Wages (e.g) at McDonalds

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dualstow
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Wages (e.g) at McDonalds

Post by dualstow » Sat Jan 08, 2022 6:29 am

(forked off the 2022 PP PREDICTIONS THREAD, although I didn’t move anything. Only copied. \DS) 🚧
D1984 wrote:
Sat Jan 08, 2022 3:53 am
Xan wrote:
Fri Jan 07, 2022 2:28 pm
"A former McDonald's CEO warns that a surge in retiring baby boomers amid ongoing hiring struggles will lead to a 'catastrophe'":
https://www.businessinsider.com/boomer- ... nsi-2022-1

Which asset(s) would a "major shortfall of workers" cause to rise and fall? And what would it do to inflation?
I don't know......but I do know that there is no such thing as a "major shortfall of workers" or a "shortage of workers". What there IS is a shortage of workers at the crappy wages McDonald's (and more than a few other fast food restaurants) would prefer to pay.

If they raised their wages they would find that at the new higher wage there wasn't a shortage of workers any more. If there was still a shortage at that wage they would need to raise it until the market cleared.

It's like they have forgotten how basic supply and demand works or something. For instance, if they served mediocre to outrightly nasty food, had rude employees who didn't even care if the customer's order was correct or not, the place was never clean, and they charged twice what Burger King did they would soon find themselves without any customers...but that wouldn't be a "customer shortage" per se, it would merely be a shortage of customers at the prices McDonald's was asking and/or at the quality of product they were trying to sell! The same applies to the so-called "labor shortage". If they find themselves lacking employees for a given pay level they are offering, they either need to raise their pay, offer more perks and benefits, offer more regular and secure scheduling, or else accept that they will either have less than the amount of employees they desire and/or less than the quality of employees they desire.

Simple supply and demand 101. A third grader could understand this. I don't know why a former CEO of McDonald's can't seem to grasp it.
I don’t know anything about this, but I found the following:

…most McDonalds are locally owned franchises. Depending on the market in their area, their profit margin is not necessarily as large as you think. The McDonalds corporation is not able to dictate the starting pay rate to their franchisees. The starting pay at each location is based on a lot of different variables, such as the local minimum wage and the local job market. The starting wage also varies depending on who they are hiring. Teenagers make less, especially teens for whom it is a first job. The McDonalds I worked for was at one time paying a premium wage for adults willing to close the store, because we were having a hard time getting enough teenagers willing to work that late on school nights. Also, if they’re hiring an experienced maintenance person (for example), they are going to make more than someone with no experience, because otherwise they can’t find an experienced maintenance person to work there.
- Robin Stucky, former Assistant Manager at McDonald's (1993-2000)

source: https://www.quora.com/Why-does-McDonald ... s-about-an
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Re: Wages (e.g) at McDonalds

Post by Kriegsspiel » Sat Jan 08, 2022 8:59 am

Pondering out loud: I wonder if the pain these corporations are feeling is related to corporate debt. Relating to the CEO's comment that the "number of people starting to retire" is a problem*, taking out a lot of debt doesn't seem to make sense for corporations in markets where the population is leveling off and declining. The market's base employers (resource extraction, manufacturing, etc) would probably be able to outcompete "luxury" employers (like McDonald's) for a shrinking pool of employees, since the "luxury" employers only exist to serve the base employers. I'd think that not being able to hire workers at a price you need to is a good signal that it's not a good market for your McDonald's franchise.

Alternatively, if they can make a profit paying really high wages, then more power to 'em. At first glance, this sounds like more of a catastrophe for McDonald's franchisees trying to run an un-economic business than anyone else. They might do well to adapt, like Chipotlanes and the Starbucks DriveThru, to get their costs down.


* One of the things that Peter Zeihan has been on top of. Check out his recent stuff for more, he talks about it a lot.
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Re: Wages (e.g) at McDonalds

Post by D1984 » Sat Jan 08, 2022 11:39 pm

MangoMan wrote:
Sat Jan 08, 2022 7:01 am
D1984 wrote:
Sat Jan 08, 2022 3:53 am

If they raised their wages they would find that at the new higher wage there wasn't a shortage of workers any more. If there was still a shortage at that wage they would need to raise it until the market cleared.

