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.
