dotCommonweal

A blog by the magazine's editors and contributors

.

McDonald's, Nixon and the minimum wage

Back in the days when I worked part-time or summer jobs such as hot dog vendor, library clerk and shoe salesman, I remember being outraged upon learning that McDonald's Corp. had showered President Richard Nixon with campaign donations to persuade him not to raise the minimum wage. As Bloomberg News reports in this excellent piece on two McDonald's employees - Tyree Johnson, who works in two Chicago location, and Jim Skinner, who served as chief executive officer - not much has changed. Leslie Patton reported:

Fast-food restaurants have added positions more than twice as fast as the U.S. average during the recovery that began in June 2009. The jobs created by companies including Burger King Worldwide Inc. and Yum (YUM)! Brands Inc., which owns the Pizza Hut, Taco Bell and KFC brands, are among the lowest-paid in the U.S. -- except in the C suite.The pay gap separating fast-food workers from their chief executive officers is growing at each of those companies. The disparity has doubled at McDonalds Corp. in the last 10 years, according to data compiled by Bloomberg. At the same time, the company helped pay for lobbying against minimum-wage increases and sought to quash the kind of unionization efforts that erupted recently on the streets of Chicago and New York.

The story provides a portrait of Tyree Johnson, who earns $8.25 an hour, the minimum wage in Illinois. He has worked for McDonald's for 20 years. "Johnson would need about a million hours of work -- or more than a century on the clock -- to earn the $8.75 million that McDonalds, based in the Chicago suburb of Oak Brook, paid then-CEO Jim Skinner last year," Bloomberg News reported.The story, which ran Dec. 12 (and which I later learned about when the writer received an award from the Sidney Hillman Foundation), demonstrates that the minimum wage deserves to be a much larger issue than it has been on the political landscape. Basic fairness calls for it.The minimum wage I received as a 17-year-old serving hot dogs at a beach in the Rockaways during the Nixon administration was worth 15 percent more, adjusted for inflation, than the $8.25 an hour Illinois minimum wage that Chicagoan Tyree Johnson receives for flipping burgers - and 30 percent more than the current federal minimum wage of $7.25 an hour.

Comments

Commenting Guidelines

Jim said:

My own view is that it is possible to set the minimum wage high enough such that there would be a substantial (un)employment effect. We can all think of instances where we see the labor market responding to lower and higher wages. One clearly is offshoring of jobs that formerly were American jobs; if changing the wage rates had no impact on employment, wed expect that employers would not ship American jobs overseas.

Holding prices constant, a sudden large increase of wages would be a burden on a company and yes that company would be tempted to start laying off people. Still, the work would need to be done. So the next step would be to raise prices. Would demand levels stay the same if prices were raised? If demand did, then the increased wages would not matter. Would demand remain the same with higher prices? I am not sure that it would not, IF wages were raised the same degree for everyone at the same time (which is what a rise in the minimum wage does) and prices were raised at the same time to the same degree. And keep in mind that in the context of this discussion, the rise in the minimum wage would be to offset the public and private subsidization of their salaries, which means that the money going to these higher wages would appear as if by magic in lower taxes and therefore could support demand.

I do assume, though, that there is some play in the available wage rates, and giving everyone at a McDonalds franchise a dollar-an-hour raise (which would be in excess of a 10% raise) is not going to bankrupt the company theyll find some way to make up the lost money, or theyll deal with lower profits. The art is in determining how much is high enough without causing real damage to the enterprise.

Yes, among the bellowing of gored executives dis-engorging a few million, McDonalds could afford to hand out raises. But again, there are two principles here. The first is that if the worker needs a government or private subsidy in order to survive, then the minimum wage is too low. An adequate wage (whcih I think can be measured) should be the hallmark of the minimum wage, not whether the executives would be discomfited. The second principle is supposedly capitalism's own. The capitalist is responsible for his own risks and liabilities. This is why they supposedly deserve to profit. In practice they will try to scrape these things off onto others as much as possible. But not allowing them to do this isn't socialism. It's capitalism. I could even imagine a Bill introduced in the House called the Defense of Capitalism bill that would raise the minimum wage, eliminate business subsidies, and cap the salaries of corporate executives.