Ya, generally true. Except they would then also have to raise the price of their food to customers. At some point, people just aren't going to eat there anymore. A $15 BigMac is not sellable.
1. I don't think that raising the minimum wage for quick-service restaurant workers (whether via legislation, unionization, or via simple free market supply and demand dynamics) to, say, $20 or $25--or even to the $26 or $27 range (which is roughly where it would be by 2025 or so if it had kept up with its inflation and productivity adjusted peak in 1968)--would result in a Big Mac alone (i.e. not in a combo) being $15. I also don't think fast food wages would even have to get nearly to that level just to end the so-called "employee shortage"...they just need to be higher than they are currently; if that ends up being $14 or $15 or $16 or $20 or whatever, so be it.

With that said, even AOC isn't proposing raising it that high as a matter of statutory minimum wage legislation (IIRC she was only saying $16 and gradually raise it to $20); besides, as shown below, a raise to $14 or $15 or $16 or $17 certainly wouldn't take the price of a Big Mac to $15.

If you look at the price of a Big Mac in the following high minimum wage locations and compare it to their minimum wage:


United States as a whole in 1968 - A Big Mac (at the McD's locations that offered it...at that point, some of them didn't) cost $0.49 and the minimum wage was $1.60. In today's dollars that comes out to $3.96 and around $12.96 respectively....IOW a Big Mac cost under four bucks in today's money and the minimum wage was around thirteen dollars in today's money.

Seatac, Washington (the city as a whole, not the airport....I know airport food is always an overpriced ripoff due to the captive market effect) - $17.53 minimum wage; Big Mac price is $6.95 or $6.99

Seattle, Washington - $17.27 minimum wage; Big Mac price is $6.49

San Francisco, California - $16.32 minimum wage; Big Mac price is $6.95 (note that Mountain View and Palo Alto had similar Big Mac prices and they had minimum wages of $17.10 and $16.45 respectively)

West Hollywood, California - $15.50 minimum wage (in process of being raised to upwards of $17 over the next two years); Big Mac price of $5.79

NYC, NY - $15 minimum wage; average Big Mac price of $5.89

Australia - Minimum wage of AUD$20.33; average Big Mac price of AUD$6.48 (they do allow sub-minimum wages for employees 15-19)

New Zealand - Minimum wage of NZ$20; Big Mac prices range from NZ$7.79 to NZ$8.10 (they do allow sub-minimum wages for trainee employees from 16-18)

Denmark - Despite being the land of the "$20 an hour McDonald's worker" there actually is no officially legislated statutory minimum wage in Denmark. Given the power of Danish unions (and the fact that they bargain across whole sectors--and sometimes even for non-unionized employees--rather than one company at a time like in the US), though, McDonald's workers in Denmark do make around $19 to $21 in USD terms (and get 5 or 6 weeks paid vacation on top of that). The average Big Mac price in Denmark is around $4.71 in USD (obviously converted from Danish Kroner).

Norway and Sweden - Fast food wages similar to Denmark; Big Mac prices in Norway are on average just under $10 in USD terms (albeit rather less than that in PPP terms, though), also, given that neither Denmark's or Sweden's Big Mac prices are as high as Norway's I think the Norwegian Big Mac price reflects shy-high payroll tax rates and very high VAT rates more than simply high wages for fast food workers (that, and the fact hat Norway is a very prosperous, high standard of living, very HCOL country where everything is quite expensive); in Sweden, a Big Mac averages around $7.80 in USD terms.

Surprisingly, some of the most expensive countries (looking at the average of nominal price terms and PP terms....not in PPP alone...if you go strictly by PPP terms you'll even find second-world countries like Uruguay and Thailand in the top as well; as well as "first world but not super rich like the US or Norway or Switzerland" countries like Israel and Latvia) for Big Macs--Germany, France, and Switzerland (Switzerland, incidentally, almost always has the highest Big Mac prices in the world when the survey is done each year) either don't have any nationwide legislated statutory minimum wage or only have one that is the US equivalent of $11-12 an hour or so (although in big--and HCOL--Swiss cities, say, Lausanne or Bern or Zurich good luck finding any full-time fast food employees if offering less than 14 or 15 CHF an hour and quite probably you are looking at paying a bare minimum of 16.50 or 17 CHF an hour).

