What The Well-Off Would Pay for Wendy’s Coffee Doesn’t Matter

The fast food industry may not be able to pay higher wages because its customers are as poor as its employees

Labor protests were recently held in front of more than 1,000 fast food restaurants around the country. As a result of our job-killing recession and subsequent job-lite recovery, the fast food workforce is no longer composed mainly of teenagers. It now comprises many adults who are raising families, which is pretty hard to do on eight or nine bucks an hour and no health insurance benefits. Hence the protesters’ call for unionization and higher wages.

Many members of the San Francisco Bay Area Starbucks-going crowd (of which I am one) responded to the protests by lambasting Wendy’s, McDonald’s, Burger King et al., e.g., “Starbucks charges more for coffee so that it can give its staff good wages and benefits. Wendy’s is just too stupid or too cheap to do the same thing”. When I hear comments like this from my fellow well-intentioned members of the upper-middle class, they make surface sense to me for a few seconds. But then I remember my experience working in a fast food restaurant.

I flipped burgers for Wendy’s to support myself in college (and I don’t mean in the Romney-esque way of supporting those expenses that selling my stock portfolio didn’t cover, I mean I worked there so that I could eat and pay the rent). It was a thoroughly unpleasant job and I both admire and feel sympathy for people who are doing it 40-60 hours a week with no end in sight.

In my days working for the freckled little girl with the red pigtails, I was struck by the similarity of the customers and the staff. Both included some college students and senior citizens just scraping by, many working class adults and some people in the middle class. We certainly had customers who made more money than the two guys who co-owned and managed the restaurant, but not many of them. Later research has shown that my casual observations were roughly in keeping with national trends: Once their household income breaks $60,000, families start choosing to eat in sit-down restaurants rather than order a burger and fries at the counter.

That’s why the San Francisco Starbucksians’ critique of Wendy’s business practices is irrelevant: The people advancing it are above the income level of the people who typically eat at Wendy’s. That affluent people who never eat fast food express hypothetical willingness to pay Starbucks-level prices for Wendy’s coffee doesn’t persuade the management to raise prices and therefore doesn’t help the fast food workers either.

Not every business can make its living by selling things to the declining proportion of the population that is doing well financially. Fast food is one example of an industry where a majority of both the workers and the customers simply don’t have that much money. There may not therefore be a way for Wendy’s et al. to raise wages without losing a significant chunk of their customer base, which in turn would probably lead to employee layoffs (Megan McArdle argues that Wal-Mart is in the same boat).

The solution to the misery of parents trying to raise families on Wendy’s wages will therefore likely have to come from outside the fast food industry. We need a much stronger economy that increases the number of people in the population who can afford to pay high prices, moves the current fast food workforce into better jobs and returns burger flipping to young short-timers who are on their way to something better.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College Lonon. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over ten thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

91 thoughts on “What The Well-Off Would Pay for Wendy’s Coffee Doesn’t Matter”

  1. The real question here isn’t why a grown adult can’t make enough money flipping burgers to support their family. The question is, why is a grown adult with a family working at the sort of job that used to be largely reserved for teenagers just establishing a work record? The thing about low paid jobs is that they’re not supposed to be a career path, they’re supposed to be the first rung on a ladder, where you climb further once you’ve demonstrated that you’ll actually show up on time, and work during work hours. What we ought to be discussing is why people stopped moving up that ladder, not raising the bottom rung.

    Oh, and here’s the actual result of raising fast food workers’ pay. Not less money for franchise owners.

    1. Brett, did you read the last paragraph, with which you ought to agree? The economy needs to produce more jobs that people can transition to after a McJob. That’s better than promising people that their McJob will let them scrape by for 40 years.

    2. What about societal changes, such that one-income households are now two-income households? Greasy spoons with some prospect of advancement or ownership are now franchise operations designed to use people as if they were robots – seriously, read up on the much-discussed, much-praised work-process optimization at McDonalds. We’ve always had low-skill labor, but increasingly we have low-skill labor that utterly discounts the humanity and the needs of the worker.

      1. We’ve always had low-skill labor, but increasingly we have low-skill labor that utterly discounts the humanity and the needs of the worker.

