This sort of thing is why we don’t want economic illiterates in charge of the economy. Hey, morons. Don’t you think that if McDonalds could just raise their prices (and hence revenues) by 17% (actually 26%), they’d have already done that?
[Update a while later]
Let’s say McDonald’s decided to double all its salaries, so that the entry-level wage became $16 an hour instead of $8 an hour. Why would McDonald’s continue to employ their $8 an hour workers when instead they could hire “better” workers who are worth more? (And those of you who think that the skills, linguistic abilities, experience, intelligence, etc. of fast-food workers makes no difference in service don’t eat in McDonald’s much.)
Again, this is why you don’t want people making policy who don’t understand how business works. And this administration (and sadly, Congress, of both parties, but much more so among the Democrats) is full of such people.
Is McDonalds pointing to serious inflation?
It was just the other day that you could get the artery-blocking 1000+ calorie goodness of an Angus Burger, a full 1/3 pound of beef plus trimmings by however they reckon. I believe they were over 4 dollars, and I am a Dollar Menu cheapskate myself, but I think I had one on at least a couple occasions. Oooo, the seratonin rush as those fat grams hit the bloodstream after a couple of bites. Not heroin of fast food — that would have to be a KFC fried chicken breast I once was servced and it was late and I was very hungry. That was a special kind of mellow.
I saw these Angus Burgers to be popular with seniors (can you “nurse” the consumption of a calorie laden food item the way a social drinker is expected to “nurse” an alcoholic drink instead of pounding it down like an addict?). Most McDonalds food items are a kind of viscous liquid instead of a solid anyway that I tend to gulp, but I would see Older Americans nibbling at their Angus Burger as McDonalds is a social place for that generation whereas I am always on the rush trying to get back on the main highway.
It seems that there is serious price segmentation between the Dollar Menu for cheapskates and homeless persons and the regular items that appear to run close to 4 dollars each or more. The Sausage McMuffin is a Dollar Menu item, but I was preoccupied getting gas for the car at a filling station McDonalds, and I asked a family member to get me a “Sausage McMuffin with Egg.” 3 fine dollars for that treat, it cost nearly as much as the Big Breakfast the family member ordered, that upgrade of a hockey puck of a fried egg cost an extra 2 bucks — but it was good!
But now I see the Angus Burger is no longer on the menu but McDonalds has their “new” Quarter Pound burgers, for nearly the same money. Thank you Ben Bernanke. Thank you Jack Lew.
Don’t you think that if McDonalds could just raise their prices (and hence revenues) – that cuts both ways. Don’t you think if McDonalds could pay less than $7.25 / hour they would?
This whole argument has a lot of missing the forest because the trees are in the way. The real issues are:
1) Wages are only a fraction of the cost of finished goods for all fast food places
2) The strikes aren’t just targeting McDonald’s – but even if they were, if McDonald’s raised wages everybody else would have to
3) Having spent 30 years outsourcing manufacturing jobs, there are people who are trying to make a living at fast food because they can’t get a factory job
4) If we pay those people a more livable wage ($15/hr = $30,000 a year, not even middle class) then they can afford to buy more stuff too.
Don’t you think if McDonalds could pay less than $7.25 / hour they would?
Maybe. And then they might automate less, and generate more jobs. Either way, it’s none of the government’s business, particularly the federal government. A single minimum wage for the whole country is economically insane.
1) Wages are only a fraction of the cost of finished goods for all fast food places
The wages, paid to employees in a McDonalds location, may be “only a fraction” of the total costs.
But,
Aren’t the property taxes paid by the franchisee/store owner a form of wages of the city workers (snow plow, garbage truck drivers) paid through the property tax? Isn’t the food purchased a form of wages paid out to the farmer and the truck driver? A franchisee running a McDonalds may be a kulak/capitalist paid out of profits, but I hear entreprenneurs in that industry work insane long hours, and the profits are not guaranteed.
If the fast food restaurants all doubled their employee salaries, there would be great pressure to raise salaries everywhere else. After all, why would anyone go to work at a minimum wage job when they could get much more per hour at a restaurant? Higher salaries get passed along as higher prices, effectively wiping out some of the value of the increased salary.
Doubling the hourly wage also means higher payroll taxes for the employer (7.65% of the salary) plus almost certainly higher unemployment and workers comp insurance rates (payouts are higher for higher salaries). At the same time, higher prices tend to lower sales so the squeeze on the employer will make it harder to stay in business. Other than the big chains, restaurants have very high failure rates already.
Minimum wage jobs (and I worked my share) are for people with little experience and few skills. They’re a starting point, not a career.
The value of any employee is tied to his productivity. If he can’t produce significantly more per hour than his salary (plus the costs mentioned above and any benefits), he won’t have a job for long. If you artificially increase the cost of labor, employers will find ways to consume less of it. They’ll cut hours, eliminate less productive workers and employ automation wherever possible. There’s a reason why you no longer find manual ditch diggers on construction sites. One skilled operator with a backhoe can do the work of dozens of manual laborers in the same amount of time for far less cost and risk of injury.
Ah, but the Very Serious People want inflation right now. Like their “intellectual” forefathers, they believe it will fix everything.
“1) Wages are only a fraction of the cost of finished goods for all fast food places”
A significant fraction. More than rent.
“2) The strikes aren’t just targeting McDonald’s – but even if they were, if McDonald’s raised wages everybody else would have to”
No they wouldn’t. There is a limited number of jobs at McDonalds and there may be more competition for them but that doesn’t mean other companies have to raise prices, I mean wages.
“3) Having spent 30 years outsourcing manufacturing jobs, there are people who are trying to make a living at fast food because they can’t get a factory job”
Whether or not someone once worked in a different profession has little bearing on what McDonald’s can afford to pay its workers.
