Economix - Explaining the Science of Everyday Life
JULY 22, 2013
By NANCY FOLBRE
In his autobiography, “Grinding It Out: The Making of McDonald’s,” Ray Kroc described the company he built as “my personal monument to capitalism.”
The monument is a towering one. Only ballpark estimates are available, because McDonald’s stopped posting estimates of its cumulative burger sales when they reached 99 billion in 1994. But the company is on track to hit the 300 billion mark in the near future, if it hasn’t already.
With total revenue that exceeds the gross domestic product of Ecuador, McDonald’s is virtually a culinary country of its own. Not surprisingly, it has become a recurrent focus of political contention.
This year’s protests against the low pay of its employees reflect:
- larger concerns about the decline of good jobs in the United States, and
- the company’s recently published personal budgeting advice reflects remarkably widespread disregard for people trying to get by on poverty-level wages.
A company that can sell 300 billion burgers clearly knows how to respond to consumer concerns. As Eric Schlosser explains in “Fast Food Nation,” McDonald’s moved relatively quickly to improve standards of humane treatment for the (nonhuman) animals in its supply chain.
In the wake of bad publicity from Morgan Spurlock’s film “Supersize Me,” the company made significant efforts to improve the nutritional value of its menu. Last year, the company took the lead in a commitment to post calorie counts for every item.
Of course, the company’s nutritional impact is influenced by policies over which it has little direct control. In the United States, Big Macs cost less than a salad largely because our agricultural policies subsidize the price of meat far more generously than the prices of fresh vegetables and fruits.
The low wages the company pays its workers also reflect the economic environment. In this country they average less than $8 an hour, reflecting a federal minimum wage that has been stuck at $7.25 an hour for four years. If the minimum wage were adjusted to correct for inflation, its 1968 peak would amount to about $9.42 today.
More than 88 percent of those who would benefit from a higher minimum are over the age of 20.
Global comparisons demonstrate that macroeconomic conditions and government regulation — not individual skill or effort — determine the level of company wages relative to prices.
In 2005, the now-defunct Asian Labour News estimated that it took:
- workers in America at McDonald’s took about 30 minutes to earn enough to buy a Big Mac.
- workers in China, it took workers behind the counter about 3 hours 58 minutes;
- workers in India, 8 hours 34 minutes.
The relative bargaining power of low-wage workers has a far greater impact on burger prices than differences in efficiency.
Underlying differences in labor markets — as well as factors influencing international exchange rates — help explain why Big Macs are relatively expensive in dollar terms in high-wage countries such as Norway and Switzerland and relatively cheap in low-wage ones like India and China.
Americans whose top priority is minimizing burger costs should perhaps shop overseas.
Low-price fast food offers some quick visible benefits.
But consumers who are also workers need to consider its long-run implications for their own wages and living standards. Happy Meals don’t necessarily lead to happy families.
Wage trends in fast food are not simply a result of impersonal market forces. Corporate policy matters. According to Bloomberg News, the disparity between the pay of McDonald’s fast-food workers and its chief executive officer has doubled in the last 10 years, while the company lobbied against minimum wage increases and discouraged unionization.
The budgeting advice that the company management recently offered employees — effectively lampooned in a video posted by the group Low Pay Is Not Okay — reveals a management that is out of touch with the experience of its workers. It includes estimates for rent and utilities, but it does not mention food, clothing, gas, or child care. It presumes that they will hold a second job and find health insurance costing only $20 a month.
The sample budget assumes hourly gross pay of about $15 an hour (assuming a 40-hour workweek), far more than most McDonald’s employees will ever earn. In other words, the company’s own calculations suggest that it fails to offer a living wage.
It is hard to imagine Ray Kroc, a self-made businessman who started out selling milkshake machines, ever patronizing his employees in such a careless way.
According to a recent Gallup Poll, more than two-thirds of Americans support an increase in the minimum wage, and some restaurant owners are also on board.
McDonald’s could put a living wage on its menu. You could ask for it the next time you hit the takeout window.
Or you could just drive past the golden arches in search of a better monument to your ideals.