This post has nothing to do about backpacking or camping. It is a philosophical, political, and economic discussion. If these subjects are not of interest to you, then you just might want to skip it, plus it is a long commentary.
I recently got involved in a conversation regarding “Income Inequality” in one of the forums over at backpackinglight.com. I think it is an important conversation, and as a parent I would like my children to read my thoughts on the subject.
A big discussion during this year’s Presidential campaigns, especially on the Democratic side, is the so-called “Income Inequality” in the US, cited as the rich getting richer, while the rest of the country struggles to tread financial water; and unless the Government imposes higher taxes on the wealthy, increases social services, implements a minimum ‘living wage’ for all Americans, the rich will continue to manipulate the economy and get even richer, while the rest of us will be unable to tread the waters of our current financial condition.
INCOME INEQUALITY vs EQUALITY
So, if we get rid of Income Inequality, does that mean we want Income Equality? Does that mean we want everyone to have an income of the exact same amount of money? Or does it mean something else? What would something else be? Does our Declaration of Independence, Bill of Rights, or Constitution demand or even hint of Income Equality? No it does not. It only identifies the basic right of each individual to pursue their own opportunities; or as we can read in the Declaration of Independence, each of us is entitled to a
…separate and equal station to which the Laws of Nature and of Nature’s God entitle them…
Also the Declaration of Independence says,
…all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
The equality discussed in the Declaration is Political Equality, not Income Equality. Political Equality is each person’s individual rights, their liberty, their right to pursue their own happiness, and the right to their own property. It also means in a politically equal nation, people who are unequal financially or socially have the same individual rights, and the right to be treated equally under the law.
The concept of Income Equality has no moral ground in a rational society; a rational society that embraces a free market of opportunity; based on each individual’s right to their own life, their own liberty, and their own pursuit of happiness. Taking the philosophy and economic principles of John Locke and the Founding Fathers, our country was built on the foundation of Political Equality, not income or economic equality. This Political Equality takes into consideration that none of us are equal in intelligence, health, strength, talent, morality, or wealth. Political Equality spawns different opportunities for each of us. The Political Equality that inherently creates varying degrees of opportunity has to result in Income Inequality. It is important to recognize that wealth is not a fixed commodity – there is not a fixed amount of wealth to be divided by society, wealth is created and is continuously expanding. Just because someone makes more money this year than last, doesn’t mean he had to take money away from someone else to get it.
I must point out that a free market (capitalism) does not allow the wealthy to buy special favors from Government. This so called Crony Capitalism is caused by the Government when it interferes with the economy – as happens often in our mixed economy, which is not a free market and is not capitalism. The more Government interferes with the economy, the more Crony Capitalism grows.
EQUALITY OF OPPORTUNITY
It is true that each of us does not enjoy the same opportunities in life. Children of wealthy parents will have more opportunities growing up, going to better schools and such. Some people are smarter than others, some have special talents most don’t have. Some misguided social engineers want to eradicate the income inequality by implementing Opportunity Equality, such as making college tuition free, providing specialized training for free, and providing free health care or free child care. There is no “free” in life. To try and create equality of opportunity these social engineers (the Government) has to seize wealth from those who have it and then spend it on the so called equal opportunity. People who get things without paying for them don’t necessarily appreciate what they get since they didn’t pay for it – they have no “skin in the game.” Besides, look at our current public education system… it isn’t working, taking more money from those who have it and pouring it into public education won’t improve the system, it will remove capital from the private sector that would have been used to create more jobs and we will still have a subpar public education system. The only equality that works to the benefit of a society is Political Equality.
Political Equality allows each person to rise as far as his talent, ability, and hard work will allow him. There will be a few percent of wealthy people, most people will make a good living, and a minority will constantly mess up their lives. Our success in life is up to each one of us, we are accountable for our own life, not for anyone else.
Each of us has the same drive for survival. How we do it is up to us, because each of us chooses to live, and this choice requires productive work by which our minds controls our existence; it must be a processing of continuing improvement, learning, and knowledge. To survive we must think. The work we chose to do to be productive is up to each of us, and that choice is as extensive as our imagination, but no one can be truly productive if they refuse to think, refuse to learn, refuse to create their own opportunities, and refuse to have a purpose for living. The decision to be productive is a moral decision.
This moral decision is to recognize that neither nature nor others will provide your needs – your life and happiness require you to carefully select your life’s goals, your career, and the desire to pursue these. Whatever work you choose, it is important that you think and work to create a life of substance. In our modern society, we no longer need to hunt and gather to survive, or work day and night on a small farm to produce all we need. We live in a society where we cooperate with others using specialized skills to create a life with much more wealth than we could accumulate through barter with the meager surplus we might be able to build on our own. We are traders – Productive Traders. We trade the money we earn for the goods and services we need or want – this is a free exchange, and it allows workers to get pay raises and promotions if they consistently focus on the key ingredients of success. I call these the Employee Big 4, which I will share later.
