Dire Prediction, Meet Real-World Result…

The growing pressure to increase the minimum wage is frequently met with a prediction that wage increases will hurt both businesses and consumers–if that hamburger costs five cents more, fewer people will buy it, and that will lead to layoffs that hurt the very people higher wages are meant to help. (It’s interesting–and telling– that the prospect of better pay for employees always triggers an expectation of increased prices for consumers rather than a modest decrease in returns to shareholders. But I digress.)

So how’s that prediction holding up in the real world?

After raising the wages to over 90,000 employees and providing more incentives and benefits, Steve Easterbrook, McDonald’s CEO is pleased to announce the company’s turnaround plan is actually working. Profits are up, employee turnover is lower, and customer satisfaction scores are higher.

According to Fortune Magazine,

“U.S. comparable sales rose 5.4 percent, their third straight increase after what had been two years of declines.” This is partly due to their new menu deals and all-day breakfast, but it’s also undeniable customer satisfaction due to happier employees is also a factor in that growth. Which just killed a popular right wing talking point that increasing wages and providing more benefits hurts business, at least for McDonald’s it hasn’t.

So let’s see: McDonald’s CEO says the company measured an overall 6 percent rise in customer satisfaction, and he attributed that improvement to better compensation and incentive packages for employees. (There is no mention in these reports of price increases, nor data suggesting that people have stopped buying Big Macs.)

Not-so-incidentally, it has been estimated that raising wages for McDonald’s employees (and employees of the company’s franchisees, who have not thus far been included in this experiment)  would significantly reduce the burden on American taxpayers. Currently, we are paying 1.2 billion dollars every year to cover public assistance needed just for McDonald’s employees who are not paid a living wage.

In other words, American taxpayers are subsidizing the profits of McDonalds and similar low-wage employers; we are essentially paying that part of employee compensation that represents the difference between what McDonald’s (and Walmart and others) pay their workers and what those employees require in order to live.

McDonalds’ real-world experience suggests that these companies can afford to pay their employees an adequate wage without taxpayer help–and still keep their shareholders fat and happy.

39 thoughts on “Dire Prediction, Meet Real-World Result…

  1. I wonder how portion size reduction figures in. If a Big Mac is reduced in size by 5 or 10 percent what would be the result in profit to the company? Case in point: coffee used to be sold in 16-oz packages but are now 12-oz or smaller. That’s a pretty huge reduction in quantity calculated to make the price “seem” to be unchanged. Just omit two or three fries from a serving-and raise the price a nickel, would that fatten the stockholders? Or buy carloads of jeans from Bangladesh and price them at whatever the market will bear, isn’t that what is wanted by the corporations’ bean counters and directors?
    Consumers, does the word “REGULATION”, detested by the fatcats, come to mind? Or should we smile at being duped?

  2. As long as there are people who choose to believe the stories pumped out by business owners that increased wages will eliminate jobs, our society will continue to subsidize their employees. Even worse, the same people that believe the job loss stories are also the same people who believe that those working in low wage jobs are the ones draining everyone’s wallet and should just go out and get a second and third low wage job to pay their own way.

    They are choosing to be completely oblivious to the fact that they are actually subsidizing the wallets of the wealthy. When the opportunity arises I try to explain this to them. Some listen, but many others have decided that the low wage earners are just too lazy to work hard enough to pay their own way.

    Sigh…….

  3. What Nancy said and then I ask, but how many of those people (low wage workers) qualify for food stamps, housing allowance and Medicaid? When they don’t know, I’ll show them the results of those reports that show how much we the taxpayers are paying for those added services so that those wealthy owners can cry because we’re steeling a nickle from their profits.

    Switzerland is voting on the ‘living wage’ bill this Sunday and I’m anxious to see what comes of that referendum.

  4. Fast food is not the healthiest and no doubt contributes to a plethora of health risks. By raising the price of fast food, causing less people buying it will make for healthier people and save on medical care. Just a silly thought.

