Seattle Business offering $70K min wage is failing

[JTScribe]

Other than value, the only way a company's policies will affect my decision on things is if they make a political decision and take sides on something, especially if I think it's the wrong side. I ended my Angie's list subscription because they decided to pile on and take sides in the RFRA ****storm. **** them.

I don't see the netflix thing the same way. I don't think they're picking political sides. If they raise their subscription fee beyond what I'm willing to pay, for whatever reason, I'll terminate it.

I think that's a reasonable approach. If a company elects to be seen as picking a side they need to be ready for the fact that it's going to be turn off for a portion of the population and potentially result in lost business. Of course, it's also possible that it could attract more business than might be turned off (Chik-Fil-A, for example).

 

[bwframe]

Other than value, the only way a company's policies will affect my decision on things is if they make a political decision and take sides on something, especially if I think it's the wrong side. I ended my Angie's list subscription because they decided to pile on and take sides in the RFRA ****storm. **** them.

I don't see the netflix thing the same way. I don't think they're picking political sides. If they raise their subscription fee beyond what I'm willing to pay, for whatever reason, I'll terminate it.

I think that's a reasonable approach. If a company elects to be seen as picking a side they need to be ready for the fact that it's going to be turn off for a portion of the population and potentially result in lost business. Of course, it's also possible that it could attract more business than might be turned off (Chik-Fil-A, for example).

It doesn't necessarily have to be the consumer directly making the purchasing decision. It could be that the competition sees and takes advantage of the opportunity to grab a big portion of the business of the company making overt controversial financial moves.

In Netfix case, the decision to double or quadruple their labor cost for maternity leaves might be the perfect opportunity for Amazon or YouTube or Hulu to make a huge price cutting loss leader promotion for a year or two. Then buy what's left of them for pennies on the dollar when they dwindle.

 

[JTScribe]

It doesn't necessarily have to be the consumer directly making the purchasing decision. It could be that the competition sees and takes advantage of the opportunity to grab a big portion of the business of the company making overt controversial financial moves.

In Netfix case, the decision to double or quadruple their labor cost for maternity leaves might be the perfect opportunity for Amazon or YouTube or Hulu to make a huge price cutting loss leader promotion for a year or two. Then buy what's left of them for pennies on the dollar when they dwindle.

Netflix is an interesting case, their entire business model is based on cable companies subsidizing their transport costs. I love them to death but I'm not sure they'll be around on a long-term basis.

 

[BehindBlueI's]

The business is still chugging along.

Here's What Really Happened at That Company That Set a $70,000 Minimum Wage | Inc.com

Rather lengthy article, but the relevant update:

Six months after Price's announcement, Gravity has defied doubters. Revenue is growing at double the previous rate. Profits have also doubled. Gravity did lose a few customers: Some objected to what seemed like a political statement that put pressure on them to raise their own wages; others feared price hikes or service cutbacks. But media reports suggesting that panicked customers were fleeing have proved false. In fact, Gravity's customer retention rate rose from 91 to 95 percent in the second quarter. Only two employees quit -- a nonevent. Jason Haley isn't one of them. He is still an employee, and a better paid one.In fact, the biggest threat to Price's company isn't his strategy; it's his brother. Lucas's lawsuit, scheduled to be heard in May, could ruin Gravity. Price estimates legal fees will reach $1 million by then. The suit was filed on April 24, 11 days after the pay-raise announcement -- perhaps to pressure Dan to sell when Gravity was in the limelight, thus maximizing the value of Lucas's share. Dan says Lucas has refused his offer to buy him out for $4 to $5 million. (Lucas's attorney says the suit is unrelated to the raises.)
When asked about his brother, Dan maintains his usual upbeat, grateful attitude: "We're in such a great place with the company and Lucas helped me get here. Anything he gets, I won't begrudge. I'll be glad he got it and think he deserves it." Asked how he can remain so charitable when his own brother is suing him -- Lucas was best man at his wedding -- Price laughs and says he's been seeing a family therapist for about a year.