FWIW, a libertarianish website recently challenged commenters to come up with an appeal to someone with a soft heart like Oprah Winfrey which would convince her about the harm done by the minimum wage. The winner:"Find a person who got laid off from a charity after minimum wage increase. She tearfully says 'I just want to help people.'"http://econlog.econlib.org/archives/2013/01/make_the_feelin.html

"So the next step would be to raise prices. Would demand levels stay the same if prices were raised? If demand did, then the increased wages would not matter. Would demand remain the same with higher prices? I am not sure that it would not, IF wages were raised the same degree for everyone at the same time (which is what a rise in the minimum wage does) and prices were raised at the same time to the same degree."unagidon - you may know that there is a useful measure called price elasticity of demand that predicts what will happen when an enterprise raises prices. The general rule of thumb is that, the more that what one offers is a commodity (i.e. it's pretty much indistinguishable from what the guy across the street offers), its goods will be price-sensitive, i.e. an increase in prices will result in lower sales, and a decrease in price will result in higher sales. (The full explanation of elasticity takes it a step farther and explains that the revenues lost by the higher unit price may or may not be made up for by the resulting increase in revenues).As you know, price in the real world generally isn't completely a function of the enterprise's internal costs, it is also influenced - in a lot of cases, dictated - by competition and the marketplace. If my costs go up by 10% but I lack the market power to raise prices by 10% or more - then I've just taken a financial hit.My hunch is that McDonald's customers are somewhat price-sensitive - that a hefty (word chosen intentionally) chunk of consumers don't have a decisive preference between a Big Mac or a Whopper, and so if McD raises prices too noticeably, the consumer will switch to a different drive-thru lane. My hunch also is that it's a fairly price-elastic industry; hence 99 cent menus and the like. But as has been pointed out above, an increase in the minimum wage presumably would have an identical impact on the wages paid by Burger King, Wendy's and Taco Bell, whom I'm assuming are more or less equally exploitative. (As a matter of fact, I'd be curious to know if any of these gigantic franchisers are known to treat their employees particularly better and pay better than the others). So in the event of an increase in the minimum wage, McDonald's employee cost increase presumably wouldn't put it at a competitive cost disadvantage. I don't know who the price leader is in that particular industry, or if there is one in particular. But I can see the execs scratching their heads, peering out the window at the competitor across the street, and asking themselves, "If we raise our prices by 10% to compensate for the increase in the minimum wage, will they do the same?" Knowing one other's elasticity helps to answer that question.In short, an increase in the minimum wage introduces some risk and unpredictability. I suspect that the risk, by itself, is enough to activate the lobbyists. Not that greed has nothing to do with it, of course. But most companies I've known over the years like things kind of stable and predictable, particularly if the stable and predictable status quo has them sitting in the catbird seat in their particular market.

As interesting as the conversation is, I think we need to think more broadly than simply trying to figure out if the minimum wage should be $7.50 or $8.50 or $9.50. A big part of the issue, and one that was touched on in the original Bloomberg piece, is that these food service industry jobs, memorably referred to in Wayne's World as joe-jobs, are one of the few sectors in the economy that are experiencing vibrant labor market growth. I'd bet that all of us know people who have downscaled from middle-class wages to wages at or near the poverty level because those are the jobs that are available. This is McDonald's dream: stable, reliable workers at rock-bottom prices who are too frightened and cowed to look elsewhere. I'd much rather see McDonald's have to raise their wage rates because the competition for workers is so fierce that it has no choice. This isn't unheard-of. It happened in our area during the high-tech boom days.

Let me ask a stupid question, maybe 2:If youve never owned a business and actually employed someone, havent you been paying a minimum wage of $0 per hour your whole life? Do you have the right to criticize those who pay their employees more than you ever have?

Let me ask a stupid question, maybe 2

You're right. It is a stupid question. What are you getting at?

UnagidonThats not very nice and out of character for you. What am I getting at? John 8:7 of course.

Sorry. It looked like you were trying to say something very silly, like one could not criticize slave holders unless one had owned slaves oneself.

Unagidon-No sweat. I agree, it would be a silly statement if thats what I meant by it. Im not sure where the slaveholder reference came from, though. To clarify, my point is this:I should be very reluctant to criticize my fellow man for not paying others enough if I have never paid anyone one thin dime.

