U.S. Companies, Try This: Raise Your Minimum Pay

And protests like this might disappear.  Photographer: Cem Ozdel/Anadolu Agency/Getty Images
And protests like this might disappear. Photographer: Cem Ozdel/Anadolu Agency/Getty Images

By Noah Smith

Recently, McDonald’s decided to raise wages for many of its hourly restaurant workers. The rise is modest, from about $9 to about $10, but already the company’s executives claim that they are seeing improvements in service quality:

“It has done what we expected it to — 90 day turnover rates are down, our survey scores are up—we have more staff in restaurants,” McDonald’s U.S. president Mike Andres told analysts at a UBS conference… “So far we’re pleased with it.”

So far the company’s financial results haven’t suffered — just the opposite; sales are rising.

With stagnant wages one of the hottest topics these days, and calls to raise minimum wages resounding across the country, stories like this one are obviously eye-catching. If raising wages improves worker performance enough to help the bottom line, then there’s no tradeoff between how much companies can afford to pay workers — at least within reason — and how many workers they can afford to employ. Obviously if you raise wages high enough — imagine mandating $1,000 an hour! — a lot of people will be put out of work. But it could be that most American companies are in a safe zone where hiking wages modestly makes economic sense.

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The Magical World Where McDonald’s Pays $15 an Hour? It’s Australia

Even in countries with a high minimum wage, the golden arches manage to turn a profit. Here’s how.

Last week, fast-food workers around the United States yet again walked off the job to protest their low pay and demand a wage hike to $15 an hour, about double what many of them earn today. In doing so, they added another symbolic chapter to an eight-month-old campaign of one-day strikes that, so far, has yielded lots of news coverage, but not much in terms of tangible results.

So there’s a certain irony that in Australia, where the minimum wage for full-time adult workers already comes out to about $14.50 an hour, McDonald’s staffers were busy scoring an actual raise. On July 24, the country’s Fair Work Commission approved a new labor agreement between the company and its employees guaranteeing them up to a 15 percent pay increase by 2017.

And here’s the kicker: Many Australian McDonald’s workers were already making more than the minimum to begin with.

The land down under is, of course, not the only high-wage country in the world where McDonald’s does lucrative business. The company actually earns more revenue out of Europe than than it does from the United States. France, with its roughly $12.00 hourly minimum, has more than 1,200 locations. (Australia has about 900).

So how exactly do McDonald’s and other chains manage to turn a profit abroad while paying an hourly wage their American workers can only fantasize about while picketing? Part of the answer, as you might expect, boils down to higher prices. Academic estimates have suggested that, worldwide, worker pay accounts for at least 45 percent of a Big Mac’s cost. In the United States, industry analysts tend to peg the figure a bit lower—labor might make up anywhere from about a quarter of all expenses at your average franchise to about a third.* But generally speaking, in countries where pay is higher, so is the cost of two all-beef patties, as shown in the chart below by Princeton economist Orley Ashenfelter. Note Western Europe way out in the upper-right hand corner, with its high McWages and high Big Mac prices.

Read more at The Atlantic

Too many of America’s working poor have become victims of a bizarre kind of socioeconomic Stockholm Syndrome. I’m talking about poor people who vote the interests of rich people. They’re like dogs begging for scraps from the table of a master who has no intention of sharing anything. But I’m being unfair to dog owners. Most dog owners treat their pets better than some of America’s wealthiest treat their fellow citizens.