MY QUALIFICATIONS ON THE SUBJECT AT HAND
Before I continue, I want to share my qualifications on the subject of employers, employees, and employee compensation.
For nearly 18 years I worked for one of the largest, if not the largest, automotive consulting company in the world. During this period of time, the company I worked for assisted over 50% of the new car dealerships in the US to improve their profitability, customer satisfaction, and market share. Some fact about this industry as of the end of 2014 (I don’t have 2015 data, since I am retired, but the data has improved, because the new car dealers had their best year in history in 2015).
- There are nearly 18,000 new car dealerships in the US.
- Total income for new car dealerships in 2014 was $806 Billion.
- The average new car dealership employee earns over $55,000 per year.
- New car dealerships employed more than 1.05 million people in 2014. (This is almost more than the #2 – #4 US employees in the US – McDonald’s, IBM, and Kroger combined.)
Compare this to the largest company in the World, Wal-Mart
- Wal-Mart employs 1.3 million people in the US.
- Wal-Mart’s US sales in the US were $279.41 Billion in 2014.
- Wal-Mart’s sales in 2014 via Sam’s Club were $136.51 Billion.
- Wal-Mart’s International sales were $57.16 Billion in 2014.
- The new car dealerships in US sales were more than double Wal-Mart’s total global sales of $473 Billion in 2014.
During my tenure at this company, I developed most of the solutions, software, templates and other collateral we used to analyze the dealerships, the processes we re-engineered or implemented, and the training materials we used to train automotive manufacturer employees and dealership personnel. Also I managed many teams of consultants in the US, and have personally worked with over 1,000 new car dealerships. I was considered an industry “subject matter expert.” My position allowed me to work with professionals in other industries, where the challenges and opportunities were not much different than the retail car business.
GLOBALIZATION & THE MINIMUM WAGE
Our world has changed, as the US is now an integral part of a Global Economy. Things are not the same as when I started working nearly 50 years ago. They are different than 10 years ago. The one thing we can say about the Global Economy is change is constant. Because of this change, it is imperative that employees can remain competitively productive in this changing environment. Employees must be focused on learning and improving their knowledge base and skills, keep an eye to the future and constantly be on the lookout for changes in their career field, and to have a strong attention for opportunities – they must think and act, or they will be left behind with little financial future.
Because of our constantly changing business climate, and too many people not preparing for the future, many people in the US are now clamoring for a Federal Minimum Wage of $15 per hour. They feel this will provide entry level workers a livable salary. I have seen several models on how this would impact the fast food industry, and these so called experts usually use McDonald’s as their model because McDonald’s is the largest fast food outlet in the US. Their calculations show that raising the minimum wage would increase food prices between 10%-27%, and they extrapolate this increase to cover the entire fast food industry. There is one serious error in this modeling – McDonald’s isn’t going to raise their prices. If McDonald’s could raise their prices 10%-27%, they would do it today. The independent McDonald’s operators, for the most part, try to make as much profit as possible. These operators do not decide the selling price, the market place decides. Customers decide how much they are willing to pay. If McDonald’s raises its prices, more people will start eating at home or bringing their lunch to work. However, McDonald’s isn’t going to pay employees $15 an hour and keep prices at their current level – McDonald’s will decrease the cost of labor by hiring fewer people, and will have greater incentive to install more capital equipment – i.e., automation. This would also create new opportunities for technology companies to develop solutions to run a fast food restaurant with more leading edge equipment, thus reducing the work force. We would probably first see all the cashiers replaced by self-serve iPads and automated food delivery systems. Net results will be far fewer jobs. This is what happens when Government interferes with the economy.
This thinking is what has forced many companies to move manufacturing operations overseas. For example, when Alan Mulally took over the CEO position at Ford Motor Company in 2006, union factory workers cost Ford $78 per hour when benefits were factored in. These wages prevented Ford from being competitive in a global market, and he negotiated with the unions to lower Ford’s cost per employee to $55 per hour, still much higher than foreign companies were paying employees around the world, or even in the many plants these foreign competitors had built in several of our southern states. This is our changing business climate and employees must be willing to obtain new skills and knowledge, and they need to do this before their current jobs become obsolete. It is every worker’s personal responsibility to adapt to an ever changing world. Mentally we cannot afford to become complacent in our current careers.
NEW CAR DEALERSHIPS: A BUSINESS CASE
I have spent a good portion of the past 18 years in dealerships working with the owners, managers, and employees. I have done workshop training, seminars, and plenty of one-on-one training with new and existing employees. Many of the new employees in new car dealerships start in entry level positions that hover around the minimum wage for compensation. But the owners of the dealerships view these entry level positons as an opportunity to identify potentially good employees for promotion to more responsible roles, with much higher pay. As I presented earlier, the average yearly pay in a dealership was over $55,000, which is higher than the median family income in the US. It is pretty common to find personnel throughout a dealership who started out making minimum wage washing or parking cars. It is capitalism at its best. Good Service Advisors can make $50K – $70K per year, great Advisors can make over $100K. Same pay range for Technicians. Salespeople often make over $100k, Sales and Finance Mangers over $200K, and many General Managers earn $300K – $500K and more.