Seeing the religious upbringing, Christian rock band background, maybe this guy really is Christian enough to turn the other cheek with his brother. I'm just to cynical to believe it. It's just so over the top nice and turn-the-other-cheek it's GOT to be flicking his brother's nose and making him look like the bad guy, right?

But...business wise, the decision has been panning out quite well. He couldn't have bought this kind of publicity for anything like the same amount he paid in wages.

 

[BehindBlueI's]

2 year later...and the business is doing quite nicely. Turnover is greatly reduced, they have about 30k resumes of folks wanting to come work there, and have expanded their business enough to hire 50 new employees.

He won the lawsuit against his brother back in 2016: https://www.inc.com/paul-keegan/dan-price-gravity-lawsuit-win.html

And his employees pooled together their money for 6 months and bought him a new Tesla: https://www.inc.com/tess-townsend/these-employees-thanked-their-boss-with-a-tesla.html

And he got a $500k book deal.

Interesting, eh?

 

[hoosierdoc]

Yes, interesting. Thanks for the update

 

[rhino]

It's great when a business owner makes decisions for his own company that make it more successful.

 

[Twangbanger]

It's great when a business owner makes decisions for his own company that make it more successful.

...on the other hand, when "government knows best," and tries to impose a "solution" by force, it appears the results are not as good:

UW study finds Seattle?s minimum wage is costing jobs | The Seattle Times

Understandably, minimum wage activists are ballistic over this. Their only defense so far has been to point out that the study didn't include workers in certain types of chain businesses; yet they make no effort to present their own study, or cogently suggest how the outcome would have been if the study _had_ included those workers.

 

[IndyDave1776]

...on the other hand, when "government knows best," and tries to impose a "solution" by force, it appears the results are not as good:

UW study finds Seattle?s minimum wage is costing jobs | The Seattle Times

Understandably, minimum wage activists are ballistic over this. Their only defense so far has been to point out that the study didn't include workers in certain types of chain businesses; yet they make no effort to present their own study, or cogently suggest how the outcome would have been if the study _had_ included those workers.

I find it interesting that the critics consider $19/hour too low as the threshold for what constitutes a 'low-paying' job. The apparent goal with this criticism is to statistically include more upscale jobs which are inherently more stable and not affected by minimum wage in order to artificially stabilize the statistics under consideration.

 

[jamil]

I support employers freely deciding not to be *******s to their employees. If $70K minimum wage is affordable, more power to him.

 

[HoughMade]

This whole case is an interesting anecdote.

I'm not so sure it has any broader application.

 

[rhino]

This whole case is an interesting anecdote.

I'm not so sure it has any broader application.

The broader implication that I see is that when a business owner makes a decision for his business and it works well, it's a good thing.

Where it fails is the implication that this anecdote somehow demonstrates that the government setting an arbitrary minimum wage will also work. That's not just not apple and oranges, the two situations are not even both fruit.

 

[HoughMade]

The broader implication that I see is that when a business owner makes a decision for his business and it works well, it's a good thing.

Where it fails is the implication that this anecdote somehow demonstrates that the government setting an arbitrary minimum wage will also work. That's not just not apple and oranges, the two situations are not even both fruit.

Which is what makes it an anecdote without broader application.

Business owners make decisions all the time. Some work out, some don't. Is the business as productive as what it could be? Would it have been as productive at a lower "minimum" or a market set wage structure? Would it be more production at a higher "minimum"?

No way to tell.

...but yes, there are those who will point at this and try to draw a straight causation line between $70k and success and try to impose it by government mandate....even though there is no evidence to support it.

 

[rhino]

Which is what makes it an anecdote without broader application.

Business owners make decisions all the time. Some work out, some don't. Is the business as productive as what it could be? Would it have been as productive at a lower "minimum" or a market set wage structure? Would it be more production at a higher "minimum"?

No way to tell.

...but yes, there are those who will point at this and try to draw a straight causation line between $70k and success and try to impose it by government mandate....even though there is no evidence to support it.

We agree.

Shocking, I know.