Ah but I do pay them; every time I pay my taxes or pay an insurance claim.

First, I was not referring to you specifically, but I do think there are millions that I referred to generally. Second, that reply is a dodge. ;-) You know I was referring to wages.

This site from the federal Bureau of Labor Statistics, entitled "Characteristics of Minimum Wage Workers", provides some facts and statistics that are pertinent to this discussion. http://www.bls.gov/cps/minwage2011.htm

63% of earnings in this country are from hourly wage earners. That's a huge number of workers. And yet the unions are weak. What might the country's GDP be if they had more power -- and income.Thanks for the site, Jim P.

"And yet the unions are weak."My view is that unionization is absolutely part of the solution for retail and food-service industry workers who earn at or near the minimum wage.I suggest this sometimes to people in low-wage jobs who complain to me about their jobs - I'll say something along the lines of: "You should organize the workers. Figure out which union would represent you, and contact them. They can help you - they have professional organizers." The impression I get from the folks I mention this to is (1) they don't view it as a serious possibility and (2) they have little or no interest in pursuing it. For whatever reasons, unions don't seem to have any momentum or mind share, except in the public sector.

I suspect that the average fast food employee knows little or nothing about what unions are, what they do, and how difficult it has been to establish them. Unions grew out of the original lack of power of industrial workers, such that even children were sometimes worked to death. It was only when the workers became desperate unto death that they risked their lives collectively to get the organizations establishers.Employers these days simply don't pose threats to human life and health as they did in the old days, so workers are not easily motivated to risk their jobs to preserve them. Yes, there are still some health and safety risks at times, but the people now seem to want those problems to be regulated. The old guys risked their lives to organize, the young ones just risk their jobs. I suppose the only way to motivate them would be for there to be very strong laws protecting their right to organize such that hey felt safe enough doing it. There are legal rights to organize at least in some places (Isn't there also a federal law), but it seems that the laws do not have enough teeth. (I'll have to check this out with my old NLRB lawyer friend.)

Hi, Ann, I'm sure you're right that the conditions don't seem as exigent as it was for coal miners a hundred years ago. Still, a single mom who earns minimum wage at McDonald's and faces the prospect of bringing her children into a homeless shelter so they can be warm for the night might truly be said to be in a desperate situation. The subject of the article in question, who lives in a fleabag dive in a slummy neighborhood, isn't much better off. If he has the luxury of thinking objectively about his situation, he might ask himself, "What's the downside of trying to organize the workers? If they (illegally) fire me, how much worse off will I really be on public aid? And the upside could be pretty substantial."What is interesting is that, in the area where I live, certain retail workers, like grocery store employees, are unionized. And their pay and their rights do seem significantly better than what is sketched for the subject of the article. The benefits of unionization seem pretty visible around here.

"I should be very reluctant to criticize my fellow man for not paying others enough if I have never paid anyone one thin dime."I don't think you should be uncomfortable if you have ever worked for a living yourself. I'm comfortable criticizing someone for not paying "enough" when I know that the payment would not be enough for me to live on myself.

JIm P. ==I'd say that if that mother faces those circumstances, then the problem is not her employer but the local welfare program. I'd like also to raise this question: how should the work of part-time workers be calculated? I mean both 1) those who work only a few hours a week or month and 2) those who work only part-time for many individual employers? How do you calculate their hourly wages if not on the basis of the work done? I'll grant you that I think that most people who do such part=time work are generally paid abominably, but the question remains: how to calculate their earnings fairly??)