  5. Craig; consider the fact that the increased price, for the smaller portions, is not just one burger and one order of fries. Entire families patronize these places for meals; when you consider the increased costs of ALL food products and the list of them needed to put together one meal, it probably is a little cheaper to pick up fast food at least occasionally. And “fast” is the word to focus on; tired (or lazy) after working all day, the time and work involved in preparing meals plus the cleanup is often a deterrent. It is not right, it is not a healthy choice but it is an understandable choice for some. I do NOT agree with that choice, just pointing out that the cost and size of McD’s burgers and fries are not the only issue when referring to increased minimum wage. It is the same with all fast food outlets and prices in grocery stores are skyrocketing faster and higher than fast foods. Kroger has improved some prices and the store at East 10th and North Shortridge Road is always packed with customers and with pallets of boxes waiting to restock shelves making it difficult to get through the aisles. I asked one employee if they were reaping benefits of the vast increase of customers be getting raises – the answer was NO, not much above minimum wage. Kroger has to be increasing it’s profits but employees are not benefiting by it and figuring my food costs for an entire month I see little savings except on a few individual items, primarily non-food.

  6. Corporate America WILL make up the cost in wages.
    As already mentioned, reduced serving sizes or higher retail prices are possibilities.
    Also, it just may make some corporations look at efficiencies in manufacturing, packaging, shipping, purchasing, advertising and product mix.

  7. At first glance this post may seem unconnected to today’s blog, but it actually is very connected. As long as the Koch brothers and John Schnatter (of Papa John’s pizza empire) can create entrepreneurs that believe in their way of thinking, the hope is that they will become future business owners who will beat down their employees while gaining great wealth from their slavery.

    The Koch Foundation and John Schnatter have mutually given Ball State $3.25M to fund a center that will bend students’ minds into believing in and becoming Libertarians.

    Below is a link to an article today from a Ball State professor who is defending the recent funding by the Koch foundation and Papa John for the John H. Schnatter Institute for Entrepreneurship and Free Enterprise. There is also a link to a story from The Ball State Daily. In that story the writer is questioning the purpose of the $3.25M donation.

    Based upon history, the donors’ only intention is to teach their libertarian viewpoints to unsuspecting vulnerable students who need financial help. This is their plan – teach students to think like they do – that all government is bad and that business regulations of any kind are extremely bad. We all know that John Schnatter publicly fought against providing health insurance to his employees and claimed that doing so would ruin his business. He continues to become wealthier by the day by paying employees such low wages that they must be subsidized by the taxpayers to be able to just survive.

    unKoch My Campus Is Soros-Funded Hypocrisy http://commentaries.cberdata.org/840

    http://www.ballstatedaily.com/article/2016/03/news-papa-john-and-koch-grant

    Yet another article questioning the motive for the donation to Ball State:
    http://www.ballstatedaily.com/article/2016/03/koch-brothers-donation-ball-state-opinion

  8. Here is a bread buying tip; knowing people working at the main Kroger bakery for 20-30+ years, it is the same bread in different packaging and knowing shopping mentality in action. Some people must buy the cheapest loaves of bread due to income; other wouldn’t think of buying what they believe is a lower quality product so they buy the most expensive loaves. They are all getting the same bread.

  9. Quibbling about one business and the size of its burgers ignores the twin disasters of our meat based diet. Rush right out to watch “Cowspiracy” and “Forks Over Knives”, or read “Mad Cowboy” and “No More Bull”. Why? The world cannot sustain the cattle industry, nor the health problems it produces. High blood pressure, cancers, obesity, Alzheimer’s and heart disease are directly related to our obsession with animal products. We are killing the planet and ourselves. Do your homework.

  10. Historically, raises in the minimum wage have always led to greater economic growth. I have a young friend whose father listens to Fox. When he was visiting I told him that he shouldn’t pay any attention to those who cried about the “job creators”, because the thing that really creates jobs is demand. Put money in the hands of the poor and they will, of necessity, spend it, thereby increasing demand.

    Corporations don’t need higher costs to raise prices. Several years ago, the CEO of our dear friend Anthem admitted that they were raising prices to raise to raise ROI for the shareholders. To quote my accounting professor in my MBA program, “The business of business is to make money.” That’s why we have had price increases continuously since the last time the minimum wage was increased. That’s also why we need to index the minimum wage to inflation.

