Friday, August 30, 2013

'McJobs' lead to middle class?!

Never say I don't give equal time. To wit, here's the chairman of the National Restaurant Association Phil Hickey carrying water (er, super-size soda?) for America's "McJobs" creators:

The truth is that both part-time and full-time positions make the restaurant industry a versatile career option for a variety of workers. From underemployed or hard-to-employ workers to college graduates, the industry provides a pathway to the middle class and often beyond.

Efforts to devalue the industry and mandate changes, like raising the minimum wage, hurt workers by preventing businesses of all sizes from creating more jobs.

Hickey argues that the $7.25 federal minimum wage doesn't need to be raised because... hardly anybody earns minimum wage:

According to the Bureau of Labor Statistics, 71% of minimum-wage employees in the restaurant industry are under the age of 25; 47% are teenagers.  

So why is Hickey wrong?  First, Hickey is actually admitting that 53 percent of fast-food workers earning minimum wage are adults.  He is also admitting, indirectly, that the current minimum wage sucks and people don't deserve it.

In fact, according to USA Today, the average non-management fast-food employee currently earns $9.09 per hour or $18,886 per year. Though that is still below the 2013 federal poverty threshold of $19,530 for a family of three.

Moreover, "Eighty-eight percent of workers in jobs paying less than $10 an hour are older than 20, and a third are older than 40, according to the Economic Policy Institute."  

Granted, two adults working full-time in fast food could make for a (barely) middle-class household... but don't forget that most fast food joints don't offer their employees health insurance or other benefits. BTW, who's taking care of their kid(s)? And if a family is paying its health costs out of pocket without insurance then God help them, because one medical emergency could bankrupt them. As indeed will happen to 2 million Americans this year. 

And if a family of three elects to buy health insurance on their own, either HSA or HDHP, then chances are their annual deductible + monthly costs will be $10,000 and up, or about 1/3 of that fast-food family's gross income.  

Next fact: in the U.S., workers' wages make up 25 to 35 percent of the cost of fast food, according to experts. Meanwhile, the norm in Europe where the minimum wage is higher is about 45 percent; and yet somehow, McDonald's manages to operate more than 7,400 restaurants in Europe. This indicates there is room for higher U.S. wages.  Still, the cost of fast food would probably go up, since restaurant owners, whose average profit margins hover around 4 percent, would pass on all or most of a wage increase to customers. 

"That's terrible, higher prices must be avoided at all costs!" my conservative interlocutor will object. To them inflation is the biggest bogeyman next to taxes. But you know what? I'm cool with it.  Poorer people would do well to eat less fast food anyway, and prepare their own meals; and wealthier people could afford to pay a little more. 

It reminds me how "Papa" John Schnatter warned in dire terms that Papa John's restaurants would have to raise their prices 14 cents per pizza to give their employees health insurance to comply with Obamacare. But what's 14 cents to a customer who can afford to buy a pizza instead of groceries? Plus it's customary to tip the deliver guy at least a couple bucks.

(BTW, President Obama's proposal in February to raise the minimum wage to $9 and tie it to the cost of living was projected to raise the price of fast food 3 percent. With a $9 minimum wage, the average cost of a McDonald's Extra Value Meal would then increase from $4.45 to $4.58.  Hardly noticeable.  Doing a little algebra -- although I have no idea if this is economically sound -- at the same ratio, a $15 minimum wage would increase the cost of fast food by 13.3 percent, for a Value Meal price of $5.03.  Heck, let's suppose a $15 wage would raise the price 40 percent: the Value Meal would still cost only $6.23.  Not exactly hyperinflation.)

According to economic theory, there is a big benefit to higher wages: lower employee turnover. Lower turnover leads to higher productivity (output per employee per hour). U.S. workers, incidentally, are already the most productive in the world, although you wouldn't guess it, considering real U.S. incomes have been stagnant since the 1970s; and the median male is especially worse off today, earning as much in real dollars as a man in 1964!

Next problem with Hickey's apologia: McDonald's, Walmart and most other retailers employ few full-time workers anyway; workers are not permitted to work full time.  So we're really talking about workers below the U.S. poverty line unless they work two part-time jobs.  That is, assuming they can get those part-time jobs: there are still 3 applicants for every job opening.

To protest this sad state of affairs, yesterday fast-food workers in about 60 U.S. cities carried out a one-day strike for a minimum hourly wage of $15.  

Theirs is the next great struggle for organized labor and fair compensation.  But it's not their struggle alone.  Even the middle and upper classes stand to lose -- or gain -- along with the lowest-paid Americans.  

"There is a spillover effect from raising the minimum wage, and those who are currently earning [just] above it will also benefit, as many employers will raise their wages too," said Lawrence Mishel of the Economic Policy Institute.

Furthermore, as entrepreneur Nick Hanauer explained in his Bloomberg op-ed, "The Capitalist’s Case for a $15 Minimum Wage": 

Raising the minimum wage to $15 an hour* would inject about $450 billion into the economy each year. That would give more purchasing power to millions of poor and lower-middle-class Americans, and would stimulate buying, production and hiring.

Studies by the Economic Policy Institute show that a $15 minimum wage would directly affect 51 million workers and indirectly benefit an additional 30 million. That’s 81 million people, or about 64 percent of the workforce, and their families who would be more able to buy cars, clothing and food from our nation’s businesses.

... [C]ontrary to conventional economic orthodoxy, increases in the minimum wage increase employment. In 60 percent of the states that raised the minimum wage during periods of high unemployment, job growth was faster than the national average.

Some business people oppose an increase in the minimum wage as needless government interference in the workings of the market. In fact, a big increase would substantially reduce government intervention and dependency on public assistance programs.

(*Here's yet more equal time for crusty conservatives, a very long argument why "A $15 minimum wage is a terrible idea" by Dylan Matthews over at WaPo's Wonkblog.)

Regardless of whether the new minimum wage should be $9 or a few bucks more, $7.25 'MCJobs' just aren't cutting it for our economy.  And 'McJobs' are certainly not "a pathway to the middle class and often beyond" -- not unless something changes.  

Eric Liu, a former speechwriter for Bill Clinton, summed it up best in his TIME piece, "McDonald’s and the Fate of the Middle Class":

Too many American think that the plight of the low-wage worker has nothing to do with them. In fact it is both a preview and a parable. The fate of the middle class rests, in part, on whether more Americans learn to see the fate of fry cooks as their own.

We must all rise or fall together!

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