Last month, we discussed in this space McDonalds and Wal-Mart as America’s biggest welfare queens. As it turns out, both retail giants are the beneficiaries of a surprising amount of Federal aid: Their employee’s receive an inordinate amount of Medicaid, food stamps and other public assistance. This allows them to maintain very low wages, and keep profits relatively robust.

I wondered aloud at why profitable, publicly traded private sector firms were receiving so much taxpayer largesse. With these corporations having their full time employees’ paychecks effectively subsidized by taxpayers, I decided to do a little do more digging. What I found about minimum wages in the United States surprised me. I suspect it will surprise you, too.

We begin with a little minimum wage background: In the US, it is currently pegged at $7.25 per hour. The law mandating these wages began post-depression in 1938 at 25 cents per hour. (New Zealand beat us by 40 years). Individual states have the option to mandate a higher minimum wage, and about half of them do with Washington State requiring the highest pay at $9.19/hour. Amongst developed economies, Australia and Luxembourg have the highest minimum wages ($15.75 and $14.21 respectively) while the other end of the scale includes Korea ($3.90), Poland ($2.69) and Hungary ($2.24), according to OECD. The United States sits in the middle of the range.

 

Continues here

Category: Data Analysis, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

44 Responses to “Taking a Closer Look at Fast Food Minimum Wages”

  1. Wiggs says:

    Interesting you write on this topic this week. One of The Economist’s leaders this week is on this very topic http://tinyurl.com/lgc8rxx

    After reading your write up, would be interested to get your take on this.

  2. theexpertisin says:

    We need to encourage people to work. Too many are not working by choice, preferring to live in government subsidized housing (see Affordable Housing Finance magazine) and content to live in the upper lower class with phones, food and other essentials paid for by someone else.

    I support a higher minimum wage, perhaps in the $15.00 range and indexed for inflation thereafter if it is coupled with a corresponding overhaul of welfare (including disability criteria) to encourage the satisfaction of productive labor and avoid free stuff seeking from becoming a full time occupation, passed from generation to generation.

    I’ll gladly pay more for a McDonalds hamburger to see fewer folks in my grocer’s food line buying steaks on the taxpayer’s dime.

    • Frilton Miedman says:

      You do realize Clinton reformed welfare to a limited time short term program that requires regular pursuit of employment, right?

      That aside, the remainder of entitlements are social security / medicare (retired) & disability, people who cannot work.

      Then, there’s food stamps and medicaid, of those, 73% are full time employed, but fall below poverty level. (per a recent Invictus blog, with links to source)

  3. EdMcGon says:

    Barry,
    Regarding your comment in the article:
    “I cannot fathom why my Libertarian friends are against raising the minimum wage, but okay with massive corporate subsidies.”

    Libertarians aren’t typically in favor of welfare programs, so there would be no “massive corporate subsidies” of the kind you describe under a libertarian government. But they would be against a minimum wage too, so you are half right.

    • Ask your Libertarian friends about how to resolve this issue, and you might be surprised at their answers.

      • EdMcGon says:

        Barry,
        While I will be the first to admit that libertarians come in different “flavors”, here is the view from the big “L” website:

        “We should eliminate the entire social welfare system. This includes eliminating food stamps, subsidized housing, and all the rest. Individuals who are unable to fully support themselves and their families through the job market must, once again, learn to rely on supportive family, church, community, or private charity to bridge the gap.”

        http://www.lp.org/issues/poverty-and-welfare

      • droubal says:

        I have to agree with Ed. Libertarians do not agree with subsidizing already financially capable entities. Your friends are not really Libertarians.

      • Frilton Miedman says:

        Don’t look at me, I comprised my screen name to spite the way Tea Party wing-nuts have distorted Friedman into outright Austrian economics.

        While I agree with much of Friedman theory, I think Libertarians are in for a shock to absolute adherence to Libertarian Monetarism as a cure-all.

        Excess reserves are at sickening levels and nothing but mortgage rates have improved for anyone but the highest wage groups….God help us once those reserves start effecting inflation with no improvements to median net worth or wages.

  4. sditulli says:

    I think the fast food industry is subsidizing the welfare state. They are providing the least productive workers with some wages and thus lowering the costs of welfare to these people. If they were unemployed instead of working at Mcdonald’s then they would need more in public assistance and not less.

    I think you have this backwards. Its not that the government is subsidizing McDonald’s its that these workers have a very low productivity. If you raised the minimum wage Mcdonald’s would respond by investing more in capital and less in workers. So the price of Big Mac would still likely rise, we’d see more capital investment in that industry, and fewer workers with higher wages.