  11. Erstwhile Chairman of General Motors Thomas Aquinas Murphy famously said “General Motors is not in the business of making cars. It is in the business of making money. At the time he said that GM was the largest auto maker in the world. As their focus shifted to stockholder profits, R&D suffered, quality lagged and the combination of rising Japanese and other foreign companies in concert with the oil embargo left them high and dry. Wages stagnated, product suffered and they nearly vanished–and would have except for the auto bailout.

    A company which is concerned only with making money is simply a parasite if it does not return a fair share of the profits to the government in taxes and a fair share to employees in wages. Too many large companies are naught but parasites. A fair profit can be made while still paying reasonable wages and taxes.

    Instead of investing properly in R&D and their employees the first things a company wants to know when it enters negotiations to enter an area is “how much tax abatement can we get” and “what are the lowest wages we can get away with.” This is soon followed by cutting jobs (can we get by with one less belt loop on the pants or button on the shirts?) quality suffers, profits eventually fall and the company hits the road; again looking for more profit.

    Successful small businesses are a boon to the country because they employ locally, pay taxes, know their employees and, for the most part treat them fairly. The vast majority of large corporations are just pigs at the trough of a country and people they care nothing about. Money has no allegiance or morals, and that is what they worship. Never forget.

  12. Quit wasting your energy, time, and positive thoughts. Just listen to Nancy. The Koch Brothers and the Bush Family et al don’t give a damn for anything other than CASTE and $$$$$. That’s it. That’s our reality in the U.S.

    However, we need much more than just understanding reality, especially when it is so negative. It’s called an EFFECTIVE ACTION PLAN which is non-existent at the present time.

  13. Wray, your comment copied below is a wonderful analogy:

    “A company which is concerned only with making money is simply a parasite if it does not return a fair share of the profits to the government in taxes and a fair share to employees in wages. Too many large companies are naught but parasites. A fair profit can be made while still paying reasonable wages and taxes.”

  14. Ummm, no. Completely wrong again. Menu prices are increasing and continue to rise, the dollar menu is all but gone, employee hours are being cut, and the reasoning?

    To compensate for the increased costs of labor and supplies.

    Of course companies are still showing a profit! Companies won’t cut profits or executive level pay unless they are forced and history (you know, reality) has proven they will raise prices or cut hours/employees before cutting into profits and shareholder earnings.

    Not to mention many restaurants looking at robotic or automated cashiers/etc (Dominos with robot delivery, Wendy’s and Carl Jr’s with robot cashiers, Pizza Hut with a robot host).

    And the “study” quoted does NOT prove otherwise and to pretend it does is dishonest.

    Higher wages WILL decrease employment and increase costs unless companies are FORCED to sacrifice profits and runaway executive/shareholder compensation.

    Heck, articles coming out of states pushing for the huge minimum wage increases have, through interview and investigation, shown that for “Mom and Pop” stores the increased wages have postponed or cancelled plans to expand or higher.

    Seriously, wtf reality are you living in?

  15. Disappointed Joe

    The key is to force companies to reduce CEO pay and profits. When our manufacturing economy was booming CEO pay was approximately 40 times worker pay and R&D was more than ten times the current rate. Shareholders still made money–just not as much of it–and the resulting gains for workers were spent INTO the economy instead of being stashed overseas or in capital gains. Income taxes were higher on the richest and they seemed to do just fine. It is time we when back to the “good old days” for workers and not just the “good old days” for social conservatives.

  16. Disappointed Joe

    “Heck, articles coming out of states pushing for the huge minimum wage increases have, through interview and investigation, shown that for “Mom and Pop” stores the increased wages have postponed or cancelled plans to expand or higher.”

    If there is a Mom and Pop store/business out there that has revenue of $500K per year or more, I would like to know what businesses they are because I want to get involved or start one of my own!

    What are the sources that you are referring to? Extreme right wing talk and tv show hosts or writers that never use factual evidence to back up what they say or write?

