Thursday, December 2, 2010

Lessons in my laundry - part 1

I am on a trip to the United States to raise money for my funds management business.  Its like an endless series of first dates.  If things go well you get a second date.  If things go poorly you get jilted - and usually you are not told why you are jilted.  One prospect however told us that they were not going to invest with us because they did not like my accent.  (I am an Australian - get used to it.)

Anyway I stayed with some friends who turned out (somewhat to my surprise) to be more prosperous than I imagined.  They lived in a three level beautiful inner Chicago house designed by a very stylish architect.  I was there getting over jet-lag and cooking in their beautiful kitchen.  (I cooked braised pork with sage, shallots, and star anise.)

I also did my laundry.  Much to my surprise my hosts did not have an ironing board.

I told my wife by phone - and she thought they must be absurdly wealthy - but then even the wealthy in Australia have an ironing board.  Sure they were a highly motivated and extremely hard working professional couple and ironing was hardly a priority - but it was still strange.

And then in Brooklyn - a week later - I worked it out.  I dropped my laundry off at a Chinese Laundromat and got back a few pressed shirts, my jeans, socks etcetera and paid $11.75.  I figure the same basket would cost me $28 in Australia.  Why would you bother to wash and iron if you were prosperous and laundry was that cheap...  moreover there was at least two laundries between my home and the subway.  I did not need to go out of my way.

This was all because of something I knew on paper - but the price of washing made it personal.  Australia does not have large numbers of very low wage employees and - even in the days machines - laundry is a labor intensive and non-traded commodity.  Laundry is expensive in Australia because the person doing it expects to make $15 plus per hour.  Sure minimum wages are a little lower than that - but most lowly skilled workers are paid more than the minimum.  The laundries I pass in Brooklyn take the clothes to a large warehouse-type room filled with Chinese women who speak little English and who almost certainly work for less than minimum wages.  And a upper middle-class New Yorker either never sees them and can ignore them.  A large low-wage group make the (very rich) lifestyles of the American elite possible.  They make it possible to never do your washing, eat in up-market restaurants, have nannies look after your children and have a material standard of living that even very rich Australians might envy.

If you are minimum wage worker and you have a job it is clearly much better if you live in Sydney or Melbourne than Brooklyn.  At the moment of course Australia is the far-better bet - low wage workers are more likely to find a job down-under and the job is certain to pay better.   But that is not the pattern of the last twenty years.  Mostly Australia has run unemployment a percent or more higher than the United States and there has been less low-pay work.  (Of course the reason why there is less low pay work is that we do our own ironing, cooking, cleaning and child minding as a response to the high price of these services.)

I don’t want to say that this is just a result of minimum wage laws.  I was careful to note that in Australia the norm would be to pay more than the minimum and less than the minimum is common in the US.  Whatever this is an extreme society and the results are - to my eyes - often peculiar.  Lightly traded labor intensive goods and services are - at least to my eyes - startlingly cheap in America.  And whilst laundry is my case example - the one I most enjoy is berries.  Strawberries and raspberries are highly labor intensive fruit.  Picking them is backbreaking and/or prickly work and they need to be transported to very tight timetables.   Like laundry the cost in New York is about a third that in Sydney.  And whilst clean clothes are nice - raspberries are wonderful.  So a little self-consciously I literally enjoy the fruits of American inequality.

America was not always this unequal.  Australia has got more unequal in my adult life.  And inequality is not all bad - not only do I eat fine raspberries - but it makes some people more productive if there is a (financial) tree to climb.  Its just - along with the side of the road Americans drive on and the endless adverts for medical services the most visible difference between Australia and America.  I can’t help but be aware of it.






John


PS.  Part II will be about traded and non-traded goods in the Eurozone.  And the price of laundry...

35 comments:

Anonymous said...

try getting a shirt pressed in zurich!

Anonymous said...

Anyone who has worked in finance in both NYC and London has almost certainly noticed the same thing. In NYC you can get your shirts laundered for a very reasonable price ($1.50 to $2 per, at least that was it about five years ago, either on a hanger on in a box).

In London, insanely expensive for the same. And I was shocked that the managing director sitting next to me did his own ironing, something no NYer would ever do.

I found that dry cleaning and laundry are actually cheaper in NYC than it is in the mid-size city that I live in now. Plus, of course, in Manhattan, delivery is routine and included in the price.

Anonymous said...

I live in West Los Angeles, and it's $2 a shirt here, but I iron my own shirts for 4 reasons.