    Scott Sumner has some good thoughts on this but I can’t find it right now. But I do think equating welfare for there workers as a subsidy to Mcdonald’s is off. Its more about them providing jobs to the least productive workers.

    • supercorm says:

      Wow … just wow.

      Let me just say that empirical evidences just doesn’t support your thesis.
      As a ex banker who left to start his own firm, let me tell you that the big fat paycheck I got wasn’t really a straigthforward line with my productivity level which seems to be surpassed by “McDonalds low productivity workers” as you say (and as we say in the banking industry, we wouldn’t be able to work at McDonalds because its doo damn difficult and its always a fast market … so please, ask your estime to come back down to earth a little).

      • Frilton Miedman says:

        Supercorn, please, post more often.

        “They’ll invest more in capital, less in workers”, hilarious, a generic regurgitation of something heard on Fox, or Kudlow, that maybe seemed to make sense while typing.

        So, I guess McDonald’s will fire its employees and become a hedge fund…creating a catastrophic fast food crisis with no one to arise in their place?

  5. JoseOle says:

    To label as corporate welfare the public assistance received by the working poor is quite a stretch. A thought experiment: If public assistance were cut, do you think Walmart would be forced to raise wages to attract workers? If the answer is no, which is my expectation, then there is in fact no subsidy being provided to Walmart.

    • Which is why I suggested raising the minimum wage so it provides no less than the poverty line.

      As a society, we impose regulations on companies all the time — OSHA, child labor laws, ending slavery. This is on that continuum.

      • JoseOle says:

        >> Which is why I suggested raising the minimum wage so it provides no less than the poverty line.

        One has to factor in hours worked then, not just the hourly wage, if the poverty line is the target. But if an increase in the minimum wage brings about an acceleration in the substitution of capital for unskilled labor, getting those hours could be tough. We probably all agree the only real long run solution is improving workers skills, but how to get there is another can of policy worms.

        BTW, another problem with the notion that public assistance to the working poor equates to corporate welfare: if the Left had gotten their dream of single-payer healthcare, this would have been the greatest act of corporate welfare in history.

      • No, just 40 hours a week at $11.33

      • Frilton Miedman says:

        The “greatest act of corporate welfare” argument on single payer looks pretty ridiculous when you compare the U.K. cost per person @ $3,500, vs our cost @ $8.500, then multiply that by 310 million Americans, factored into their wages in a globalized economy.

        The difference – corporate welfare, U.S. government subsidizing 40% of all healthcare revenues via bribed politics, while screaming about the “free market” when we want to regulate the prices our taxes pay.

        Maybe another false equivalence might have worked better, that one’s D.O.A. – single payer systems are multitudes more effective around the globe than our supposed “private” system”, it’s no coincidence we have the most expensive H-care on the planet, yet rank 37th in quality by the W.H.O..

  6. ByteMe says:

    You think Kudlow would allow you anywhere near his set to talk about this? :)

    • I was not interested in signing an exclusive deal with CNBC — I simply wasn’t all that comfortable with the network, and I was unwilling to give up BBRG Radio and Yahoo — and they told me if I didn’t knuckle under that would be the end of my appearing on CNBC.

      I recall my exact response: “Hey, they are YOUR ratings.”

      BUH-Bye

  7. rd says:

    One of hte things that has changed is the expectation that being a cashier or stocker at Wal-Mart will be a career. These positions used to be a wide variety of people, including many students, part-timers etc. The people looking for a 40 year career would have been working at the local tool-and-die down the street. Or they would have actually owned the store (often a family operation) and the profits would have stayed in-house.

    The big move that gatehred steam in the 1980s was “maximizing shareholder value” by any means necessary. The societal costs of these actions were assumed to work themselves out over time through the “invisible hand of the market”. We saw the pinnavcle of maximizing shareholder value in the mid-2000s where it was clear that maximizing shareholder value had escalated to fraudulent book-keeping and creation of toxic unstable instruments created to generate fees in a quick sale with little concern for the future. One of the biggest taxpayer subsidies in history occurred when the financial sector was bailed out or there would have been hundreds of thousands of financial sector employees who would have been competing for jobs at Wal-Mart after their life savings were wiped out when their companies collapsed.