  17. So Disappointed Joe– where’s your mantra, ‘Get off my lawn!!’. It ain’t rocket science. And despite your tedious (and completely erroneous) bloviating a living wage is actually about $24.00 an hour. Your overlords are getting off easy with a paltry $15.00.

  18. As U.S. automakers learned the hard way, money isn’t everything. Quality and responding to consumer wishes are IMMENSE and at least as important as profit. If our business schools aren’t teaching that, shame on them.

    When American car companies continued to produce lower quality gas guzzlers, the Japanese were producing more durable, fuel efficient cars. Consumers noticed and didn’t ‘buy American’ even though they’d have preferred to do so.

    The business community contends wages should not increase except as productivity increases. American productivity has increased significantly over the last 30 years but wages lag far behind. We have a diminishing middle class and higher poverty to show for it.

    Henry Ford had some major faults, BUT he knew enough to maximize productivity AND pay his workers enough to afford the cars they manufactured without making them depend on government assistance.

  19. As almost always there are the details and the big picture and sometimes the even bigger picture and so on.

    One of the biggest pictures is that life requires energy because motion is energy. McDonalds is an energy company just like ExxonMobil is. The difference between food and fuel is taste. Fuel tastes bad because it’s 60M year old food.

    All of our energy comes from the sun and stops here temporarily on its way to the infinite beyond. While it’s here we use it to move and to move things including making atoms dance the dance that we call heat.

    Our history is one of domesticating things that can be used to change things that convert sunlight into useful motion. We have domesticated plants and animals and each other and finally machinery to that end.

    Aren’t we special with our big brains.

    What’s next? Our act has been so special that it created 7B+ of us inevitably going to about 11B. We all need our share of sun energy first to survive then to move then to prosper. Will our big brains figure out how to divide that critical resource in a way that all of us can survive and move, and move and heat things, and prosper; or only some of us? What will we do about the lives we’ll have to end so that that fewer can prosper more? Famine? Disease? War?

    It’s about way more than money.

  20. The monkey wrench that has been thrown into the works is Ginormous Business, Inc. spending its ill-gotten taxpayer supported profits, not on its employees, not on R & D, but on acquiring (or forcing out of business) its competition. When Monsanto has acquired the last independent seed producer, and Comcast has acquired Time-Warner, Brighthouse, etc., they can charge us whatever they want, tell us what products we have to buy, and give us as little service and satisfaction as they please. It’s not just a matter of buying our politicians, or passing the TPP; we have to resurrect anti-trust law and the will of the Justice Department to use it.

  21. Pete, ALEC and the Koch brothers are working to accomplish population reduction in this country by arming all of our citizens and loosening any restrictions on guns. That’s in case the pollution they spread with impunity doesn’t sicken and kill enough of us.

  22. Ginny F; if ALEC and the Koch brothers are trying to diminish the population, they should stop the GOP from preventing woman access to birth control. Cover all bases.

  23. Ginny. I’ve thinking that the word “pollution” is no longer adequate in that it seems to mean in most minds things added to our gaseous, liquid or solid resources that are toxic. In engineering we call that “dilution disposal” implying that if you dilute the toxin sufficiently it’s no longer toxic.

    The danger from the Kochs et al is that but drastically more. Greenhouse Gases are not toxic in the normal sense, in fact they are necessary for life, but what they are harmful to is not us but our civilization. The climate will change from what we built for to something that requires us to rebuild in different locations. And while Greenhouse Gases used to lend themselves to dilution disposal we have reached the concentration now where every new gigatonne hurts now and for a thousand years.

  24. Evolution seems always to surprise us. The environment changes and life adapts. That’s good for the new and bad for the old.

  25. Ahhh…McDonald’s, I worked there for 8 years and was a shift manager for one of the busiest stores in Indiana. I can assure you that the owners were no where near poor. They first owned the stores in Mooresville and Martinsville then gained Cloverdale and Greencastle. They sold Martinsville and Mooresville and owned all the stores in Terre Haute (total of at least 6 stores). They did not believe in raises and if a person deserved a raise it was only to be a nickle per year. There were no benefits of any kind not even for the shift managers. These stores provided them with at least $16 million dollars in assets. The grandkids earned $50,000 per year starting when they turned 14 and that salary came out of the stores staff budgets.

