Wages, Revenue and Profit – Something NYTimes Should Understand

How cool is to work in Apple retail stores? I do not know but for some it does feel very very cool. Even feels like lifetime achievement for some as evidenced by them bursting into tears when they get the job offer. So writes The New York Times on its exposé piece on wages for Apple Retail Store employees. And what is the pay off for getting the priced position? How about $11.91 a hour.

The article laments at length about the low pages paid for Apple store employees despite the high revenue per store. In an telling infographic, Times compares the salaries as percentage of sales per square feet for Apple store and three other retail brands.  As it turns out Apple store employees make the least as percentage of sales per square feet, even less than Tiffany and Costco employees.

Times is worried about this inequality. It  says,

Worldwide, its stores sold $16 billion in merchandise.

But most of Apple’s employees enjoyed little of that wealth.

Unfortunately, Times got it backwards with respect to ratios and does not understand the concept of revenues, costs and profits.

The ratio of wages to sales is irrelevant. Every business, including NYTimes, will pay no more than the value added by any single employee. This is the upper bound,  the number gets pushed down due to supply and other externalities.  In case of Apple it appears some would even pay for the privilege of wearing the blue shirt.

Comparing that to sales misses the basic economic labor laws of supply and demand. If any, the Times should compare the ratio of sales per square feet generated to employee wages (the inverse ratio), which is a measure of the multiplier effect. Apple’s brand equity, marketing excellence, its products, its efficient supply-chain, operational efficiency and fan base allow it to achieve very high multiple compared to other retailers. That is a laudable feat.

On the question of sharing the wealth (profit) created, NYTimes likely needs basic lesson in factors of production and value creation.  Or even the simplest accounting statement would do,

Profits = Revenue  – Costs of production (including wages)

Profit is what is left when a business pays off costs of production including wages. Once the wages are paid, workers get no further claim on the profit which belongs only to the shareholders of the company.

What is next? Is NYTimes going to write a piece on why Apple charges $499 for a device that costs less than half to make?