Peak Cheap's First Steps

Reposting the Peak Cheap Cycle graph:

As most know, labor costs are the number one expense for any business. This cost lever has been the one most pulled by all industries over the last 5 or more decades. Globalization was a symptom of this, not a cause. Business leaders, having reached the end of how they could lower labor costs domestically in the US, started looking externally to lower them. Headcount "optimization" as well, businesses took advantage of the technology and education driven productivity enhancements in order to do the same or more work with fewer employees (and without consument wage increases).

Workers put up with this for a variety of reasons, most of which (I believe), were effectively a brainwashed acceptance of "this is just how it is in the modern world". However, as I've said before and just like in past pandemics, a stark showing of just how little an employer cares about your actual life, combined with a government mandated "vacation" suddenly gave workers the mental space to realize that they didn't have to accept the current situation. Hence our current minimum wage labor shortage.

So predictably, without the ability to lower labor costs to account for other rising input costs, costs are rising across the economy. Whats going to happen to shareholder demanded company economic growth when fewer customers can afford your products? Companies start getting creative.

As in the past, they are first going to focus on labor costs:

https://www.bbc.com/news/business-58414597

"A branch of McDonald's in Oregon, US, is calling on 14 and 15 year olds to apply for jobs at the restaurant amid a shortage of fast food workers."

https://badgerherald.com/news/2021/10/27/wisconsin-bill-proposes-extended-work-hours-for-children-under-16/

"The Milwaukee County Board of Supervisors released a statement Oct. 26 calling for Governor Tony Evers to veto Senate Bill 332, which would extend the hours children under 16 are able to work.

Under current state law, children ages 14 and 15 are prohibited from working past 9 p.m. during the summer months and 7 p.m. during the school year. This bill would allow this age group to work until 9:30 p.m. on school nights and 11:00 p.m. otherwise."

We are already starting to see increased shrinkflation as well, but I would not be surprised if we begin to hear (or frankly not hear in many cases) about increasing product quality scandals.

The famous Fight Club quote comes to mind: "Take the number of vehicles in the field, A, multiplied by the probable rate of failure, B, then multiply the results by the average out of court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one"

Replace recall with Government Fine or Class Action, and you cover most industries.