Typically there are no educational requirements to work in a dealership – not even a high school diploma. In 1998 it was rare to find people in the retail car business with college degrees, but that is slowly changing. I have met many with Bachelor Degrees, MBA’s, and a few with Doctorate Degrees. These degrees aren’t required, but what I am seeing is people who left their original careers, because of a changing business climate, or more often people can make several times more money in a new car dealership than they can make in their degreed field – adaptation at its best.
Minimum Wages in Action
Over the past 8 years or so, I developed Express Lube programs for several car manufacturers, and my team of trainers and consultants implemented them. As the manager, I often traveled to these dealers when we installed the new processes.
Most people don’t realize this, but most car dealerships charge less money for an oil changes than the largest Fast Lube operator in the country, Jiffy Lube. There are 29 states that have a higher minimum wage than the Federal minimum of $7.25, with California and Washington, DC leading at $10 and $10.50 respectfully. However, as I explained in the McDonald’s scenario, oil change prices are pretty much the same across the nation, and the average wage for an entry level oil change technician in a new car dealership is almost universally around $10 per hour. This is the wage based on market conditions where the price of an oil change is determined by the customer – that is, what they are willing to pay. There is one exception: a few areas in the country where union wages and fees more than double the cost of technicians. These dealers simply try to break even and cannot be competitive with the Jiffy Lube’s of the world, and they struggle to retain their customers, who usually take the cars elsewhere. The unions are driving customers away, and decreasing the employment opportunity in those areas. Also most union technicians of skill levels higher than entry level usually make less money than their non-union counterparts. Non-union technicians typically get paid based on how much work they produce; union technicians get paid by how many hours they are at work, with production not part of the pay equation.
THE EMPLOYEE BIG 4 (AAAA)
When I talk to the owners of these dealership, they universally have ONE challenge – they cannot find good employees! How can this be with an average pay of over $55,000 and a business model with a career path?
These employers are not looking for trained personnel, they are willing to train, and good for my old company since we provide training. The problem these owners have is finding people with a good attitude, the willingness to apply themselves, the lack of ability or desire to learn, and most importantly – employees who will show up on time and every day. It is not unusual to see a dealer hire 5 or 6 people for an area that only needs 4. They need 5 or 6 people to ensure that at least 4 show up every day. This is what is killing our economy, driving automation, and moving jobs overseas.
WHAT EMPLOYEES OWE THEIR EMPLOYER
- Ability: Have the basic skills to perform the job. For entry level workers this is often things like the ability to perform simple math calculations or to count money accurately when under time pressures. Employees must be able to work in a group environment.
- Aptitude: Is the speed with which you learn your environment (continuous improvement). Aptitudes are the skills you are capable and willing to learn. Applying yourself to the job 100% of the time you are at work.
- Attendance: Come to work every day and be on time.
- Attitude: Positive all the time. The ability to work with others; supervisors, co-workers, the public and always be positive in every interpersonal relationship.
Unfortunately, I rarely see individuals who consistently give their employers the Big 4, 100% of the time. Too many are constantly complaining about their job and life in general, employees who are not applying themselves 100% of the time often personal cell phone calls, texting, surfing the Internet, and socializing – not working even though they are being paid to work. The most distressing thing I see is the unwillingness to grow or take on new tasks – the common response I hear is, “It’s not my job” or “I don’t get paid to do that” or “I didn’t sign up for that.” And the all too common problem of poor attendance and punctuality.
WHAT EMPLOYERS OWE EMPLOYEES
- A paycheck, paid on time and without errors. The employer/employee relationship is a contract; each is bound by their word. When an employee is paid at the end of the week, both parties have fulfilled their contract. Nothing more is owed by one to the other.
- Should the employer’s business model remain viable in a free market, and excluding any severe changes in the economic climate, the employer owes job security only to those employees who constantly deliver 100% on the Big 4. Employers don’t owe employees pay raises or promotions – those are earned, and they will usually be earned and fulfilled by those employees who always practice the Big 4.
One last parting thought
In 2011 I created a workshop on Employee Recruiting and Retention for one of the major luxury car manufacturers. This workshop was delivered to every one of the manufacturer’s dealerships in the US. During the first workshop for dealers in the Chicago area, everyone of the dealerships had discontinued drug testing for their automotive detail departments because most applicants could not pass a drug test. Those who could pass the drug test, often had such a poor driving record they could not be insured by the dealership or hired.
Most luxury dealerships offer a free car wash for every vehicle that is serviced, often requiring an operation to wash over 100 cars per day. This is a luxury car owner’s expectation and is done to retain customers. Car dealers are happy to perform this service, plus it provides entry level positions that often attract people who can move up in the organization.
My solution to the problem was the only rational solution – install high end, quality automatic washing equipment.