    I think the final stage of this Great Repression is going to be the slow realization that privatization fo profits in corporations by socializing costs from unemployment, poverty programs, environmental damage, lack of economic mobility , etc. will need to be resolved. Ultimately, that was what the New Deal and Glass-Steagal was about in the 1930s and so were the Clean Water , Clean Air, and Superfund acts of the 1970s and 1980s. So far, Dodd-Frank is a pale imitation of these mainly because the people funding the politicians were the recipients of the largest government largess over the past decade..

  8. ancientone says:

    Wow! Up really is down and black really is white! Who knew?

  9. marcumw says:

    My two cents….Just got back from Paris where I regrettably went to a McDonald’s near Belleville in the 19th arr. There were 5 self-ordering kiosks and 3 of them were out-of-order and nobody was using the other 2 that were still operational (this during busy lunch-time) Although I wouldn’t put it past those dastardly French socialist workers having a hand in sabotaging the order-taking-robots. God I love the French!!

    • rd says:

      If your trip was in July, I would just assume that the kiosks were vacationing in Provence watching the Tour de France.

  10. pubsky says:

    I think a higher minimum wage is good to take down the low-wage no growth retail jobs of micky d and wally world, but I’m concerned about the impact it would have on smallish employers that start people out low and actually offer real growth opportunities.

    It would be nice if we could index minimum wage to the salary structure at an organization. i.e. if your organization or place of business has a high percentage of high wage employees, you are allowed to offer a lower minimum wage to the entry level guys, or even better setup wage tiers where say X% can be paid $7/hour, Y% up to $10/hour and everyone else must make over $15/hour.

    I think with big data and big data processing, the age of crude policy tools with large unintended consequences needs to go to the wayside, so we can start implementing more nuanced policies where computers and algorithms can replace what would have been too costly to administer directly with federal staff hours.

    • DeDude says:

      For the small business owner the question is only on their own competitiveness. They have to set their prices at a level that is competitive, in order to survive. However, if everybody they compete with have a 30% increase in salary cost, then everybody will be forced to increase their prices to compensate for that increase. So competitiveness is not really affected. The biggest problem is for mid-sized manufacturing companies where there is a real issue of competition with foreign producers. But that problem is not new and there are ways to deal with it.

      • rd says:

        That is why the Chinese and others use tariffs and rules forbdding importation to eliminate outside competition. Oddly enough, the main thing the US does is restrict exports.

      • Frilton Miedman says:

        As a small biz owner the ONLY concern I have is that wages are stagnant for 90% of the populace.

        That means I will only grow revs via honing on 10% of the populace, as will my competitors.

        I need more clients, a simple min wage increase by $2 per hour greatly expands the disposable income for a large portion of the population, expanding the % of population I can market to, directly or indirectly (velocity).

  11. RC says:

    Barry, your highly research article on Bloomberg is great. I would like to add a point that has not been addressed in this debate.

    After the financial crisis, the economy in distress had to be rescued from getting into a deflationary spiral and Federal Reserve had to take extreme steps. The Fed’s job at the point was to create inflation and what better way to create inflation and generate demand in the economy then to have upward wage pressure???

    If minimum wage is increased and let it get to to the poverty level, it will create organic demand in the economy which had been missing. This will allow the Fed to extricate itself from this extraordinary intervention that it was forced to make. This is a win-win.
    However my other suggestion is that living standards are very very different between states and that should be considered and a sledgehammer approach should not be taken.

    • DiggidyDan says:

      Right on, and the extra FICA, SS, and Income Tax can pay for some supposedly unfunded programs and part of the balance sheet unwind.

  12. mllange says:

    Raise the minimum wage to $15 (or pick any number approximate double the current number) and watch as automated systems replace those jobs in quick order. The move toward automated food service, shelf-stocking robots, etc. is already underway, raising the minimum wage dramatically will simply accelerate the pace of change.

    ~~~

    BR: I referenced the poverty level ($11.35), nit some random round number like $15 or 20 dollars.

    What makes you think that automation is not coming regardless of minimum wage?

    Will you ever run out of straw men?

  13. wally says:

    I generally avoid Walmart and McDonalds, but it looks like they found a way to get their hands in my wallet anyway.

  14. bigsteve says:

    I remember years back my wife pondered about getting a job with Disney, another low wage payer in the Orlando area. I made a good living so no subsidy for us from the government. I got out my pencil and calculator to see if this was economically worth while. Well it turn out the expense of her getting to work and day care would leave a negative income and I would in effect would be subsidizing Disney. She declined. But she was not boxed into a choice-less position. For a single mother welfare looks like a better deal and the woman is not increasing her job experience and getting more employable and valuable. If we want to lessen welfare why do we not subsidize daycare for these moms? And why not increase minimal wage and force these large employers to use some of their profits to take care of their employees so the rest of us through taxes do not have to do that?