Also, some of the big US cities above would still be expected to have higher-than-US-averge Big Mac prices even if the wages there were only $9 or $10 an hour......simply because the cost of everything there (including but not limited to the godawful high rental and real estate prices) is higher than in the rest of the US....as such, you can't blame the somewhat higher Big Mac prices purely and wholly on higher wages.

Regardless, I don't think a Big Mac alone is going to cost anywhere close to fifteen bucks in the US any time soon even if wages for fast food workers rise dramatically.

2. McDonald's could easily afford to increase wages (without hurting franchisees, employees, and/or without even raising costs on customers that much by raising prices) by cutting what McDonald's (the parent company....i.e. the publicly traded corporation McDonald's itself) charges to its franchisees.

Maybe you already knew this or maybe you didn't, but McDonald's (the corporation itself) isn't really in the burgers and fries business per se; it is actually a sort of "REIT-meets-royalty trust" masquerading as a restaurant business. McDonald's itself does own some (not the majority, mind you) of the actual McDonald's restaurants but most of the individual restaurant businesses (i.e. one's local McD's) are franchised, not corporate-owned. And for every franchised restaurant, McDonald's corporate charges the franchisee all sorts of royalties (on gross sales, not net, I might add), rents, and fees; these include:

A franchise fee,

A royalty on gross sales,

An advertising and marketing fee on gross sales

Rent that is a percentage of gross sales (there is a minimum and a maximum in $ terms in the contract but unless the restaurant has a truly awful month--think worse than 2008-09....more like "Great Depression during the nadir in 1932-33" or "April-May 2020"--they will never hit the minimum; conversely, unless it is a very busy location they likely won't ever come close to hitting the maximum either) and that is generally much higher than open market rents for similar locations/buildings/facilities

Paper goods, supplies, sundries, food that all have to be bought from McDinald's corporate; sometimes these are fairly priced; sometimes they re slightly more than what could be had in the open market for a similar sized order per year or per month if all the McDs in a given area where buying in bulk from one supplier in a free open competitive market).

These costs (Some or part of the ones that are above and beyond what they would be if bought on the open market or all/almost all of the ones that have almost no cost to provide to McDonald's corporate at all--royalties and the like--) can add up to between the low teens to the mid-high twenties percent of sales range for a franchisee....and remember, that is on gross sales, not net...the franchisee has to pay them whether he turns a profit or not.

Some 82 percent of the revenue McDonald's corporate collects from its franchisees hits its bottom line as pure profit (as compared to around 15-17 percent for its corporate owned stores). At such margins, they could afford to cut their profits a bit. Given that (depending on what source you go to) between 81 and 85 percent of publicly traded corporate stock (and I don't see why McD's stock would be much different in this regard...after all, it is a large publicly traded company) is owned directly or indirectly by the top 10% of Americans in terms of wealth, such a profit cut (and thus a decrease in dividend increases and share buybacks) would overwhelmingly hit the wealthiest harder than the middle class, lower middle class, working class, or poor.

While we are at it, they (and every other major corporation in America) could probably afford to cut their highest paid five or six percent of employees' salaries quite a bit too (this only accounts for maybe 2-5% of what the company pays in dividends and buybacks so not a huge amount comparatively speaking....but doing so would allow a bit more room for wage increases for its lowest paid workers without having to increase prices as much). For most of the 1950s and 60s the highest paid executive level officers of large American companies only made on average maybe 15-20 times what their lowest paid workers (with mid-level executives making less than that...rough 5-9 times what the lowest paid made on average) made and yet our economy grew faster during those years than it did in the past 40 years or so. Note that if EVERY company was required to do this no one company would be at a disadvantage when competing for CEOs and the like...because they couldn't just threaten to go to another company if they weren't given multiple millions or tens (or dozens or hundreds) of millions a year....since no other company would be paying such salaries either.