    They actually stole from their stores to support their ridiculous spending spree and eventually the McDonald corporations stepped in and removed the stores…they lost everything. My response….karma is a bitch. Could they have afforded to pay their people more? Absolutely! Would they still been millionaires? Absolutely….greed is greed and if you can get away with it people will do it.

  26. Ever notice how the right wing arguments are based on fear, not data, hyperventilating about how bad things will be if we improve the common good or respect the rights of people “not like us”? Build those walls higher, spend more money on the military than the next 15, not 10 countries, and keep those folks from voting who may not be exactly like us. Don’t preserve what is best. Preserve what is mine.

  27. Those of us with an interest in history know that the fight for living wages has never stopped. The only way they come about is when workers who naturally far outnumber and out power owners work together to demand them.

    That’s why owners work so hard to sow devisiveness and why workers who fall for that propaganda are such a burden.

  28. what should be – repeatedly – mentioned is that a great many McDonalds and similar stores hire beginner employees and TRAIN THEM, so they can enter the job market. In swanker intellectual circles these folks are called INTERNS, except they make much less money than McDonalds employees and are expected to perform higher level tasks – at little or no cost to the universities, NGO’s, and other folks that exploit them. I won’t even discuss exploitation of adjunct faculty, who often dream of $15 per hour.

  29. I find that the fact that other people and positions are underpaid not a very compelling argument for the practice. And further, I would argue, working at McDonalds to not very valuable training.

  30. j.england….I would agree with you to some extent except where I worked there was a mix of high school/college kids but overwhelmingly it was mid-age to much older folks. Violet was hired to make salads and she was in her 70’s and was stuck having to care for her grandchildren. Mary was also in her late 60’s making the biscuits. It really depends on where you live and if there are decent paying jobs. This was Terre Haute which is a minimum wage job town.

    In Plainfield, the majority of the workers at the McDonald’s close to the prison was middle to late age individuals, very few high schoolers and college kids (they prefer working at Starbucks). I was waited on by senior citizens!
    I
    Here is the thing….IQ is a bell shape curve and unfortunately 50% of the population has an IQ below 100. I worked with a lot of people who didn’t have the cognitive abilities to go to college and unfortunately majority of jobs nowadays require at least a Bachelor’s and so where are these folks working….retail and fast food (aka: low wage jobs) I had the pleasure due to my position on the zoning board to hanging out with some men in their late 60’s and many didn’t have a college education and worked their way into management at Allison’s, GMC, etc…and they were saying that today they couldn’t even get into these positions without a degree and of course a few made fun of a college education. The world is different and those manufacturing jobs are gone and they even admitted that during their day they didn’t have to have a college education to make a good even great living.

    I made $3.35/hr at McDonald’s back in 1987. I left McDonald’s after 8 years and was a shirt manager back in 1994 making $5.40/hr. The minimum wage today is at $7.25/hr and so in 30 years the minimum wage has only gone up by $4 and yet costs of living has grown substantially. In the old days, McDonald’s was a place where high school/college kids could work but now for too many it is the only gig in town.

  31. Clearly we were better off when shipping costs and logistics isolated us from the rest of the world. Of course China and India were worse off. The stage of transition that we are now in is not a business cycle but a reordering of the world by the Internet and multi mode shipping.

    We don’t have much choice about today but maybe tomorrow if we are smart enough.

    I would say that the signs of that are not optimistic.

  32. The skill set that McDonald’s teaches is more along the line of showing up, on time, awake, sober, and ready to attempt work. These are skills that were neither offered nor absorbed in school, which pay NO WAGE for students to appear. The older employees are a completely different arguement, as they often enter McDonalds with the critical skill set already installed. As to the need a college degree arguement I think the real bad guys in that scenario are the educational – governmental complex, pushing junk on the public for their own pecuniary interests. Governor Daniels deserves accolades for stopping price increases and the increasing sales of options (i.e. extra courses required to get the same degree) at Purdue, that often have the same value as papal indulgences, and sold for the same reason. MOOG’s, etc. may be putting traditional colleges into the same role as GM in bankruptcy, and for the same reasons.