 

[rob63]

I wish them well, and am happy that he is setting this example. I am all for CEO's cutting their own salaries in order to pay employees more. However, the key to it all is that the average salary at the company was previously $50,000 and his own salary was so grossly over-inflated that he was able to pay for the raises out of his own salary. Thus, it was all neutral to the overall payroll.

Another interesting side-note is that it appears he has been spinning a lot of stories to make himself look good. He didn't get sued by his brother for doing this like he has claimed in the Inc. articles, he did this after getting sued by his brother for his own excessive compensation. The shift in compensation then helped him in negotiations to buy out his brother.

https://www.bloomberg.com/features/2015-gravity-ceo-dan-price/

The lawsuit is light on details, but it claims that Price “improperly used his majority control of the company” to overpay himself, in the process reducing what Lucas was due. “Daniel’s actions have been burdensome, harsh and wrongful, and have shown a lack of fair dealing toward Lucas,” the suit alleges. It asks for unspecified damages and that Price buy out Lucas’s interest in Gravity. Hollon said the lawsuit was the culmination of “years” of efforts to resolve Lucas’s concerns. Price “on several occasions suggested to Lucas that if Lucas didn’t like Dan’s actions regarding Lucas’s rights as a shareholder, Lucas should seek legal remedies,” Hollon wrote in an e-mail. “Prior to the lawsuit, Dan had made clear that he would only engage with Lucas through Lucas’s counsel.”

If the lawsuit wasn’t a reaction to the wage hike, could it have been the other way around? After all, Price announced his magnanimous act a month after his brother sued him for, in essence, being greedy. Lowering his pay could give Price negotiating leverage, too. “With profits, at least in the short term, shifted to salaries, there is little left over to buy out his brother,” the New York Times reported Price said.

In a follow-up interview in mid-November, I pressed Price about the inconsistency. How could what he told me about being served two weeks after announcing the raise be true when the court records indicated otherwise?

“Umm, I’m not, I have to look,” he said.

The court document, I said, definitely says March 16.

“I am only aware of the suit being initiated after the raise,” he replied.

“The court record shows you being served on March 16 ... at 1:25 p.m.,” I said. “And actually, your answer to it was dated April 3,” also before the pay hike.

“I am only aware of the suit being initiated after the raise,” he repeated.

I asked again how that could be, saying the declaration of service shows Price was served with the complaint, the summons, and other documents, “that you are a male, who is white, age 30, 5-feet-8-inches, medium height, dark hair.”

He paused for 20 seconds. “Are you there?” he asked, then twice repeated his statement that he was only aware of the suit being initiated in late April. “I’d be happy to answer any other questions you may have,” he added.

 

[BehindBlueI's]

Another interesting side-note is that it appears he has been spinning a lot of stories to make himself look good. He didn't get sued by his brother for doing this like he has claimed in the Inc. articles, he did this after getting sued by his brother for his own excessive compensation.

I didn't see where he claimed that, but we've definitely talked about the lawsuit preceding the raises and the, perhaps cynical, connection.

I do like that the "it's going to fail, it's not sustainable" arguments are now "it's an anecdote and don't apply to the broader market" vs "Huh, I was wrong". I'm also enjoying this is somehow a bad thing because now the gov't will make everyone do it. Don't successfully grow your business while paying your employees more because the gov't might make everyone do it! Which ignores that the gov't is currently using your money to make up for the non-living wages that Wal-mart and others pay.

I now look forward to accusations of socialism and liberalism.

 

[HoughMade]

I don't know that I ever said he was going to fail. I pointed out that it appears he is overpaying for certain positions. That is both his right and likely still the case.

We could pay over-market wages for clerical staff just to be nice, but that come directly out of our pockets. He wants to do that, fine, but there are direct economic consequences for doing this, some probably help the business, some probably adversely affect the bottom line. He wants to take a haircut on his wages- good for him. A lot of owners would not want to do that, nor should they be expected to.

 

[Twangbanger]

...I'm also enjoying this is somehow a bad thing because now the gov't will make everyone do it. Don't successfully grow your business while paying your employees more because the gov't might make everyone do it!...