  15. Molesworth says:

    What I don’t understand is why no one is seizing on this opportunity. What hasn’t a struggling retailer (Sears or JCP) or even a good competing retailer (Target, Burger King) raised their minimum wage to all of their workers to $10.10 or $12 or $15 hour and then advertise and PR the bejezus out of it?
    Turn it into a campaign to get those low wage earners to come to their store to shop, knowing that store is for the “little guy.”
    If there is power behind the moment, if there is a low wage faction, wouldn’t they be a powerful force to harness?
    If Sears workers were making a minimum of $15 hour, wouldn’t those workers press their friends and relatives to shop there? If, through massive advertising and PR, the low wage universe knew that Sears was paying a living wage to their workers and urged people to shop there instead of at stores who pay so little that people qualify need food stamps and welfare, wouldn’t people think twice and shop at Sears rather than Walmart?
    And if not, then Walmart, et. al., should just keep paying as little as possible and let their workers continue to suck off the teat of the state.

  16. 4whatitsworth says:

    I agree minimum wage should be increased. This said why are you targeting Wallmart and McDonalds everyone works over government benefits and programs these days and as you pointed out in a previous post welfare benefits are plentiful and have be expanded dramatically under this administration. In my view these people are working at least part time so we may as well help them out until the government gets off their lazy asses and raises wages. BTW Wallmart makes a 5% profit and for this they allow poor people to live a little better take Wallmart away and the poor will be poorer.

  17. rd says:

    Peter Schiff staged a mock protest at a Wal-Mart:

    http://www.businessinsider.com/peter-schiff-walmart-protest-2013-12

    I wonder if he has considered reimbursing his relatively large expense fees to his hard-working investors who have not kept up anywhere close to the markets.

  18. Sorenson says:

    Just raising the minimum wage itself is not enough.
    The minimum wage should have an automatic COLA (cost of livings adjustment) just like Social Security.
    Why is this not part of the discussion?

  19. DiggidyDan says:

    What really needs to happen is a complete overhaul of the FLSA. It is outdated and corrupt, and no longer meets the needs of the majority of the country. For instance, Minimum Wage is not tied to any measurable cost of living index such as the CPI, poverty levels, or Productivity you cite.

    Secondly, the whole salaried/exempt status has been abused for years since unions went by the wayside and labor jobs were outsourced. Basically, all “real” jobs are salaried now, even if they are lower skilled, and corporations abuse this power buy maximizing “productivity gains” forcing workers into mandatory overtime without pay or conversely, play games with the hourly “help” by cutting hours so that they are not considered full time and entitled to benefits. This is clearly not what the system was intended to be. Corporations complain that there isn’t enough skilled help, while half the available workforce is overworked, and the other half they refuse to give training or full-time jobs to so that they can successfully perform the work required. This is clearly seen in the increasing decline in labor participation rate, while “productivity” and poverty grow.

    Thirdly, the contract workers and tipped workers provisions of the act are now grossly abused in many different ways that were not intended. This includes everything from IT specialists, to defense contractors to sex workers. Just a hodgepodge in general that is misguided.

    Finally, the corporations seem to get all these subsidies, tax breaks, benefits, etc. because we “need to create jobs,” but not anywhere has a corporation ever wanted to just “create more jobs” in the history of capitalism. Corporations do not want to create more jobs, they want to maximize profit! The less jobs they have to create for the same output and profit levels the better! Corporations don’t create jobs, demand does! By concentrating the subsidies and breaks to the corporations at the top line, not the workers and middle class who would create demand via basic need fulfillment, the system is set up backwards to reward only the fat cat capitalists at the top, and the system crashes.

    More should be spent on real training of people and efforts toward increased efficiency instead of bailing out the corporations and the indigent welfare recipients. Welfare in general, whether to the poor needy and unskilled people or to the corrupt, greedy and unconscionable corporations/capitalist oligarchs is misguided in both instances. Create meaningful training programs for benefits, end subsidies for corporate interests, and change the labor laws so as to balance the power between capitalists and labor once again, and you fix the problem. . . but that will never happen.

  20. rd says:

    At least the US Marshal Service is determined to do something to protect minimum wages:

    http://www.businessinsider.com/indian-diplomats-strip-searched-in-us-2013-12

    Whether or not it is worth an international incident is another question. Between the US Marshall Service,the LAPD, and NSA, US diplomats could become persona non grata around the world, subject to search and seizure.