3. Higher wages aren't a pure deadweight loss to McDonald's franchises (and to business at large). Yes, some (probably most) of the higher wage is, but better paid workers do tend to be more productive, show less absenteeism, are less likely to immediately jump ship, and probably are better workers overall due to not being as stressed about barely making ends meet (I'd have to look up the studies but there was one a few years ago that showed being in poverty and financially stressed had the same effects on talent, productivity, creativity, and IQ as being drunk or as not sleeping the night before); also, all things being equal, money paid to workers tends to circulate more, increase monetary velocity, and to help the economy more than money paid to those who are already wealthier; this makes sense when you consider that what one employer sees as a cost center--his employees--are what every other business sees as a profit center (i.e. customers). Employees who are barely making ends meet don't make for very effective customers or for a very hot and booming economy.

4. If most people's (i.e. the vast majority of Americans') wages had increased as fast as productivity+inflation has increased over the past fifty years then they could certainly afford to pay higher prices for a Big Mac (or any other fast food item) and not feel financially pinched. If average Americans don't feel they can afford to pay maybe a dollar or two more for a Big Mac then ask yourself why that is....I mean, where did most of the gains from the productivity growth of the past half century go to? Hint....it wasn't to low-paid entry level fast food workers; they aren't the reason many Americans can't seem to get ahead economically these days. Real GDP output per worker has almost doubled over roughly the past fifty years (it is up around 1.98 times)....why has real compensation for the median worker (much less the 10th or 25th or 40th percentile worker) not kept pace with this? Because most of the economic growth post-1973 or so has gone to higher paid workers and to capital, not to average middle-class and lower-middle class Americans. Raising wages from some of for the lowest paid can't help but start to reverse this trend....and it's about damned time.
Last edited by D1984 on Sun Jan 09, 2022 3:02 am, edited 1 time in total.
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Re: Wages (e.g) at McDonalds

Post by flyingpylon » Sun Jan 09, 2022 6:40 am

All I know is that the few times I’ve visited a McDonald’s in the last couple of years, I’ve been greeted by a squad of large computer touchscreens with just one or two people filling orders. At the drive through, the first question they ask is “did you use the app to place your order?”

Minimum wage may have a diminishing effect on the price of hamburgers.
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Re: Wages (e.g) at McDonalds

Post by Mountaineer » Sun Jan 09, 2022 7:55 am

MangoMan wrote:
Sun Jan 09, 2022 7:01 am
flyingpylon wrote:
Sun Jan 09, 2022 6:40 am
All I know is that the few times I’ve visited a McDonald’s in the last couple of years, I’ve been greeted by a squad of large computer touchscreens with just one or two people filling orders. At the drive through, the first question they ask is “did you use the app to place your order?”

Minimum wage may have a diminishing effect on the price of hamburgers.
As I said earlier, ^This.

@D1984, you must really enjoy typing. ::)
But have you ever run a business? I have (and still do), and wages/benefits are the biggest profit killer and largest expense as a percent of revenue in mine. I am familiar with McD-corporate's business model, but ultimately, it is the franchisees who must profit in order for the chain to remain viable. Something has to give (price increases or automation) or there isn't enough profit to make the producers continue the operation.

No one is saying people shouldn't be paid a fair wage. I'm just saying that it should be market based rather than government imposed.
.

Amen!

.
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Re: Wages (e.g) at McDonalds

Post by jalanlong » Wed Jan 19, 2022 9:51 am

D1984 wrote:
Sat Jan 08, 2022 3:53 am


4. If average Americans don't feel they can afford to pay maybe a dollar or two more for a Big Mac then ask yourself why that is....I mean, where did most of the gains from the productivity growth of the past half century go to? Hint....it wasn't to low-paid entry level fast food workers; they aren't the reason many Americans can't seem to get ahead economically these days. Real GDP output per worker has almost doubled over roughly the past fifty years (it is up around 1.98 times)....why has real compensation for the median worker (much less the 10th or 25th or 40th percentile worker) not kept pace with this? Because most of the economic growth post-1973 or so has gone to higher paid workers and to capital, not to average middle-class and lower-middle class Americans. Raising wages from some of for the lowest paid can't help but start to reverse this trend....and it's about damned time.
I don't like to play the "pull yourselves up by your bootstraps" card much. But I will say that a lot of the lower rung employees at my workplace who complain about not having any money, spend $300 a month on cell phone bills, $150 a month on cable tv bills and have high interest car loans that they definitely don't need. There is something to Dave Ramsey's mantra to live like no one else so that later on you can live like no one else. I hear a lot of complaining about "not having enough money" but don't see people adjusting their lifestyles or going without as much to accommodate.