“4) If we pay those people a more livable wage ($15/hr = $30,000 a year, not even middle class) then they can afford to buy more stuff too.”
Less people will work fast food because the stores cant magically afford to pay their workers double. Margins are pretty slim and those outfits all start out as owner/operators. Doubling labor costs could wipe out the income for the owner and their managers.
Chris G.
if you’ve been outsourcing jobs for 30 years, you also know that OUR cost for ‘X’ product did NOT go down when Acme Anvils started making anvils in Central America, and Acme’s costs originally dropped by 12% per year the first two or three years. I’m familiar with some of the outsourcing having seen it happen to the furniture and textile industries here in NC.
I remember the companies reporting record profits the first two or three years. But I’ll be damned if I EVER saw my Wrangler Jeans or Barcalounger costs going down. They kept that money inside the companies. And in some cases got tax breaks from the gov’t FOR outsourcing.
And IF you really did that, for 30 years, you’re as much to blame as anyone for taking that job away from Joe the Machine Operator. And don’t go all gooey now and tell me your kids have got to eat too. I fed my kids, as did millions of others, without robbing banks or sending jobs out of the country.
And IF you really did that, for 30 years,YOU are the very type guy you bitch most about in here. Business people who don’t think of the little guy, business people who only look at profits, business people who just don’t love the world as they should.
Congratulations, you ARE the guy who puts HIS OWN welfare above all else, way to go, and you openly admitted to it.
_____________________________________________________
“Again, this is why you don’t want people making policy who don’t understand how business works. ”
How business works? They don’t even understand how money works, even the money they make and spend.
The Left has that age old argument of everyone having what they need, WITHOUT everyone doing what they need to get it. Then, by poll after poll after tax form after tax form, by their own admittance year after years those on the Left give LESS than to charities, the needy in general or paid in taxes. They constantly ass-u-me that all the problems of the world can be solved by businesses just raising prices ‘a little’, without giving it to anyone but the lowest paid workers. A few things come to my mind.
1st, if that were true, we’d BE straight NOW, given the increase in taxes and prices I’ve seen in my lifetime. But oddly, as prices go up for the little guys, they go up at the TOP TOO.
2nd, every time there IS a small increase they scream about profits and evil corporations.
Lastly and most importantly from a sales angle, IF McDonalds, BK, Wendys et al, could sell for that ‘small price’ increase, there would be NO Dollar Menu and they’d still be selling JUST hamburgers, cheeseburgers, fries and drinks that McDs started with. But to stay ahead of the other guys and still make a profit high enough to keep the doors open, everyone of them is selling at the lowest price they can NOW. dding 49 cents to a Big Mac will send some to the other burger makers.
The writer quoted that overall profit, but my experience with explaining cash flow and profits to people is that most people don’t understand the actual price per unit on stuff like burgers or pizza. They think the profit on EVERYTHING is that quoted 17%. Not so, it just doesn’t happen.
And that they couldn’t read the sheets and figure corporate gross, minus franchise payments to get the actual profit percentage for JUST corporate reported sales / costs is just typical. It’s AGW all over again.
Add what you want, throw out what you don’t like, tell the unknowing what you want them to think.
[for the tally sheets, our concession business is based on popcorn, the ONLY thing with a higher profit that I know of, is TOAST in a diner, and both are WAY above 17%…it’s almost obscene]
When I sad “we” were outsourcing jobs, I meant “America” not my employers. You are an American, yes?
McD Corporate HQ: “Okay Obama, which city would you like us to demonstrate this in?”
Uh, Chicago!
“We’ll raise prices 17% in 25% of the stores, 35% in 25% of the stores, and 0% in the others. We’ll provide full reports on gross proceeds, revenue, taxes, customers, payroll, jobs etc. (Note to Franchisee’s: you have the option of being bought out -now-, or we’ll attempt a fair recompense after this little fiasco.)”
McDonald’s is a bad example, since they’re not actually in the restaurant business. They’re in the real estate business, and the restaurants are just (hopefully) revenue-generating placeholders while the land beneath gains value. They locate new stores on low value land at intersections in growth areas (i.e. on the outskirts of town), planning that three or four decades later the land will be worth far more.
Prices will have to be raised to cover the double labor costs. This will price out many of McDonald’s customers. There is a reason people buy off the dollar menu instead of going to Red Lobster. The more people spend on food, the more they expect in terms of quality and service.
No one is going to spend $20 on a McDonald’s hamburger when they can get a better one at Red Robin for $10.
These demands could spell the end of the fast food industry by forcing fast food restaurants to behave more like sit down restaurants. And I think that is the intention. The fast food industry is looked at like Satan’s Spawn by Democrats and they are constantly attacking it. But contrary to popular thinking of the Democrats, McDonalds doesn’t rake in billions in corporate profits. McDonalds is a franchise and has many different owners. Some do very well and own multiple locations while others struggle with one.
Franchises are small businesses, mom and pop operations. People save for a significant portion of their lives to buy into them. Franchises are less risky than starting your own business. Well, not if Democrats and the unions get their way. Also, most franchise owners are immigrants.
Doubling wages would hurt the middle class owner/operators, their managers, and immigrant entrepreneurs.
Oh, and then you can add in the effects of Obamacare. Workers will only be getting 20 hours a week. Those workers who already make little money but worked 40 hours a week now have to get a second or third job. Scheduling and transit times will mean that people will tie up far more than 50 hours a week working and commuting.
But if you make up for cutting their hours in half by doubling their wages, they break even. That wont work though because stores still cant afford to absorb the costs of doubling their work force along with doubling pay.