  33. Wray McCalester

    I don’t disagree. I actually think that pay inequality should be limited and would love to see a “max pay ratio” based on the lowest paid employee:

    i.e. At any give company, the highest paid employee cannot make more than so many times the lowest paid employee in total compensation (Honestly, 60x’s seems pretty decent – a $7.25/hr employee would cap the highest paid at $435/hr).

    This should include TOTAL compensation (benefits, bonuses, etc) and should be regardless of whether the employees are salary or hourly. There is NO reason for the top level CEOs, execs, and shareholders to be making massive compensation if they aren’t paying their employees a living wage.

  34. Nancy

    “If there is a Mom and Pop store/business out there that has revenue of $500K per year or more, I would like to know what businesses they are because I want to get involved or start one of my own!”
    -I never said there were Mom and Pop stores making that much money. Are you maybe getting me confused with another commenter? I said Mom and Pop stores/businesses didn’t have enough profit to afford the increase in minimum wage and would reduce expansions or increased hiring to compensate….

  35. Oh, Nancy:

    Some reading:

    https://www.americanexpress.com/us/small-business/openforum/articles/how-seattles-15-minimum-wage-could-affect-your-business/

    (Contextual Link) http://economicrt.org/publication/effects-of-a-fifteen-dollar-an-hour-minimum-wage-in-the-city-of-los-angeles/

    https://www.theguardian.com/business/2015/apr/15/what-a-15-minimum-wage-means-for-us-small-businesses

    https://www.bfscapital.com/blog/minimum-wage-increase-impact-small-businesses/

    https://www.epionline.org/studies/r98/

    Sadly many of my links got destroyed when my HDD crashed, but even doing an hour of research on the internet can yield a lot. There are no “modern” studies on the matter and the increases are just now happening so data for a look at current trends is sketchy and should be taken with a grain of salt.

    However, when you compare and contrast with other historical points where minimum wage was established or increased you saw similar trends before inflation skyrocketed, employment plummeted, and small businesses shuttered. The impacts are longitudinal, not immediate.

  36. Girl Cousin, either you are confusing me with another poster, or you are putting words into my mouth.

    I am IN FAVOR of a living wage, but regulations must be put in place first to protect small business and prevent corporations from jacking prices, cutting jobs, etc. Try learning some critical reading skills.

    Btw, using the rate of inflation growth, the value of the dollar off of given years, and the costs of goods over time, minimum wage should be $22.00/hour as a national average (with some areas being closer to $18 and some being closer to $30 – depending on region.

    Seriously… how can anyone expect actual progress if you don’t take the time to read?

  37. Money, being a completely arbitrary score keeping system confuses us. At the end of the day what we can all afford is what we all produce. And the division of who gets more or less of that is the main narcotic of power.

    We’ve devolved to a system where power has been separated from the greater good. Such arrangements are always temporary. Heck all arrangements are temporary but the arc of progress favors justice and fairness.

    Our journey is nowhere near complete.

  38. Disappointed Joe,

    I don’t know why you’re up in arms about this. You might be right that fast food prices will go up some as wages increase, and you might be right that it could cost certain people their jobs. But is that really a good reason to argue that wages should be allowed to continue to stagnate (you don’t say it like that, but that’s what you’re arguing, even though you say you favor a living wage), and that it’s OK to pay workers so little that they still need public assistance even if they’re working full time?

    The negative effects you identify are tolerable, because (a) they’ll be minimal. In particular, no one, anywhere, ever, will be seriously harmed by having to pay more for a Big Mac; it might even force people to pay less for healthier food; (b) workers who are paid increased wages obviously will be better off; and most importantly, (c) paying minimum wage workers increased wages will create jobs, because they are more likely than more highly compensated workers to spend their increases, stimulating the economy.

    It does create a dilemma for business owners, and I suspect that, rather than any real concern for workers, is what drives opposition to increase minimum wages.

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