Friday, September 5, 2014

The Minimum Rage Increase

It Doesn't Even Demand Bathroom Breaks
McDonald's Employees are protesting--striking--for a starting wage of $15.00 USD. A bunch of them were even arrested! (No riots  though--they were just on the wrong side of the street). Should they get it 15/hr? For McDonalds??

Let's take a quick look at the situation--pros and cons.

The Minimum Wage In General
The Minimum Wage, generally speaking, is set by both Federal policy (7.25/hr) and individual state law which can go higher (topping out at 9.32 in Washington State). The whole thing started in 1938 with a MW of .25 and its highest effective purchasing power was in 1968.

Who Makes The Minimum Wage?
According to statistics Minimum Wage earners are:
  • Disproportionately young: 50.6% are ages 16 to 24; 24% are teenagers (ages 16 to 19). 
  • Mostly (78%) white; fully half (or even more, depending on which source you believe) are white women. 
  • Largely part-time workers (64% of the total). 
The job-description breakdown on this is people in cash-intensive (bartenders, waiters, fast-food) low-skill businesses. The median hourly wage for these people (that's the number that separates the lower half of the population from the higher half--not necessarily the average) is around 9.00 (so the middle population person in a 'minimum wage position makes a $1.75 more than the Federal Minimum Wage).

  • The average age is 35 and over 80% of Minimum Wage workers are over 20. They are not mostly teenagers.
  • Many are full-time (it depends on which poll you believe--between 35-54%)
  • About 27% of Minimum Wage workers have kids.
  • The average Minimum Wager brings home half of her (55% are women) family's income
For a visual, just for Fast Food, it looks like this (click for the whole infographic):

Conclusions: The idea that Minimum Wage / McDonald's workers are all over-paid teenagers doesn't hold up when looking at the stats (only one MW worker in 8 comes from a high-income family). There are a good number of adults, just over a quarter with kids, who rely on that income ... instead of just living off the Government.

And when we think of those people (and those kids), let's remember: these aren't easy jobs.

What About McDonalds?

So, okay, why not either raise the Minimum Wage or just give McDonald's workers $15/hr like they want? Well, there are a few reasons to look at. Let's see ...
  1. Raising the Minimum Wage would just result in inflation that would eat up the gains, reduce employment, and won't help the poor
  2. If you give McDonald's employees $15/hr that's all they'll ever make (15.00 For Life)
  3. McDonald's / Fast Food margins are too small--they can't afford it
  4. It's unethical or at least un-capitalist to force businesses to give minimum wage workers that much
Inflation Will Eat Up The Gains, Etc.
Maybe. Economist do disagree (it can also lower corporate profits, spur innovation or at least efficiency, and all that money in people's hands drives spending). But while some studies show that a small change in the MW would have, well, a pretty small effect, 15/hr isn't a small change. Let's keep a few things in mind though when using this line of logic:
  • Earned Income Tax Credit (see 2nd anti-wage article) is considered a better means of helping the poor. If you don't favor a high minimum wage because it won't help the poor, do you favor that? If not--are you using the "won't help the poor" reasoning as a smokescreen? Also note: it will help a lot of the poor and a lot of the middle class under the median set of assumptions (see the first linked article above)--do you favor helping the middle class?
  • People who lose jobs due to MW increases will go on public assistance (or, ehh, starve in the streets?). On the other hand, 7.25/hr for a single mom is still on public assistance or starving in the streets. If she doesn't lose her job, 15/hr would likely get her off the public dole (and probably out of Obamacare subsidies). Even increasing unemployment for the low-skill classes might save the nation money.
15 For Life (It's All You'll Ever Make)
The Omnivore saw this on Twitter and questioned it--not the basic question of whether anyone would ever get a raise: You'd need a crystal ball for that--but rather: is that argument persuasive to anyone making MW at McDonald's right now? The argument put forth was that (a) employees usually get two raises in the first year and (b) McDonald's hires from within pretty regularly--so a dedicated employee at a reasonable wage could logically expect to move up. True? Maybe--but probably not persuasively. A McDonald's General Manager Salary is an average of 48k/yr (around $24/hr)

The average employee won't ever make that in their McDonald's career so they'd probably take their chances at 15/hr. Also, raises tend to be in the 10% of salary range or even less (a few cents per hour) so two a year starting from 8.00 would take 5+ years to get several years to get to 15/hr. Most people won't want to be there that long. This person (Reddit, Canada) has been there 5 years and makes only 12.00/hr. Oh, hey--this guy makes 21.00/hr ... Ermm ... he's in Denmark ... and credits unions for his high wage.