And I was one of those people. In my twenties and early thirties I made a below avg salary but spent a lot of time eating out, buying cds, living on credit cards and generally complaining that I couldn't get ahead.
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Re: Wages (e.g) at McDonalds

Post by Xan » Wed Jan 19, 2022 10:17 am

jalanlong wrote:
Wed Jan 19, 2022 9:51 am
D1984 wrote:
Sat Jan 08, 2022 3:53 am


4. If average Americans don't feel they can afford to pay maybe a dollar or two more for a Big Mac then ask yourself why that is....I mean, where did most of the gains from the productivity growth of the past half century go to? Hint....it wasn't to low-paid entry level fast food workers; they aren't the reason many Americans can't seem to get ahead economically these days. Real GDP output per worker has almost doubled over roughly the past fifty years (it is up around 1.98 times)....why has real compensation for the median worker (much less the 10th or 25th or 40th percentile worker) not kept pace with this? Because most of the economic growth post-1973 or so has gone to higher paid workers and to capital, not to average middle-class and lower-middle class Americans. Raising wages from some of for the lowest paid can't help but start to reverse this trend....and it's about damned time.
I don't like to play the "pull yourselves up by your bootstraps" card much. But I will say that a lot of the lower rung employees at my workplace who complain about not having any money, spend $300 a month on cell phone bills, $150 a month on cable tv bills and have high interest car loans that they definitely don't need. There is something to Dave Ramsey's mantra to live like no one else so that later on you can live like no one else. I hear a lot of complaining about "not having enough money" but don't see people adjusting their lifestyles or going without as much to accommodate.

And I was one of those people. In my twenties and early thirties I made a below avg salary but spent a lot of time eating out, buying cds, living on credit cards and generally complaining that I couldn't get ahead.
Also, implicit in D1984's critique is the idea that once people are at a certain station, they stay there. Once you're an entry-level fast-food worker you're always an entry-level fast-food worker.

It may well be that productivity gains don't go to entry-level fast-food workers, but nobody is expected to be an entry-level fast-food worker for very long. Perhaps a reasonable concern is whether productivity gains are going to PEOPLE, but to look at that, you need to look at actual people, not just roles.
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Re: Wages (e.g) at McDonalds

Post by dualstow » Wed Jan 19, 2022 10:29 am

Yeah, I guess it’s changed, but it used to be that McDonald’s low level jobs were a way station before college or, for some, a managerial position. McDonald’s University. Now that the gig is a permanent job, some people are angrily demanding higher minimum wages. Something’s wrong.
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Re: Wages (e.g) at McDonalds

Post by flyingpylon » Wed Jan 19, 2022 10:38 am

dualstow wrote:
Wed Jan 19, 2022 10:29 am
Yeah, I guess it’s changed, but it used to be that McDonald’s low level jobs were a way station before college or, for some, a managerial position. McDonald’s University. Now that the gig is a permanent job, some people are angrily demanding higher minimum wages. Something’s wrong.
Are they actually permanent jobs for most people that work them? And what's a "permanent job" anyway?
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Re: Wages (e.g) at McDonalds

Post by Xan » Wed Jan 19, 2022 10:38 am

dualstow wrote:
Wed Jan 19, 2022 10:29 am
Yeah, I guess it’s changed, but it used to be that McDonald’s low level jobs were a way station before college or, for some, a managerial position. McDonald’s University. Now that the gig is a permanent job, some people are angrily demanding higher minimum wages. Something’s wrong.
Did it change? Is it permanent? I don't know that that's true, but that would be something worth looking into.
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Re: Wages (e.g) at McDonalds

Post by dualstow » Wed Jan 19, 2022 1:57 pm

+1 Pug
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