1) I don't like having my clothes laundered with everyone else's... sometimes, the shirts from the laundromat come out smelling like someone else, and I'm easily disgusted by that sort of thing.
2) I watch some sports/tv on the DVR as it is, so I just do the ironing at the same time... does not cost me any time.
3) My impression is that the laundromats are basically operating under the table (black market) employing illegal alien labor... and I don't want to contribute to that.
4) the main reason - several years ago, they lost a shirt of mine (gave me this cheap shirt that was way out of my size) and denied liability... too pissed off at all laundromats now to go back for anything other than dry cleaning.

Anonymous said...

' I was careful to note that in Australia the norm would be to pay more than the minimum and less than the minimum is common in the US.'

Breaking federal wage laws is so common in the US, you say?

Perhaps give maybe just one actual, real-world example with some sort of....facts behind this bald-faced hyperbolic assumption?

You can move thousands upon thousands of shirts through a warehouse for $7.25/hr*.

This is not to say there's no employer in a nation of 310m people that may break the law, only that the odds are the same in Australia.

Employers who do not comply with DOL standards are heavily fined, employees get back pay, overtime, and often large civil settlements as well due to our plethora of class-action attorneys.

* There are certain exemptions, but that's not what you meant, esp when referring to dry-cleaning.

Alex said...

Strawberries were $1.50 a punnet in Coles (Sydney) a few months ago - were American strawberries that much cheaper?

I don't agree that increased inequality is not bad thing.

If I have a drug that is of tremedous benefit to rich and poor alike and am unable to segment my market then I will make the most profit by pricing it for the richest and thus taking it out of reach for the poorest.

Tim said...

I imagine it's related to the huge number of illegal immigrants in the US, who will work for next to nothing. Life is cheap there. And despite the berries, the food here overall is *much* better quality, though more expensive. The US has trouble with quality over quantity judgments.

BTW love your blog John! Are you the same John Hempton who showed me how to mate with K&R v K in Mr Morris' class in prep school?

Anonymous said...

Unlike Oz, not only do we tip quite generously in the States, (waiters, cooks, busboys, dishwashers, etc), down the milkbar, we also do not mix curry in the egg salad sandwiches. ;-)

Similar to accents, differences abound.

anon,

Dobbs

Cash212 said...

Nobody I know loves the United States more than the family of Korean immigrants who run my local dry cleaner on the UWS of Manhattan. They work a lot of hours and I'm not sure how much, if at all, above minimum wage they are paid but they are very happy. I don't think there should be minimum- or maximum- wage laws as nobody forces people to take a job and nobody can force an employer to hire someone at an above-market wage.

John Hempton said...

The person who raised Zurich is stealing my thunder!

Strawberries are a double. The punets here are four to six times bigger than Australia. Everything is bigger in the USA. Prices are at best double Aussie on a huge punet.

Its surprising on this how much agreement I have got. Everyone who travels for finance related work knows the difference between London and NYC.

Oh - and yes - the Chinese sweat shop in Brooklyn is a sweat shop. Walmart feels constrained by minimum wage laws. the sweat shop does not.

J

Eugene said...

Hong Kong, the great bastion of the free market, has just introduced a minimum wage of HKD28 per hour (about USD3.60). Not long after it was enacted, talkback radio was flooded with small business owners who were bragging about the new trick their accountant/lawyer/friend had taught them - force your employees to set up their own service companies and contract with the companies to provide the former employee's service at a contract rate of less than HKD28 an hour. It's then up to the former employee to work out how to fund the shortfall between the contract rate and the minimum wage!

You can view this as a terrrible indictment of the cynicism of the average HK small businessman, but I think it's illustrative of my view that a national minimum wage only works if culturally people want it to work.

I believe that the minimum wage is respected in Australia because Australia is a more collectivist society than say the US. It also helps that Australia is an island at the bottom of the world - even if a particular Australian businessman wanted to import illegal labour into the country, it's just not that easy, no matter what Tony Abbott etc would want you to think!

In the US on the other hand there are illegals crossing the US/Mexico border daily so there is both a regular supply of cheap labour and demand from entrepreneurs who value their profits with no consideration for the welfare of their workers.

Anonymous said...

What does a hooker go for in Zurich? Sidney? NYC?

I have been gathering data (just data, not STD's) since that famous post, very good indicator....

CV said...

Try Denmark ... only the uber, uber rich have their laundries done for them.

Denmark is so freaking expensive on these types of services ...

(well, perhaps I am prejudist in reverse, but I reckon that Denmark is like Switzerland, with a very high nominal (i.e. relative) wage and price level)

John Hempton said...

BTW love your blog John! Are you the same John Hempton who showed me how to mate with K&R v K in Mr Morris' class in prep school?

yes...

Anonymous said...

Recently moving from Sydney to London, I have found laundry much cheaper in London.

I have been getting a suit cleaned for 7GBP and 5 shirts done for 5.95GBP. This is in East London, and paid similar prices when I was in Bayswater.

