Let them Eat the Dollar Menu

This is a picture of Ray Kroc's first McDonald's restaurant in Des Plaines IL USA - now a museum.

Making the rounds on the internet this week is a budget tool for McDonald’s employees, put together by McDonald’s and Visa. It’s depressing.

The budget is unrealistic–it neglects costs like gas and food and relies on a person working 74 hours a week at the minimum wage.

Other sites have done a decent job of explaining why it is hard to live off a minimum wage. Let’s take a minute to think about how we got here, though. Why do we have people working for such terrible wages?

Let’s go over a few common explanations. (The first two are not particularly convincing.)

1. McDonald’s is greedy. McDonald’s should pay their workers more.

Well, yes: McDonald’s is greedy. But it’s greedy because it is a legal entity explicitly designed to be greedy—that is, maximize shareholder value. While I’m all for companies paying high wages and getting high value from their workers, and also increasing the bargaining power of workers, currently the trend is clear: corporations will pay wages ” the market will bear”.

2. Consumers are cheap. People need to consume more responsibly.

Are we complicit in the system when we buy 99 cent hamburgers? Is it up to patrons to shop responsibly? Fans of the “free market” often support this idea in theory (while being dismissive of attempted action). There are real problems with placing the onus on consumers, however. First, there is a dearth of information on labor conditions; moreover, products may have extremely complex supply chains with a large variety of workers contributing to their production. Second, activist campaigns often have trouble gaining the market clout necessary to get the attention of corporate leaders. Third, lower prices are obviously a benefit to customers, so consumers face the wrong incentives to change their behavior—particularly if they are earning minimum wages themselves. Finally, U.S. consumers show almost no signs of being willing to pay more in order to support higher wages.

3. The minimum wage is too low. We need to raise it.

A higher minimum wage would increase the wages of low-wage workers and could have knock-on benefits for other workers as well. Detractors argue that minimum wages might simply increase the price of goods for low wage workers, or minimum wages could result in less employment for low wage workers if it is no longer profitable for companies to hire them. These critiques appear to be unfounded in practice, however, and overall minimum wages do provide a significant benefit to low-wage workers.

4. The fast food industry is not very productive. If we automate more, fast food workers will create more value and make more money.

Here at ITIF we often advocate productivity gains as a solution to low wages because more productivity means that workers output is higher and their wages could be higher as well. In the fast food industry, however, increasing productivity is unlikely to require increasingly-skilled workers. Workers therefore will be unlikely to capture much of the gains (other than lower prices) from improving productivity. On the other hand, if a more productive fast food industry employs fewer workers, with strong public investment in training and skills these freed-up workers could find higher wage jobs instead.

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So the minimum wage looks like a decent bet, and raising productivity would be good but would be unlikely to help workers pay the rent. Boycotts or reformed corporate citizens don’t look to be very helpful.

Let’s back up a bit and think about how the fast food industry came about and why it works as an industry. In one sense it is a product of technology. Not just automated cash registers and burger-making machines, but organizational technologies such as Taylorist principles and the rationalization of production. These techniques allowed fast food to bring us the one thing that’s on every fast food restaurant’s menu: value. Low cost food still requires a lot of work, however, and fast food succeeded by simplifying their cooking so much that almost anyone could make it. This makes fast food workers easier to replace and helps them sell cheaper—but still relatively good quality—burgers.

As technology continues to make the production of services more productive (and our economic recovery remains weak), the fast food industry will either continue to grow its workforce (as cheaper costs increase sales) or shed jobs as more food can be made with less people. Either way, it will likely retain its low-wage model that provides value to the economy but does not fairly allocate value to workers.

Nobody should need to work 70+ hours a week in two dead-end, minimum wage jobs. We can’t rely on conscientious consumers or corporate generosity to fix things, however. In this context, the minimum wage is the best tool we have to create an economy that is fair to all workers, though we need to compliment it with ways that low-skill, low-wage workers can upgrade their skills and find better jobs.

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About the author

Ben Miller is ITIF’s Economic Growth Policy Analyst, specializing in the connection between technology, innovation, and everything else in the macroeconomy.
  • txpatriot

    I always opposed minimum wage increases as a matter of principle (and I’ve been a minimum wage worker several times in my life), but this article is making me reconsider. Thanx

  • TheLyniezian

    On the contrary I’m not too sure it is the best way of doing things- at least not by itself. The real problem is the absolute requirement to maximise shareholder value. Critics of the minimum wage point out that it actually increases unemployment, as it disincentivises companies hiring workers whose “value” is below the minimum wage, trapping them in unemployment rather than allowing them to work for low wages, build their skills and work up, whilst employers find ways round having to employ so many people to keep costs down. This in itself seems fairly sound, up to a point. What it does not do is question the whole “maximising shareholder value” thing. The point is, who benefits? Primarily the people who invest nothing but their money, and benefit simply by knowing where to put that money (or paying someone who knows where to put it for you), when employees “invest” their time and efforts, but the system is not geared to ensure a good return on their investment. Rather, what we need is a system which considers how all stakeholders- investors, workers, customers, etc. benefit, rather than treating non-shareholders as a means to an end.

    (Please note though I am far from an expert on these matters, however.)

  • http://www.MBAissues.com @mbaissues.com

    Minimum wage is the best alternative to taxes as a tool to get money moving around the economy again (aka the dirty phrase “wealth distribution”). The money is handed directly to the low wage beneficiary and not sent through a bureaucratic chain of government costing 75% overhead to get it to a recipient. It also infuses over $160 billion per year into economic stimulus.