I wrote, "a single mom who earns minimum wage at McDonalds and faces the prospect of bringing her children into a homeless shelter so they can be warm for the night might truly be said to be in a desperate situation."Ann replied, "Id say that if that mother faces those circumstances, then the problem is not her employer but the local welfare program."Here is a mathematical way to think about this.In Illinois, where I live and where the subject of the original article in this post lives, the minimum wage is $8.25/hour. If an adult works full time at that rate ($8.25/hour X 8 hours/day X 22 work days/month), she grosses $1,452/month. I'm not sure what taxes and benefit charges would be deducted from the check of a minimum wage worker, but McDonald's does offer a benefits package to its employees, and presumably she would enroll in health care and prescription drug coverage for herself and her children. So let's assume that her net take-home pay is quite a bit less - let's suppose that it's $1,200/month. (My hunch is that it would be somewhat less).I just went to our local newspaper's website and did some quick searches for apartment rental rates in the town where I live. I presume that a mom with children would want a minimum of a two bedroom apartment. According to rental ads, the range of monthly rents for a two bedroom apartment is from $800/month to $1,750/month, with $1,450/month seeming to be where the market is. Speaking as a guy who visits clients in apartments as part of our outreach ministry, I can vouch that the apartments that rent for less than $1K/month are really crummy, and some of the neighbors are folks that a parent wouldn't want to expose her children to (e.g. gang members). Let's say that, despite all the undesirable elements, she is able to get into an apartment for $800/month. That leaves her $400/month for everything else: food and clothing and household items for her and her children, plus utilities, plus a car payment, plus gasoline and any maintenance her car needs, plus everything else.It's very difficult to make that math work. With a few moments' thought, it becomes clear that the financial solvency for this family is fragile, to say the least. Any unbudgeted expenses that might come up, they're in huge trouble.Her annual gross income would be about $17.5K/year, and that would qualify her for public assistance. Hopefully, she could also get some child support from the father. And she may be able to work more than 40 hours per week. And there is sort of a safety net in the community, like the food pantry our parish maintains, to help people who are running short on money for the month. But I trust it's clear that we're now running up against unagidon's objections: the employer's responsibility is to pay a living wage. Public assistance and community safety net seem to be subsidizing wages that are far less than a living wage.My contention, as someone who works with people in this situation in our community, is thatfull-time work at minimum wage + public assistance + child support + community safety net ...... still doesn't add up to a living wage.

Jim --Yes, her situation is still not good. But the *question* is: who is obligated to help her? I grant you thata *both* her hourly wage and her welfare are too low. So what should the minimum wage be? And *on which basis* should it be determined?Yes, unagidon says that welfare unfairly "subsidizes" wages, but what makes his position true?The question at issue is: how should we determine a fair minimum hourly wage, whether full-time or part-time workers, and for single people and for those with personal obligations? You and unagidon seem to be saying that the minimum wage (or salary?) should be established on the basis of what the neediest person in the community would need to live decently. But if that is truly the fair minimum wage, wouldn't the bachelor boy just out of high school be entitled to the same wage as a guy with 4 kids and a dead wife?

Ann writes:The question at issue is: how should we determine a fair minimum hourly wage, whether full-time or part-time workers, and for single people and for those with personal obligations?--This is a can of worms best left unopened. A person should be paid what the labor is worth. If the labor of people with dependents is made radically more expensive than that of single people, it invites discrimination. At present, it is _against the law_ to ask a job applicant about their family status, but a two-track wage scale would present the employer with such substantial risk that they'd find out somehow.We still see too much of the opposite, where a pastor will tell the church secretary "Your husband has a good job, so you should accept a meager salary." Rather than trying to figure out what a "living wage" is, and getting sidetracked by discussions about what a proper food budget should be, or whether a color TV is a luxury, it is more straightforward to peg the minimum value of labor to a given percentage of per-capita GDP (and doubling the minimum wage would be a good start). It is a blunt instrument, to be sure, but one that doesn't distort the economic relationship between employer and employee in ways that would invite discrimination. Better to deal with the finer issues of support for dependents through, for example, the tax code, as we do now.