In Sydney I was paying 22AUD for a suit and 15AUD for 5 shirts.

Potato said...

I also realized I don't own an ironing board, and it's not because I send my clothes out, but due to the miracle of modern wrinkle-free fabrics! (And in no small part the lesser miracle of being a dishevelled scientist)

dearieme said...

Good stuff: two nit-picks.

It's not been my experience that either Aussie or Yankee strawberries are worth eating. But no-one could muck up raspberries, could they?

"Dry cleaning" - I'm sorry, I'm British: can you explain what that is?

Nick said...

This issue has always frustrated me, in my case, London vs. San Fran.

1 shirt:
$1.50 vs. £3.50.

Whoever suggested that the odds of paying lower than minimum wage is the same in Australia as in the US should probably try opening an Atlas before their mouth. Moron.

PS Sorry to hear about the accent issues. They probably thought you were a Brit (seriously).

Frozen in the North said...

My all time favorite laundry story, I was staying for three days in Vienna at the Airport (Hilton) because at had meetings at the airport.

Went to the lobby to enquirer about having a few shirts washed, was informed that MINIMUM time for laundry was 7 days.

I mentioned to the concierge that they probably don't have much demand for 7 day laundry and only as an Austrian could, he reply with a straight face: No

Anonymous said...

BTW, Are you the same SBHS John Hempton?

Anonymous said...

Interesting perspective....sort of your own little "Big Mac" index. Look forward to hearing more

Craig said...

John,

Thanks so much for pointing this out. I live in Brooklyn and work in Manhattan, and you've given me pause to choose a different place to get my shirts done!

I also lived in Zurich for a while and would point out that there is also the issue of time. Many professionals in New York work SOOO many more hours compared to the Swiss. One clear example is that the standard in Switzerland is for entry level employees to have 4 weeks vacation, plus all the weird Swiss holidays, and sometimes half-day on Wednesday. I haven't run the numbers, but I suspect most New York professionals make less per hour than their Swiss counterparts. Also, it's respected and possible to work less than 100% jobs (50%, 60%, 70%, 80%, 90%). And many women spend more time in the home. 6 months maternity leave is not unheard of, and many take 2-3 years off to raise the kids. Most professional women in New York are back at work within a month of giving birth. So some of what you're talking about is a result of having more women in the workforce, who have less time for household work. This goes as well for strawberries: in the 70s and 80s, women would go out in June to pick strawberries, then freeze and can them. Same for other fruits/vegetables.

While prices for laundry and childcare are higher in Switzerland, the Swiss have more time to do these things, especially--but not exclusively--women. More time with family, more time at home. They also put more money into things that benefit everyone, such as public transportation and education (I paid for my master's in Switzerland in cash while studying, tuition was $1500 per semester...). But they pay a high price for consumer goods such as CDs and clothes.

So the Swiss have more time and less stuff. And Americans have more stuff and less time.

While the suicide rate in Switzerland is higher than in the US, I had the impression that overall, they were happier than Americans.

Thanks again for you blog. I have learned a great deal from you, and your joy in investing is contagious. Keep it up. Are you still in Brooklyn?

Anonymous said...

"If you are minimum wage worker and you have a job it is clearly much better if you live in Sydney or Melbourne than Brooklyn. "

maybe purely from a pure cash pov, but you're ignoring the family and cultural support networks that exist in the us.

Anonymous said...

we work harder than aussies, have greater scale, less rigid labor markets, more competitive business marketplace, etc. as anyone who has spent much time in aus, you guys have a nice fixed game. hooroo

Anonymous said...

On a trip to Australia, stepped massively on an urchin surfing Lennox Head. A trip to the Ballina emergency room to have a good doctor, who also surfed.

Two hour of diligent digging, a tetanus shot later. Was sent home with enough gauze, tape, antibiotic lotion, and pills for the next two week.

Since I was not a citizen, getting that "free" healthcare, was directed to the billing department to pay the bill.

$20 total, for a job that would have cost a couple thousand in the States.

Paid in cash, and requested a receipt.

Two months later, received a bill from the Australian National healthcare system for $20.

Send back a copy of the bill, and never heard from the hospital again.

It must have been too tempting for the woman in the billing department. As with the "free" part for the locals, she most likely never sees cash payments.

anon,

Dobbs

Peter said...

Funny story on minimum wages...in Hong Kong, live in maids are affordable, with a steady supply of Filipinos (previously) and Indonesians (currently). The rich and jetset sometimes drag them on overseas trips. Well, one industrialist had a maid accompany him to Australia and stayed for several months each year. A few years later, maid clued up to minimum wages in Australia, got a lawyer, and sued for shortfall. I understand the figure claimed was in substantial 6 figures, and the payout would have been enough to set the maid up for life back where she came from.

