Sen. Bernie Sanders (I-Vt.) on Wednesday introduced a bill to establish a standard four-day workweek in the United States without any reduction in pay. The bill, over a four-year period, would lowe…
The average profit margin in the US is approximately 7%… a 10% margin is considered healthy. Fluctuations in fuel prices DO threaten businesses. That’s why you see fuel/transportation surcharges and price increases.
So in this example, the revenue is $1100 a week per worker. If the worker does make $1000 for that time, that does spell doom.
Let’s work it the other way. A typical business allocates 15-30% of its revenue to payroll. If an employee is making $1,000 a week, that means that if this widget factory was making enough to be a reasonably successful business in the US today, their revenue per worker would range from $3,333 to $6,667. This means the company would be “losing” somewhere between $667 to $1,333 a week by paying the same wages but losing 1 widget.
Overhead is not exclusively the $1,000 you pay Joe. It is also whatever else you pay to keep the factory in business and Joe working. Some of this, like electricity, will decrease when Joe is at work less.
Now if you consider that for decades the widget factories have been making more widgets, but paying the workers lower wages, we have a healthy widget empire more than capable of supporting a 4 day work week.
Examples like these are only helpful if we use realistic numbers. $1,000 a week for a worker’s wages is plausible. $1,100 in revenue from that work is not.
I used those figures for ease of understanding and easy math. At no point did I believe there was a factory somewhere selling widgets, or that a person named Joe was salaried as he built them. My overall point is that for all economics to remain the same, average productivity per worker per hour must remain the same, otherwise there will be price increases or other economic effects.
I used those figures for ease of understanding and easy math.
Easy, but not accurate and therefore misleading.
At no point did I believe there was a factory somewhere selling widgets, or that a person named Joe was salaried as he built them.
No one thought you did… until now.
My overall point is that for all economics to remain the same, average productivity per worker per hour must remain the same, otherwise there will be price increases or other economic effects.
Correct, things will change. The point is that the system can handle those changes. Price increases will happen, sure. But if we take a look at the year prior to [current year], prices tend to go up. Rather than use this as an argument against working fewer hours, or not paying employees more, we should be using the systems we have in place to provide as much benefit to people as is reasonable. Since the 4 day work week does work, (many examples of companies increasing productivity this way) this is a reasonable benefit to push for.
Edit: you said “but nobody’s explaining the economics to me”, here you go, here’s the basics of corporate financial management with real numbers and a tiny bit of macroeconomics at the end.
Wait, I don’t get it. You’re saying if you pay a worker 1000$ a week and get revenue of 1100$, then you have a profit margin of 10%. But that’s NOT profit margin (at least not the one one would use for analysis). Not to mention that those numbers are unrealistic because you’d be working at a loss for a very long time, almost guarantee.
You can’t just pull numbers like that and say, “unprofitable!”. Of course it isn’t. You made it that way.
Besides, you’re ignoring the rest of the expenses that often outweigh the payroll fund.
Back to what you called “profit margin,” I’d call it “Return on Payroll Fund.” It’s weird, I don’t like it, it ignores all of the other costs that go into creating a product, don’t use it. In financial management, we use RoS, which is EBIT/Revenue. That’s probably what you were thinking of. Another name for it would be “operating profit margin,” likewise net profit margin would account for ALL of the expenses and not just operating ones.
Now, let’s look at real numbers. I’ll take Nutrien’s 2023 audited financial statement as an example. (Numbers in brackets are what’s deducted to get what’s not in brackets)
Sales - 29056
Freight, transportation, distribution - (974)
Cost of goods sold - (19608)
EBIT - 8474
EBT - 1952
Taxes - (670)
Net earning - 1282
Out of cost of goods sold (2858) is cost of labour, let’s also add (626) from general administrative expenses, and just say it’s all wages.
Effective tax rate - 670/1952*100% = 34,3% (wow, that’s a lot for where I live, also ignoring mining tax for simplicity)
Let’s see what happens to our efficiency once the changes take effect.
All of costs can be divided into Fixed and Variable ones. Labour, in this case, is Variable because we can manipulate it by employing more staff to compensate for reduction in working hours and keep the sales at the same rate. (Contract workers are usually Fixed Cost, but it’s all relative, as no Fixed Cost is ever truly fixed.)
Going from 40 => 32, we have a 20% reduction in working hours. Mind you, this doesn’t mean there will be a 20% hit in productivity. It may be more, it may be less (most likely less), for simplicity let’s say it’s 20%. So, we need 20% more workers to compensate.
(2858+626)*120%=4180.8
New EBT = 1952 + 2858 + 626 - 4180.8 = 1255.2
New net profit = 1255.2*(1-34.3%) = 824.7. Mind you, the effective tax rate will probably be lower if employment affects deductibles.
So, our net profit margin went from 1282/29056 = 4.4% to 2.8%. Looks bad at first glance, but it’s also a bad year. A year prior net profit margin was at whopping 20,3%, so a decrease from 4.4% to 2.8% would be nothing in comparison.
Will it result in increased prices? Yes, but it will also lead to economic growth, because more free time = people spend more money = companies earn more = companies grow faster, but so does inflation.
Awesome, this is the exact point I was trying to make. You can add further arguments that there will be mitigating factors to this, but my reflex was that if this legislation passes, consumers will see price increases.