        Compared to what era? Dickens’ London? The sweat shops of the early 20th century in the U.S.? When were the golden years to which you are drawing a contrast?

  2. There are two tipping points on minimum wage. If it is too high, it will reduce the number of jobs and even cause small businesses to fail. If it is too low, workers will go into death spirals, over time unable to afford the basic food, housing, transport and medical care that they need to continue working. Which tipping point do you think we are closer to today?
    I think it is the latter, based on:
    Historical comparisons within the U.S. indicate that the minimum wage, adjusted for inflation, has fallen even as productivity has risen http://www.democracyjournal.org/29/minimum-wage-catching-up-to-productivity.php?page=all . Therefore, there should be plenty of space to raise wages.
    And, it isn’t something unique about the world today – Comparison with other countries which manage to have higher minimum wages in the modern world (eg. France $12.00/hr., Australia $16.00/hr. age 20 & over), without totally blowing out prices (eg. Big Mac index http://www.economist.com/content/big-mac-index).
    Most important, controlled studies support this view. Comparison of neighbouring counties with similar economic profiles across state lines when one state raises its minimum wage and its neighbour does not done from 1990-2006 indicate that raising the minimum wage from current levels does not impact employment rates. http://www.irle.berkeley.edu/workingpapers/157-07.pdf
    From the other side – what actual evidence is there that raising the minimum wage will reduce the number of jobs or raise prices? I know the theory – but are there actual studies, comparable to the one from Berkeley that I cite above?

    1. kate: See my response to Ebenezer below, I didn’t criticize a minimum wage. The federal minimum wage is a different question than whether the fast food industry could choose to do what Starbucks chooses to do in terms of wages.

  3. My dad once commented in regardes to corporate bitching that all their troubles were the fault of labor, “They’re management. They are supposed to manage.”
    If a corporation is showing a healthy profit there shouldn’t be any reason to stiff the hired help. As Jesus said, “The workman deserves his wage”.

  4. Keith might be right about fast food, but I’m not sure he’s right about low-wage labor in general. Wal-Mart–the Great Satan–has long been in favor of raising the minimum wage, I believe for exactly the reasons that Keith attempts to rebut. (Certainly not out of the kindness of their corporate hearts!) It might have to pay its employees more, but is likely to recoup the cost in more business. Some businesses appealing to low-wage workers might be hurt by an increase in the minimum wage, but many would not.

    The problem, of course, is that even if you accept this reasoning, it is no reason for individual employers to pay more. (Such reasons may exist on other grounds, however, as evidenced by Costco and Trader Joe’s.)

    1. ?? My post is not a rebuttal to a minimum wage — where do you get that when it isn’t even mentioned? It’s about how affluent people misunderstand the lives and choices of lower income people and the companies that both employ and serve them. That leads well-off people to assume that fast food restaurants have the same economic options as industries which serve them.

      1. Keith,
        I didn’t think your piece was a rebuttal to minimum wage. I think that your piece tried to identify a downside to an increased minimum wage. But that is by no means a rebuttal–no real-world policy, not matter how desirable on net, doesn’t have a downside somewhere. I’m even willing to agree with what I think is your argument. I was just trying to limit its scope.

    2. Ebeneezer – I was surprised to read what you wrote about Wal-Mart’s stance on raising the minimum wage. But with some (admittedly) cursory research I see that their then-CEO gave a highly publicized speech advocating this eight years ago. More current reports (this one, for example) indicate more ambivalence about the question. And they were very much involved in the fight over the possible implementation of a “living wage” in DC, threatening to proceed with their planned expansion into that market if the law was passed.

      So I am left wondering is Wal-Mart (or rather, is today’s CEO) still in favor? And moreover, does Wal-Mart in general pay their employees more than minimum wage if that is what they’ve “long been in favor of”? Finally, if the answer is yes to the first, no the second, why should one be inclined to believe the first answer is true? After all the Federal Minimum Wage is a compensation floor, not a ceiling.

      Of the first two of those preceding questions, I will fully admit to having no knowledge.

      1. “Does Wal-Mart pay more than minimum wage” is the flip side of “If Warren Buffet thinks rich people should pay more taxes, there’s nothing stopping him.”