Fair, not fair? Moral, not moral?

babar ganesh said...

we live in brooklyn.

when we tell our friends and family who live in the rest of the country how much we pay our part-time nanny, they gasp at how expensive it is. at least 2x. preschools and private schools in brooklyn are at least 2x the rest of the country, and they are more expensive in manhattan.

so you're only seeing the tip of the differential.

Jeanne said...

Many of the laundries/dry cleaners are owner operated in the United States. They aren't working for wages but profits. From your comments am I to assume all people working in Australian laundries are wage earners?

drpat said...

I'd say that a lot of the laundry and similar services in Sydney would be provided by small businesses, and yes, they'd be working for what would work out as less than minimum wage often.

But once it drops too far below minimum wage, their friends and family start telling them to give it up and get a job. (Been there, done that).

Anonymous said...

Part of the reason this stuff is cheap in the U.S. is that a huge portion of the voting population fancies themselves as entitled, if not actual rentier, types. So the politics, well beyond the minimum wage, goes towards keeping a huge portion of the population living in seemingly wealth paradise. This works by keeping a lot of labor busy and low wage!

In New York, since the spending patterns are less likely to involve cars and large suburban houses, other signs of 'success' abound. The best, and often cheapest produce in the country, as well as laundry services are found there. My poor Brooklyn apartment sharing friends in arts administration used to use a laundry service with drop off and pick up!

Anonymous said...

Consider the new Australian laws prohibiting employers giving a sub-3 hr shift.

Every school child who used to do 2 hours at the video store on the way home etc - all banned.

That means 'proper' employees on minimum (USD$18+/hr) wages which is why in Perth it costs USD4 for a capaccino!

John P said...

That's an interesting observation, which really challenges a rational economic explanation. And, it makes me wonder if more things than we realize may be determined by random events that lead to one equilibria over another.

Once you've developed a culture of low-wage work, it would likely be very hard to change. Everyone's expectation will be that certain types of work are poorly compensated.

Similarly, if through historical chance, service work was relatively well paid, then there would also be very large cultural barriers to paying low wages for that work.

Each of these cultures could exist in fairly deep local minima, and hence be very difficult to change.

Justus said...

I am an American who has moved to Australia. (See how I have established my credentials to have an opinion! :) I pay $3 to have my shirts ironed at the place across the street in Sydney (Surry Hills).

Mostly Australia has run unemployment a percent or more higher than the United States

The US has a prison population that is 1% higher than Australia's. In other words unemployment + prison population = same in both countries; the US simply puts (some of) its unemployed in prison and so they don't show up in "unemployment statistics".

Merely comparing unemployment rates is overly facile.

gnat said...

I left Colorado for New Zealand just as the craze for people waving signs on streetcorners took off. At first I thought they were religious nutters ("THE END IS NIGH" etc.) but the signs are all just advertising for mattress stores and 40% off at Cartoys, that sort of thing.

At that point I realized there was so much unemployment that it was economic to pay people to wave a sign on street corners (and people found it economic to take the job). I left boggling. In NZ, as in Australia, the base cost of living is so damn high that the idea of paying someone to stand on street corners is laughable.

drpat said...

gnat,

In Sydney I regularly see people employed to hold up signs. Over Christmas there were some in Santa suits!!!

(Note for non Aussie/Kiwi readers, Christmas is mid summer remember. You'd have to be pretty desperate to stand around in the summer heat, holding a sign, dressed in white and red fur.)

Not just in Sydney either where there is a regular supply of foreign students (who sometimes run out of money and can't legally get a job). Some were on the central coastal towns of New South Wales, where there were surf beaches a short walk away. They must have needed the money.

I guess that on high demand locations, buying a sign location costs more than paying $15/hour (maybe $10-12 under the table). And the person holding a sign stands out more than all but the biggest and most expensive signs.

scotth1 said...

Of course the reason why there is less low pay work is that we do our own ironing, cooking, cleaning and child minding as a response to the high price of these services

Not so fast, there are a bunch of reasons for that, and I don't think a lot of them would be financial.
My washing machine runs mostly between 06:00a and 08:00a as I forget to do it during the day, I load it up before going to bed when I remember, I don't think any laundry would be open at 01:00a and I wouldn't want to be dragging my laundry around in the middle of the night.
I have 3 laundrettes nearby, I know one charges $15.00 for a large bag of what ever you can stuff into it. When I first moved into the area and didn't have a machine, I rarely left it there, but rather would use their machines, I couldn't wait for the 12 hours turn around, they are never busy, hardly anyone uses the laundrette, it's quicker and easier to load it into your own washing machine.

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.