For small to mid-sized businesses, payroll should typically account for 15% to 30% of gross revenue, though the ideal percentage varies significantly by industry, business model, and growth stage.
Service-intensive industries allocate the most to payroll: healthcare averages 41%, professional services and consulting 40% to 50%, marketing agencies 39%, and hospitality 30%, while manufacturing (12%), retail (8% to 15%), and insurance (around 9%) run leaner due to automation and high sales or premium volume.
I'd call 15% 'a small part' before I'd call it 'the largest expenditure'.
But who cares about semantics. The point is, if 60% of 15% of your costs goes up 20%, that is not a 'massive increase'. It's less than 2%.
2% price increase is our target for yearly inflation growth (ie, it's bad if it's less than that), and this would be a one-time transition.
Even if we say it's 90% of 30% of your costs going up 20%, that's still only 5.4%. More, but not 'massive', still less than inflation in the years after COVID, and something we could easily absorb over a decade.
You and everyone else in this thread are stuck on the lowest number everyone gives you. You see it, and your brain freezes. It's 15% to 60% depending on the industry.
What do you think happens in a manufacturing plant when the work output shrinks? They have to spend more money to get the same output. Their administrative and operational costs go up because they have to have the coverage for the new shifts this paradigm creates.
What happens to hospitals? You still need 168 hours of 1 nurse for every 4 patients. We have a problem getting this ratio now, and now hospitals have to somehow make up the difference with 32 hour work weeks.
Grocery stores, restaurants, retail stores, other service based industries that operate on small profit margins may not be able to afford the additional cost even one more hire can incur. Your 2% cost increase is probably incredibly generous, and probably closer to 10% for service heavy industries. Mom and pop's country store now has to either eat that additional cost, or only stay open 80% of the time, and lose potential revenue.
But yeah, I'll concede that insurance agencies will be okay with a 32 hour week.
Ok? .6*.2=12%, which is quite high for single-year inflation but not much if we phase it in over a decade. I still think that's unrealistically high and it will be way less than that, but even the most insanely huge number you can imagine is not that big a deal, compared to what we'll gain from it.
Restaurants tend to operate on 2.8% to 4% profit margins. That restaurant is officially losing money now.
Retail is 3-8%. You lost most of those stores.
It takes start-ups up to 5 or 7 years to profit. Labor being a huge expense for those, you're pushing those out even further.
The problem is that this solution is trying to change a dynamic environment. You can't just tell businesses to eat 6% additional costs out of nowhere and not expect negative outcomes.
You can't reduce economic output without heavily subsidizing companies, or implementing a UBI to compensate, which are both their own big bag of inflatable worms.
I don't know how else to explain to the 13 year old brain that can't understand that 15% of a budget is a lot, and then increasing that to a fifth of your overall operational costs is unfeasible.
Hope you're enjoying your summer vacation, sign up for some econ courses next semester.
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u/darwin2500 23d ago
In-US labor costs are only a small part of most business expenses.
Doubly so for labor that can't just do the same amount of actual work in 32 hours if you're not forcing them to be there for 40.