The average profit margin in the US is approximately 7%… a 10% margin is considered healthy. Fluctuations in fuel prices DO threaten businesses. That’s why you see fuel/transportation surcharges and price increases.
So in this example, the revenue is $1100 a week per worker. If the worker does make $1000 for that time, that does spell doom.
Let’s work it the other way. A typical business allocates 15-30% of its revenue to payroll. If an employee is making $1,000 a week, that means that if this widget factory was making enough to be a reasonably successful business in the US today, their revenue per worker would range from $3,333 to $6,667. This means the company would be “losing” somewhere between $667 to $1,333 a week by paying the same wages but losing 1 widget.
Overhead is not exclusively the $1,000 you pay Joe. It is also whatever else you pay to keep the factory in business and Joe working. Some of this, like electricity, will decrease when Joe is at work less.
Now if you consider that for decades the widget factories have been making more widgets, but paying the workers lower wages, we have a healthy widget empire more than capable of supporting a 4 day work week.
Examples like these are only helpful if we use realistic numbers. $1,000 a week for a worker’s wages is plausible. $1,100 in revenue from that work is not.
I used those figures for ease of understanding and easy math. At no point did I believe there was a factory somewhere selling widgets, or that a person named Joe was salaried as he built them. My overall point is that for all economics to remain the same, average productivity per worker per hour must remain the same, otherwise there will be price increases or other economic effects.
I used those figures for ease of understanding and easy math.
Easy, but not accurate and therefore misleading.
At no point did I believe there was a factory somewhere selling widgets, or that a person named Joe was salaried as he built them.
No one thought you did… until now.
My overall point is that for all economics to remain the same, average productivity per worker per hour must remain the same, otherwise there will be price increases or other economic effects.
Correct, things will change. The point is that the system can handle those changes. Price increases will happen, sure. But if we take a look at the year prior to [current year], prices tend to go up. Rather than use this as an argument against working fewer hours, or not paying employees more, we should be using the systems we have in place to provide as much benefit to people as is reasonable. Since the 4 day work week does work, (many examples of companies increasing productivity this way) this is a reasonable benefit to push for.
Edit: you said “but nobody’s explaining the economics to me”, here you go, here’s the basics of corporate financial management with real numbers and a tiny bit of macroeconomics at the end.
Wait, I don’t get it. You’re saying if you pay a worker 1000$ a week and get revenue of 1100$, then you have a profit margin of 10%. But that’s NOT profit margin (at least not the one one would use for analysis). Not to mention that those numbers are unrealistic because you’d be working at a loss for a very long time, almost guarantee.
You can’t just pull numbers like that and say, “unprofitable!”. Of course it isn’t. You made it that way.
Besides, you’re ignoring the rest of the expenses that often outweigh the payroll fund.
Back to what you called “profit margin,” I’d call it “Return on Payroll Fund.” It’s weird, I don’t like it, it ignores all of the other costs that go into creating a product, don’t use it. In financial management, we use RoS, which is EBIT/Revenue. That’s probably what you were thinking of. Another name for it would be “operating profit margin,” likewise net profit margin would account for ALL of the expenses and not just operating ones.
Now, let’s look at real numbers. I’ll take Nutrien’s 2023 audited financial statement as an example. (Numbers in brackets are what’s deducted to get what’s not in brackets) Sales - 29056 Freight, transportation, distribution - (974) Cost of goods sold - (19608) EBIT - 8474 EBT - 1952 Taxes - (670) Net earning - 1282
Out of cost of goods sold (2858) is cost of labour, let’s also add (626) from general administrative expenses, and just say it’s all wages.
Effective tax rate - 670/1952*100% = 34,3% (wow, that’s a lot for where I live, also ignoring mining tax for simplicity)
Let’s see what happens to our efficiency once the changes take effect.
All of costs can be divided into Fixed and Variable ones. Labour, in this case, is Variable because we can manipulate it by employing more staff to compensate for reduction in working hours and keep the sales at the same rate. (Contract workers are usually Fixed Cost, but it’s all relative, as no Fixed Cost is ever truly fixed.)
Going from 40 => 32, we have a 20% reduction in working hours. Mind you, this doesn’t mean there will be a 20% hit in productivity. It may be more, it may be less (most likely less), for simplicity let’s say it’s 20%. So, we need 20% more workers to compensate. (2858+626)*120%=4180.8
New EBT = 1952 + 2858 + 626 - 4180.8 = 1255.2 New net profit = 1255.2*(1-34.3%) = 824.7. Mind you, the effective tax rate will probably be lower if employment affects deductibles.
So, our net profit margin went from 1282/29056 = 4.4% to 2.8%. Looks bad at first glance, but it’s also a bad year. A year prior net profit margin was at whopping 20,3%, so a decrease from 4.4% to 2.8% would be nothing in comparison.
Will it result in increased prices? Yes, but it will also lead to economic growth, because more free time = people spend more money = companies earn more = companies grow faster, but so does inflation.
Awesome, this is the exact point I was trying to make. You can add further arguments that there will be mitigating factors to this, but my reflex was that if this legislation passes, consumers will see price increases.
The real question isn’t if it will or not, but by how much. If I were to guess, not a whole lot.
You could probably find some research done on this topic already.