Ann - yes, I agree that these are important and very difficult questions.Catholic social teaching insists on a living wage. The question is, how do we get there?Surely the spirit of a government-imposed minimum wage is to approximate a living wage - however that is defined. For a family of four, food stamp eligibility would be annual gross wages of about $30k/year or lower. For a household of four with a single earner (like the single mom we were presupposing in my previous comment), $30K/year would work out to an hourly wage of about $15/hour - that's fully double the existing federally-mandated minimum wage. (But note that, if there are two wage earners in the household, then between the two of them, they could get to $30k/year if both work full time at the minimum wage. This illustrates one of the issues with trying to use the minimum wage to get to a living wage; living wage requirements vary widely from one household to another, and a minimum wage mandate can't distinguish between these differences).But $30k/year may be setting the bar low, too. An article in our newspaper suggests that, in the suburban area where I live, a family of four needs to earn $46K/year to achieve a minimal level of financial security. I have to say that this seems more realistic to me, too. So our hypothetical single mom with three dependent children would need to earn $23/hour - that's fully three times the federally mandated minimum wage, and close to three times the minimum wage that is required by my state (Illinois).Based on numbers like these, I believe that the minimum wage needs to go up pretty dramatically - at least double what it currently is.This wouldn't solve every problem. People would still be poor. Unemployment would almost certainly go higher for people in the minimum-wage labor market. Apartment rental costs almost certainly would go higher at the low end of the rental market, as the purchasing power of the poor increased. The low end of used-car prices might go up, too. It would be a very imperfect solution. But it seems to me to be more just than the status quo.I've already suggested unionization for people in the minimum-wage labor market. People who follow my comments on dotCom know that I am very far from a cheerleader for unions, but surely, workers in the minimum-wage labor market who can act collectively are going to be doing better than minimum-wage workers who are on their own.I have some remedies in mind that probably wouldn't play very well at dotCom. I view illegal immigrants as labor competition for American minimum-age earners, so I'm not in favor of open borders. And I'm in favor of substantially better education outcomes for the poor, and so I'm in favor (somewhat ironically) of defanging teachers unions that serve poor communities.

The National Low Income Housing Coalition publishes an annual report that estimates how many times the minumum wage a worker would need to rent a two bedroom unsubsidized apartment. Numbers often vary wildly within a state, of course, but in no state is the minimum wage adequate to cover housing costs. The general rule of thumb for housing to be considered affordable is rent<30% of gross.Here's the map: http://nlihc.org/sites/default/files/oor/2012-OOR-Min-Wage-Map.pdf

"But $30k/year may be setting the bar low, too. An article in our newspaper suggests that, in the suburban area where I live, a family of four needs to earn $46K/year to achieve a minimal level of financial security. I have to say that this seems more realistic to me, too. So our hypothetical single mom with three dependent children would need to earn $23/hour thats fully three times the federally mandated minimum wage, and close to three times the minimum wage that is required by my state (Illinois)."Jim P. --OK -- so in your area the employer should up the minimum wage because the landlords ask exorbitant rents. The, I would say, requires the employers to "subsidize" the landlords. Again, the employer has to take the responsibility for the family's rent problem. And doesn't this skew the microeconomy -- employers having to charge more for their products in order to pay for the families' rent?

JIm P, --You have a point about open borders. I'm not sure that they're so unfair. The economic system of, say, Mexico is really rotten -- relatively large very rich upper class, tremendous poor class. Why should the American system in effect subsidize the very wealthy Mexicans? Yes, not to admit the Mexicans would be terrible for them, but isn't it terrible for them to have to leave their families? Maybe Mexico needs another revolution. How does one decide on helping or not helping someone when a third party is responsible for the bad situation that calls for help? If, analogously, your neighbor is not educating his children, do you have an obligation to do so? Or does the whole community have the obligation?

"OK so in your area the employer should up the minimum wage because the landlords ask exorbitant rents. The, I would say, requires the employers to subsidize the landlords. Again, the employer has to take the responsibility for the familys rent problem."Ann - yes, that is one way to look at it. If there were more substantially more rental units in the area, then presumably the price of two bedroom apartments would fall, and that would alleviate some pressure on low-income families. But rental units aren't popular with the powers that be in our area; our suburb aspires to be the kind of place where everyone owns their own home, and zoning rules are constructed accordingly. Proposals to build multifamily dwellings are scrutinized very carefully. If it's a high-rent development, that's ok, but if the label "affordable housing" attaches to it - then resistance mounts. Current residents fear that affordable housing will mean that the riff-raff will move in. (Our area has employers, really good public schools, and low crime rates - just the kind of place that riff-raff with dreams and aspirations for its children would want to settle in.)

Another question; does a living wage include enough to save up a down payment?

Ann - I think we've watered it down here to being enough to pay the rent.

Pages