Friday, August 5, 2016

Adjusting for inflation, how have 4 major Chicken Fast Food Restaurants fared since 1991?

I saw the graphic below on a twitter account I follow from Nations Restaurant News.

The numbers you see are in "millions"--put 6 zeroes at the end of the numbers (in front of the decimal) to get the full value.

It shows sales figures for 4 major chicken chains in 1992 (blue column is 1991 sales figures).  These numbers are interesting as they stand, I suppose, but what do they represent in more current dollars?

I used the column in BLUE as it is a firm dollar amount from the prior year--1991.  I used the Bureau of Labor Statistics calculator to adjust the numbers into 2014 dollars.  Those numbers are in the box "2014 Dollars (Inflation Adjusted)".

The RED arrows point to the inflation adjusted sales figure. Example: For KFC, sales of $3,200,000,000 ($3.2 Billion dollars) in 1991 would be equivalent to $5,562,000,000 ($5.525 Billion dollars) in 2014 dollars.

I used 2014 because from HERE I was able to find the latest yearly sales figures for these 4 companies.  Those numbers are in the box "2014 Actual Sales".

Now, this is the fun part!  Look at the differences that occurred over time.

Actual Total Sales for all 4 chains are 71% higher than the inflation adjusted figure. It is good to be in the chicken business, right?

What other observations can you make about these 4 companies?

Wednesday, August 3, 2016

UK minimum wage pre and post-Brexit. How has it changed?

There is always a debate about the appropriate level at which the minimum wage should be set (or even if there should be one).

International comparisons are often used to see how other countries approach the use of it as a policy tool.

Here is how the U.K. deals with the issue. They have what is called a "tier" approach---a different minimum wage for different age groups and/or skill levels.

Of course the wages are in Sterling Pound, the currency of the UK. We know with "Brexit" the value of the Pound has taken a hit over the course of the last month or so.

For the purposes of understanding how making cross border comparisons can be tricky, let's put the a above numbers in the current exchange rate, exchange rate before Brexit and Purchasing Power Parity (PPP) exchange rate.

Before the effects of Brexit hit the market, the Pound was trading at roughly $1.45. So if you take the above wage rates and multiply them by $1.45 that will give you the US dollar value of the minimum wage for that particular age/skill group.

For 25 and over: $10.44.  For 21-24: $9.72.  For 18-20: $7.69. For under 18: $5.61. Apprentice: $4.79

Today, the exchange rate is 1 Pound = $1.33. Again, take the numbers in the chart above and multiply by $1.33.

For 25 and over: $9.58.  For 21-24: $8.91.  For 18-20: $7.04. For under 18: $5.15. Apprentice: $4.39.

Quite a difference!  The only thing that changed is the exchange rate between the Dollar and the Pound in a relatively short period of time.  You can see how using current exchange rates can present a misleading picture when presented in current exchange rates.

Fortunately we have a better, but not necessarily perfect, way to show the differences in currency exchange rates.  It is called Purchasing Power Parity (PPP).  PPP is the economists preferred exchange rate to use when making international comparisons because it takes country specific prices/price level into consideration.

In many cases the PPP exchange rate varies drastically in comparison to market exchange rates.

In the case of the UK, data from the OECD show the PPP rate to be almost identical (1 cent less) to the pre-Brexit market exchange rate: $.144 (See the data here).  The numbers I calculated above for "pre-Brexit" will only be slightly less given the PPP exchange rate.

The US has minimum wage has some exceptions but for the most part, regardless of age and/or skill level, it is a blanket $7.25 per hour.  You can see how this falls into the UK policy scheme.

So, when someone quotes a foreign country's minimum wage in dollars it is critical to know (1) if that it is in current dollars how has that currency faired lately in the foreign exchange market and (2) is that in market dollars or in PPP?

Then judge by the look on their face if they are as informed as you or not.  :)

Sunday, July 31, 2016

Cherry-picking the Cherry Pickers. Should this grower be angry?

A bit of a internet storm over a photo a Michigan cherry grower posted to Facebook.

 A Michigan tart cherry farmer is leaving 14% of his crop this year to rot on the ground to comply with an industry marketing agreement intended to keep cherry prices stable. And he's not happy about it.
A frustrated Marc Santucci, who grows about 30 acres of cherries on his 80-acre Traverse City farm, put a photo of the dumped cherries, thick on the ground, on Facebook Tuesday — and the photo had been shared nearly 38,000 times as of Thursday afternoon. (From USA TODAY)

He is lamenting the fact that he is required to destroy a portion of his cherry crop in order to meet supply requirements of the Cherry Industry Administrative Board.  His method of disposal was to dump it on the ground (a common way).

The Cherry Board is charged with stabilizing the price growers receive for their cherry harvest.  The main tool to accomplish this is controlling the supply of cherries that make it to market.

Here is a series of slides I created to explain in Supply and Demand terms what I believe is going on.


A new tax on home buyers in Vancouver. A speed bump or pothole?

The purpose of some types of targeted taxes is two fold.  One is to raise revenue and one is to change the behavior of markets participants from doing something that is perceived as a societal negative.

The provincial government of British Columbia ("BC") has decided that the Vancouver housing market is a proper tax target:

The foreign buyer tax leaves us with the wrong kind of speculator

""This week, the B.C. government announced a new 15-per-cent property transfer surtax to be applied to all foreign buyers of residential property in the Greater Vancouver Regional District, effective on transactions closing on or after Aug. 2, 2016. The objective of the tax is to curb foreign speculators from investing in residential real estate in the GVRD and help to cool the rise of prices.""
The focus of the article is to suggest that this tax will create wrong incentives for market participants and will make the market more volatile and higher-risk.  It is a very interesting point and one I encourage you to read about.

However, with this posting I just want to look at the simple supply and demand issues the tax will/may create in the housing market there.

My overall sense is that the tax may slow down the increase in prices of house, at best.  But because of things OTHER THAN the price of housing in Vancouver, such as economic growth and increasing jobs/income, the price of housing will simply continue to increase.

This is a supply issue for the most part (or all part).

Here are the slides with explanations.

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