        I can easily imagine a scenario in which Wal-Mart’s management calculates that raising the minimum wage everywhere would do them a lot of good, but raising the minimum wage only (more or less) for Wal-Mart employees would not. While most of their employees are their customers, most of their customers are not their employees.

      2. The DC living wage is a bit of a joke. This isn’t an actual change to DC’s minimum wage. It’s defined to apply *only* to Wal-Mart, not even to its competitors in the same sector. It’s basically a shakedown effort, and it’s hardly surprising Wal-Mart would oppose it.

  5. These companies could, however, choose to pay their employees more and their executives less.
    This is the classic McArdle dodge: pretend that you have only two choices – raise low-level employee pay
    or raise prices. We now live in a world where upper management doesn’t divert a tiny fraction of the
    income to themselves; they siphon off a very large piece of the pie.

    We need a much more progressive tax system, especially at the high end. Far easier to say “nothing
    can be done”, which is what McArdle et al. are paid quite well to argue for each and every time.

    1. The math doesn’t really work on this. There are serious problems with inequality and a number of things we should do about it. The level of executive pay is one of them.

      However, cutting CEO (and other executive suite types) pay and redistributing it to other workers by itself doesn’t make a big difference. In 2011, Wendy’s paid its CEOs (they changed in the middle of the year) $21.6 million. The company had 46,000 employees. So if you eliminated CEO pay altogether you could give each employee an extra $500 per year. That’s not worthless but it isn’t lifting anyone out of poverty, either.

      The solutions have to go deeper than this.

      1. Thanks for doing the math J. Michael. Just to finish it off, that amounts to a raise of 24 cents per hour (or about a 3% raise) for a 40 hour a week worker (and presumes that the company would not suffer financially by having no management at all).

        1. Or by choosing six, rather than seven, figure annual salaries for their CEO. Which was common before the Reagan era – when these companies got large in the first place.

      2. This isn’t “doing the math”. If you were trying to be accurate you would have included the salaries (and very large perks) of the top 100 or so in the company. I’m sure there’s a few corporate jets and properties as well. There’s a lot more money at the top than the salary of the CEO.

        1. Given the rate at which the wages of executives declines once you are beyond the CEO there just isn’t enough money if we go to 2012 and look at the total compensation for the top four executives, we find that they were paid an aggregate total of $11,600,778. The CFO was paid less than half what the CEO was and the others less than that. By the time we get to the bottom of the top 100 my guess is that we’re talking less than $500,000 each. At that point, since I assume that you aren’t talking about reducing their pay to $0, the residual income you allow them to keep becomes significant enough that we can’t treat it as a rounding error and will have a major impact on how much can be redistributed. (Source: http://insiders.morningstar.com/trading/executive-compensation.action?t=WEN ) The perks you mention that aren’t included in compensation are real but amount to significantly less than the wages themselves.

          I’ll repeat: there is not enough money in executive compensation by itself to lift the employees out of poverty.

        2. Russell, if you eliminate all those positions, who will file the organization’s taxes with the government? Who would negotiate loans if the company hit a financial crisis? Who would deal with food suppliers (or would you have every individual store take on those costs itself?)

          You can’t really complain about straw men when you are pretending that the company would incur no harm if there were no management.

      3. Think about what you just wrote. An average minimum wage employee – say, 30 hours / week – makes ~ 210 dollars a week pre-tax. That’s ~ 10,000 dollar a year.
        The CEO, alone, makes enough money to be equivalent to 5 percent of their entire annual wage. And a lot of the compensation packages, which are quite complex, can be inflated even more – so the real cost could be a multiple of that factor.

        1. I’d also note that 500 dollars a year matters a lot more to the quality of life of a Wendys employee than millions 2-21 make for the CEO.

          1. This. Most of us are middle-class, but even so we should appreciate that a $500 bonus would be a pure godsend to low-income workers, that it could utterly transform their month. It’s not going to buy them a car or pay tuition, but it might give them a bit of a cushion against payday loan sharks. If we assume the average Wendy’s worker is earning perhaps $15000 a year (assuming 30 hours a week and $10 an hour average – one perhaps high, the other perhaps low – you can see where $500 would figure.

            And it’s hardly crazy to think that if the CEO is getting $20,000,000 then by halving the over-a-million part of the pay going to top executives you could likely come up with something like $20,000,000 for more equitable pay distribution – and that’s before you even consider imposing the measliest impact on the shareholders.

