Business Magazine

McDonald’s and Supersized Wages

By Fsrcoin



Corporations are the scapegoats of our time. One much vilified is McDonald’s. A basic complaint is that we like its products too much.

This was the point of Morgan Spurlock’s 2004 film, Supersize Me. He proved that eating nothing but McDonald’s for a month is unhealthy. What a shocker. I wonder how his health would fare if he ate nothing but broccoli for a month.

Now there’s a new complaint, by McDonald’s employees, demanding to be paid more than minimum wage – more than double, at $15 an hour. Their beef has gotten much sympathetic attention (on The Daily Show and Colbert Report at least).

We’re told McDonald’s profits are over $5 billion annually, so surely they could pay workers more, if they weren’t so greedy and heartless.

So I’m thinking if profits are so obese, buying McDonald’s stock should be a ticket to Fat City.

Let’s see, a share is around $95 lately. Back in January 2012 it was . . . $100. Oops. And the $5+ billion in profit works out to around 5 bucks a share, or about 5%; but only around 3% is paid out in dividends (the rest being reinvested). Hmmm . . . more like Skinny City.

I’m actually quite sympathetic to McDonald’s workers. I honor anyone toiling as a productive member of society, whose work makes others’ lives (except for Morgan Spurlock’s) better. It makes mine better when (disclosure) I occasionally eat there. I know it’s tough getting by on minimum wage; and maybe in a world of ideal justice everyone would be paid according to how hard they work. (And how smart. Oops, now you’ve got problems already.)

But should McDonald’s stop being scroogy and just pay more? Workers say this would benefit the whole economy because they’d have more consumer dollars of their own to spend. That’s true; however, unfortunately, a $15 wage would (I did the math) turn McDonald’s $5 billion profit into a loss; the company would be cooked, with its workers then actually earning . . . zero.

So McDonald’s can’t significantly raise wages without raising prices. And that would take a bite out of the wallets of its customers – many of them low income. There’s no free lunch (or happy meal).

But actually McDonald’s has very little power to set either its wages or its prices. Both are dictated by larger economic forces. This (like most) is a fiercely competitive business. And McDonald’s doesn’t compete just against the likes of Burger King. Consumers have a vast array of food choices and alternatives. McDonald’s competes against them all, including cooking at home. It’s been successful because its products, in relation to price, make them attractive to consumers. Change that relationship and consumer choices will change.

If McDonald’s prices rise, then not only will Burger King become a comparatively more attractive alternative, but so will upscale restaurants, and so will home cooking. That too could topple the golden arches.

This is how the entire economy works. Some people decry it, seeing McDonald’s wage levels as exemplifying the system’s rottenness. Yet it’s exactly this system that gives all of us as much as we have – this system of a market allocating resources and the production and consumption of goods and services by price and competition throughout a universe of alternatives. McDonald’s ability to profit by serving burgers at prices people willingly pay creates wealth not only for its owners (shareholders) but also for its employees and the customers. All would be worse off if McDonald’s can’t stay competitive.

The same is true for every part of the economy. The auto industry thrives by pricing products where people find them attractive relative to all other transportation alternatives. Likewise the airline industry (though actually airlines barely make money, with the bulk of their wealth creation benefits captured instead by workers and consumers). And without this economic system, where would anybody’s livelihood come from? (The Soviet Union tried doing it all by government. That didn’t work so good.)

Maybe Morgan Spurlock’s heart is so big (or cholesterol swollen) that he would say he’d willingly pay double for burgers if that meant McDonald’s workers getting higher wages. But I bet he’d actually eat fewer Big Macs and more broccoli.


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