The government in Seattle sorta-kinda did make "everyone" do it...but the effect so far has been to result in less income for the people it was supposed to help.

...just as predicted by the vainglorious INGO free-marketeers in that "other" thread...

 

[BehindBlueI's]

The government in Seattle sorta-kinda did make "everyone" do it...but the effect so far has been to result in less income for the people it was supposed to help.

...just as predicted by the vainglorious INGO free-marketeers in that "other" thread...

Well, different topic. But I understand why you want to move away from this one.

So look at Seattle. The claim:

the effect so far has been to result in less income for the people it was supposed to help.

...per one study that contradicts numerous others, and has multiple flaws in data collection. They excluded 40% of the work force, to include employers with locations outside Seattle. So, no Wal-mart, McDonalds, etc. were included. And there's currently a multi-tier minimum wage, so...

https://www.washingtonpost.com/news...-really-helps-workers/?utm_term=.4da1791b5bbb if anyone is interested. Go ahead and read the whole article.

Other studies that include the entire work force have shown a different picture: Study: Seattle minimum wage hasn?t cut jobs | The Spokesman-Review

Which points out the big issue with the study above:

First, their data exclude workers at businesses that have more than one location; in other words, while workers at a standalone mom-and-pop restaurant show up in their results, workers at Starbucks and McDonald’s don’t. Almost 40 percent of workers in Washington state work at multi-location businesses, and since Seattle’s minimum wage increase has been larger at large businesses than at small ones – right now, a worker at a company with more than 500 employees is guaranteed $13.50 an hour, while a worker at a company with fewer than 500 employees is guaranteed only $11 an hour – these workers’ exclusion from the study’s results is an especially germane problem (note that low-wage workers in Seattle have had an incentive to switch from small firms to large firms since the minimum wage started rising). In earlier work, in fact, the University of Washington team’s results were different depending on whether these workers were included in their analysis; including them made the effects of the minimum wage look more positive.

A study of the restaurant industry alone (so no retail, etc, but all workers in the segment):

They use a publicly available data set – the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages (QCEW) – and include multi-location businesses in their analysis. They find much more plausible estimates of Seattle’s minimum wage increase on worker wages – each 10 percent increase in Seattle’s minimum wage is associated with a 2.3 percent increase in wages at limited-service restaurants in their study, for instance – and no statistically significant employment effects.

You can go ahead and read that here: Seattle?s higher minimum wage is working just fine | The Spokesman-Review

Minimum wage is not a free ride. It can push for automation, increase the wage gap, etc. We've went over that before. In this instance, though claims that Seattle's economy is damaged or that businesses are shuttering is simply not backed up by the facts. Unemployment is down, overall wages are up, etc. If some businesses are shutting down at the $11/$13 hr minimum wage (cash/total compensation to include medical insurance, tips, etc.), then healthier businesses are picking up those workers. Part of that is because Seattle's economy is up as a whole and can float the extra wages. In a downturn, you may very well see a more negative effect from a higher minimum wage.

 

[cordex]

I'm also enjoying this is somehow a bad thing because now the gov't will make everyone do it. Don't successfully grow your business while paying your employees more because the gov't might make everyone do it!

I stand by what I said on another site a couple of years ago:

As for this particular example, it is fine if someone wants to try to distort the market at their own cost for the benefit of their employees. Companies certainly have plenty of history of trying to distort the market the other way. What I don't want is for people to point to this case - whatever its ultimate result - and use it to justify further artificial price manipulation by the government. The long term impact of that will almost certainly be negative for everyone but bureaucrats.

This guy took a chance and it paid off. I believe that his success had much less to do with the actual improvements to his workforce caused by paying a starting salary of $70k and much, much more because he became a cause célèbre which provided him with a huge amount of publicity and support from people who share his political goals and additionally because his business is in a high-profit industry. Thus, as with most economic manipulation by the government, an attempt to apply this kind of strategy in a more generalized fashion is almost certain to fail in most cases.

If I could find a town relying mostly on volunteer police forces that had very low crime should we draw general conclusions from that?