It'll Sink McDonald's: The Margins are Too Small
Heritage says the margins are too thin for a wage increase like that (and also: Fast-Food demand responds quickly to price changes--people want it cheap). On the other hand, this article thinks that 15/hr would be a 27% price increase (Or: about a buck twenty-eight per Big Mac)--but overall, the food prices are more dependent on the basic material costs than labor:
Note that McDonald's in other countries seem to do okay with more unionized requirements. 

It's WRONG! Companies Set Their Prices!
You can make all sorts of libertarian or philosophical arguments around what's right or wrong (child labor? Okay or not?). The arguments here are all from whatever your underlying axioms are. The Omnivore wouldn't presume to try to untangle this argument. Note that according to this, Henry Ford didn't pay his people enough to buy a Ford car because he was cool, he did it because he needed trained labor and needed to stop churn.

That may be so--but The Omnivore suspects that even at the training levels of McDonald's there are mutual benefits to paying employees more--a significant number of which will be mature, possibly have young kids, and provide a substantial portion of the income to their family a wage that will (likely) ensure they stay over a substantial period of time. Consider Costco, which pays extremely well finds value for their money even though their jobs are not more training-intensive than other retail worker's.

What Does The Omnivore Think?
Here are a few take-aways:
  1. Anyone who claims economic theory / examples / common sense are clear on what will happen in the event of a wage increase is partisan. We don't know what the short term or long term impacts of either giving McDonald's employees 15/hr or raising the Federal Minimum Wage to, say, $10.10 will be. We just don't--and we can be pretty sure that whatever the impacts are, they will not be equally distributed across the US (for example: more people in the South than anywhere else in America make the Minimum Wage).
  2. It is easier to be sympathetic to a single mother with kids making the Minimum Wage than a massive corporation which might make fewer billions in profits. This makes it a powerful campaign issue but doesn't help untangle who exactly is the victim here. Keep that in mind when reviewing any material. On the other hand, someone painting McDonald's workers as all or largely being rich teenagers is either uninformed--or is being misleading (or, ah, misled).
  3. If you are thinking about the "If the workers get the wage increase they'll be replaced by robots!" argument, consider that long-distance truckers are on the cusp of being replaced by self-driving vehicles whether they complain or not--and that goes for a lot of other people too. The "asking for more money" dynamic is not the primary factor in replacement of people. They could ask for no money and, eventually, a robotic ordering system will be invented that is cheaper than a person--it happened to horses. If you're thinking "Yeah--but it'll happen faster!" Maybe--but around that time the difference gets significant you're either advocating universal health care or the ever-popular "Don't get sick" medical plan.
The Omnivore thinks we are approaching a significant change in how society thinks about work. More and more jobs are going to be replaced by automation--or reduced due to supply chain efficencies. We will need to adjust our thinking accordingly and that new world has no clear road-signs to guide us there.

Please Drive Carefully.


  1. "According to statistics Minimum Wage earners are:" and "Perhaps more importantly, though:" - the numbers seemed to contradict each other. Perhaps I'm misinterpreting?

    Capitalism has nothing to do with ethics (this is neither good nor bad), other than where human beings force it towards some ethical action.

    That last paragraph (change in how society thinks about work) was interesting. Curious to hear more about that.

    1. Start here:

      -The Omnivore

  2. The numbers did contradict a little--the Pew survey was different from The Upshot's numbers--I edited to split the difference (somewhat). Directionally, though, I think they're close. -The Omnivore