Massachusetts has raised its minimum wage for 2017 to $11/hour, up from $8/hour. This won’t have much effect in the Boston area but it should cut down on employment in the already-blighted central and western portions of the state. With benefits and taxes a full-time minimum wage worker will cost $30,000/year or more, right? Plainly there are plenty of American workers who don’t generate an extra $30,000 per year in additional revenue for a business and there are plenty of businesses for which it would be tough to find any workers that can generate $30,000 per year in additional revenue.
We can cry about America’s declining labor force participation rate or we can optimize our portfolio to adjust to reality.
With more people excluded by law from the labor force there will be more entitlement to public housing, so cities and states will have to build more. Is there a public company that builds free houses for lower-income Americans? How about buying stock in cable TV companies? Fewer people in the workforce means more are watching TV, right? People who don’t have jobs can drink more beer, right? What are the publicly traded companies that sell the most beer to low-income or no-income Americans?
Fast food chains and big retailers have lower labor costs, as a percentage of sales, than quaint local businesses (one source). If we assume that two local coffee shops die and are replaced by one Dunkin Donuts, that should be good for Dunkin’s, right? The company will have lower real estate costs due to less competition from independent shops and higher sales. Local retail is already under pressure and higher minimum wage laws should further tip the scales in favor of Walmart, Costco, and Amazon. Buy these stocks?
What about betting against commercial real estate? If businesses that can’t afford higher labor costs shut down there will be less demand for space and rents won’t grow as rapidly as previously planned. This seems risky due to immigration-driven population growth. With a forecast population of 441 million in 2065 and the same amount of land it is tough to see how owners of land zoned for retail are going to suffer.
Readers: any better ideas for investors in this new labor market landscape?
Related:
- MIT professor studies high-wage retailers
- Serfs in the Age of Catherine the Great and Minimum Wage Today
- Call for a higher federal minimum wage is a war on low-cost areas by crowded high-cost parts of the U.S.?
- The strip club owner’s opinion of the $15/hour minimum wage
- Where do immigrants fit into a country with a declining labor force participation rate and a rising minimum wage?
Robots.
Slightly off topic, but it deals with investments. I’d like to throw out a question. What happens to the whole Google-Facebook-Twitter-media ad-driven Internet space when browsers are intelligent enough to strip out all ads? The reader view button on Firefox is a start.
I guess those Opiate guys from your previous posts might do pretty well.
Invest in companies that make the automated ordering kiosks for fast-food restaurants (and the associated software).
gwood: I’m not sure that the future is bright for ad blockers. I have Adblock Plus installed and publishers seem to have JavaScript ways of detecting it and then hiding content unless one disables Adblock Plus (which I don’t mind doing; I put it in there for those sites with crazy distracting pop-up ads). At a minimum the ad blocker needs to be smart enough to actually download the ads and pretend to display them!
It’s pretty easy: don’t do anything fancy. Buy low-cost index funds. Hasn’t that resulted in extremely attractive returns for a really long cycle? Have you personally demonstrated an ability to produce returns in excess of that generated by the S&P 500 over any reasonably long cycle (except for possibly starting and running your own business)?
You could also always buy some Berkshire Hathaway. If your major complaint about the typical US corporation is that the managers rob the shareholders blind, you have the benefit of owning a company where the owner/operator takes a minimal salary and doesn’t dilute existing holders. On the downside, he probably won’t live too much longer. I believe Warren’s goal is to grow book value in the 7-8% range, which is pretty reasonable.
phil – regarding adblock there are now anti-antiAdblock countermeasures:
https://help.getadblock.com/support/solutions/articles/6000082125-a-website-is-telling-me-to-disable-adblock-before-it-will-show-content
http://napzo.com/do-not-disable-your-adblock-bypass-adblock-detection/
and I’m sure the battle will continue to go back and forth. But for now, installing these seems to have cut down on the “disable your adblock” popups.
gwood / philg – browser extensions like Chrome Reader View are pretty good at side-stepping the “Disable your ad blocker” notices.
Short moneygram and similar remittance firms. As minimum wages rise, and we also start enforcing the law with regard to employing illegal aliens, the illegals will go home. If you’re going to have to pay a lot more you’re going to at least want a fluent english speaker.
If we’re not going to get rid of EBT, SNAP, public housing, medicaid and so forth, then the adult minimum wage needs to be raised to a point where the employees do not qualify for any benefits. As it is these employers of adult low wage labor are effectively subsidized by middle class tax payers, who pick up most of the cost of living for the employees. More importantly, they endure the brunt of the social problems that minimum wage employees bring. The ruined schools and higher crime rates and the long commutes.
The correct minimum wage in most places is probably up well over $20 per hour. If you as a business operator cannot afford to pay what it costs to live in an area, then you need to raise prices or pack up and move.
bobby, this destroys the market for occasional and personal services, including, like, daycare. Do you know how many women would be unable to work if daycare workers had to be paid over 20/hr? The already existing grey/illegal market in childcare for pennies per hour would finally crack and start demanding more than even very low paid women could pay.
>What about betting against commercial real estate?
It’s hard to believe that changes to the MA minimum wage, or the minimum wage in general, will have a significant impact on the commercial real estate market as a whole. In fact, it’s hard to believe there are many publicly traded investment vehicles for which these changes to the minimum wage would have more than secondary impacts. To the extent that there are impacts, well managed companies will adjust and poorly managed companies will be in the toilet anyway.
> Do you know how many women would be unable to work if daycare workers had to be paid over 20/hr?
Well doesn’t my proposal expose the sham for you to see? Women work to pay taxes to pay for cheap labor subsidies and to earn enough to cope with the social costs of cheap labor in terms of commuting and schools. If women can’t afford unsubsidized child care then they can’t afford it. They should stay at home.
Removing the option of dual incomes from many households would have the effect of driving housing costs a lot lower.
I use the Ghostery plugin to get rid of much of the trash. You could also try the Brave browser for what seems to be a more principled take.
How many children per day care worker?
Berkshire Hathaway seems like a reasonable buy. When Buffett dies or retires, you still own a solid portfolio of companies. Perhaps they can start paying a dividend while they sort out who will take over. (The eternal problem; Steve Jobs followed by Tim Cook, etc.)
Ratios for daycare vary, but typical numbers are 4 infants per worker, 8-12 toddlers per worker and 15-25 kindergarten and up kids per worker.