Is a Just and Right Wage Worth a Five Dollar Big Mac?

While a Huffington Post article understates the cost of labor in the low-wage fast food industry, Ryan Chittum points out that labor accounts for about 25 percent of fast food prices:

Worldwide, those franchisees took in $70 billion in revenue last year, and US stores took in $31 billion of that. McDonald’s Corporation doesn’t break out similar expense numbers for its franchisees, so the best I can do is research from Janney Capital Markets. It puts labor costs for US franchises at 24 percent of sales, which gibes with McDonald’s company-owned stores. Janney estimates franchisee operating income at just 5 percent.

If Janney is right (and I’m a bit skeptical. Five percent margins seem awfully low), McDonald’s franchisees in the US pay out, very roughly, $7.4 billion in labor costs a year and make about $1.6 billion in operating profit. Doubling pay without dipping into profit would mean menu prices would have to rise 24 percent—and that’s assuming such price increases wouldn’t hurt sales, which they would.

I’ve never like the phrase working poor–they should be called impoverished workers. When people who work full time and are still poor (or nearly so), this is something the rest of us have done to them. Would we be willing to pay 25 percent more for a pizza or a hamburger? Or even fifteen percent? (After all, some low wage workers do make more than the minimum, so it might not be a full 25 percent increase). And I have no idea how wages contribute to supermarket prices, but would people put up with, let’s say, a ten percent increase in prices?

For me, I live in a place where the cost of housing swamps everything else, so while I wouldn’t want to pay higher prices (like my Uncle Harry used to say, rich or poor, it’s always good to have money), it wouldn’t be that big a deal.

On the other hand, I hate to write this, but I think many people when confronted with this choice would choose the lower wages. There are many people who think low wage workers have brought their crappy wages on themselves. It really comes down to whether one thinks all labor has worth.

Though if the Great Pizza Crisis of 2008 (brought on by higher flour prices) is any indication, fast food chains might just start cutting back on food portions. Not sure that’s a bad thing.

I guess one could say there’s no free lunch here….

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8 Responses to Is a Just and Right Wage Worth a Five Dollar Big Mac?

  1. pombegeek says:

    I think everyone deserves a livable wage, but what about getting paid what your product is worth. Wouldn’t you argue that a Fast Food worker deserves less than a teacher, not more. Here in St. Louis, fast food workers are asking for $15/hour! That’s more than some teachers make!

    • That means that teachers are underpaid, not that McDonald’s workers should make less, right?

      • pombegeek says:

        Correct. My point is not to hold one set of workers down, but to point out the larger issue that there are many professions that don’t make or barely make a livable wage.

  2. First of all, not all of the employees would be receiving wage increases – why are managers, etc included in the calculations – they already make much more than minimum wage.

    Secondly, the increase in the cost of a Big Mac needs to be corrected. Because increases in minimum wages stimulate the economy, increase jobs and other wages, etc, the true ‘extra’ cost of that Big Mac, over time, may be a negative number.

    Third, there is, to my mind, no moral justification for allowing non livable wages. All workers would be recompensed with the same basic benefits as management in an ethical society. The percentage of part-time employees should be limited.

    You either make a society based on social justice, or you might as well allow child labor and poorhouses. This in-between amoral capitalism is for the birds.

  3. Min says:

    Suppose that the minimum wage workers at McDonald’s were slaves instead. What would the cost of a Big Mac be then? After all, McDonald’s would have to provide food, shelter, clothing, health care, and retirement to their slaves, something that McDonald’s itself estimates would cost nearly double the current minimum wage.

  4. Hamer says:

    I think the bigger issue is here is these low cost jobs only exist because the goverment subsidizes them. Or more accurately, these companies have externalized their labor costs on to the goverment. Take away earned income credit, food stamps, medicaid, housing subsidies, etc and these workers would be more likely mugging you than serving you hamburgers. These businesses need to pay the true costs of their laborers.

    At the same time, we need to correct the excesses at the other end of the pay scale. I’ve long thought the maximum deduction a business should get for an employee’s labor is equal to the president’s salary ($400,000). If a Company wants to pay a CEO $20 million they can pay the tax on it. Capital gains above a certian value would be taxed as income. No more deferred income schemes, limit the size of tax deferred investments (no more $100 million dollar Romney IRAs). Mandatory minimums for financial fraud or knowingly exploiting a fiduciary relationship. No more carried interest for hedge funds. Corporations over a certian size pay a minimum tax rate. Limit the amount of money states and local govts can provide businesses in tax reductions, property or other concessions to relocate or build. The list goes on and on.

  5. hipparchia says:

    ” Would we be willing to pay 25 percent more for a pizza or a hamburger?”

    pizza yes, hamburger no. I would gladly pay double for mcdonalds coffee though.

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