeak a little here. Not everyone is saying this.

A report from the UK Department of Culture, Media, and Sports did a little checking and found that since 1997 the pay gap has shrunk. Men's pay increases have been about 57% while women's have increased by 75% over the same time period.

Of course this still means that there is a pay gap if you just look at the statistics that add in the earnings of women of all ages, all occupations, and women working part-time and full-time. In reality, for people under 40 and working full-time, the gender pay gap is about zero and starting in 2009 women in the age range of 22 to 29 have actually earned more than men. Now the evidence shows that the pay gap falls first for younger people and this stays with each group as they age.....Other facts to remember when reading about the pay gap is that wages vary according to the job (maybe we should be asking why women choose to take more jobs such as nurses rather than physicians) and why women that have children choose to change from full-time to part-time work.

As stated by Joanna Williams, "... if current trends continue, the pay gap should be a thing of the past in the space of some 20 years."

Yes, there is still a gender pay gap (which is decreasing). The thing to consider is that when occupation, contracted hours and most significantly, age are taken into account, it all but disappears. In fact, the youngest women today, even those working part-time, are already earning more each hour than men.

Jerry

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