          2. I am not denying that. However, the point of the post wasn’t that we need to make changes that will improve workers lives a bit at the margins, which is what an additional $500 per year would do (which you might note I explicitly stated in my first response). It’s that we need to dramatically improve their incomes. Even though I agree with you that there are problems when CEOs make the kind of multiples of other employees’ income that we see, there is not enough money tied up in their compensation to produce the fundamental sort of changes that Keith is envisioning. That’s just a simple fact of the numbers. If you agree with Keith (and I largely do) this cannot be the limit of your horizons as to how to accomplish them.

          3. @all: Remember $500 a year is the benefit if all upper management is eliminated and all costs for advertising, tax reporting, negotiating with suppliers etc. is thrown on every individual store. Those costs are not zero.

          4. @Keith
            I don’t even understand your reply. $500 a year is if the CEO(s) served without compensation and the savings were divided equally among all the employees. That’s not really a worthwhile suggestion (though slashing CEO compensation from the incredible $20 million per year to a more plausible several million, and treating similarly any other massively bloated executive paychecks, wouldn’t be an insane proposition.

            And in response to this, you talk about the $20 million in savings means “all costs for advertising, tax reporting, negotiating with suppliers etc. is thrown on every individual store”, as if instead of slashing the massively inflated pay of top executives the thought-experiment was to do away with central office entirely. Sure, doing away with the central office would mean all those problems – but who even mentioned it?

          5. Warren — people are discussing $500 a year in pay as if it was clearly established as if it were available as a free lunch. But upthread it comes from eliminating all executive pay to zero. Unless one assumes that none of those management people does anything of value, it’s silly to talk about whether the $500 is big or small.

          6. @Keith,
            No – it comes from setting CEO pay to zero, not setting the pay of all executives to zero. And, yes, setting CEO pay to zero is not tenable. Still, big cuts to the portion of executive pay that is beyond a million or two dollars, for all executives, isn’t automatically crazy, and might well add up to that $20 million figure.

          7. Still, big cuts to the portion of executive pay that is beyond a million or two dollars, for all executives, isn’t automatically crazy, and might well add up to that $20 million figure.

            It might add up to that $20 million but it won’t add up to much more than that. If you want to raise people out of poverty rather than just give them a nice one-off bonus, this can’t be the answer.

          8. @Warren: I re-read and realized we are looking at different comments by J. Michael Neal above. My apologies. My values are the same as yours: It is legal for the top people to pay themselves that much but I would rather see them paid less and the money redirected to employees.

    2. Remember to use the word “competitive” correctly: When you’re talking about worker pay, a “competitive” salary means one that’s lower than other companies pay for similar work. When you’re talking about executive pay, a “competitive” salary means one that’s higher.

  6. “We need a much stronger economy that increases the number of people in the population who can afford to pay high prices, moves the current fast food workforce into better jobs and returns burger flipping to young short-timers who are on their way to something better.”

    Well, the way you do that is ensure that all jobs offer living wage compensation, not simply minimum wage. I understand that the wealthy, managerial class frets a lot about paying workers too much, but our present economy is the result of — not the aspiration to — paying workers too little to survive. We have massive amounts of fast food, because there’s profit to be made off paying workers too little to survive. There are also far too few decent jobs that keep people from being dependent on government and charity.

    Most shamefully, there is no reason to not pay workers a living wage. The marginal increase in the price of fast food is unlikely to make much difference in affordability. Many folks can’t afford to eat at fast food joints right now, including most of their employees. We as a society have made a political decision to subsidize McDonald’s et al by ensuring them a steady supply of cheap labor. In fact, the one national policy that has fairly consistently been followed since the days of African-Americans counting as 3/5 of a “person” and mass immigration is to provide a steady source of labor whose price is constantly falling — even when the price of a burger never goes down.

    Imagine a national economy where all consumers can meet their most basic human needs. It’d be good for business — whether they like it or not.

    BTW, claims that Walmart _wants_ an increase in the minimum wage are laughable corporate propaganda. Walmart just shot down a living wage ordinance in Washington DC, apparently still expecting government to pick up the slack between what they pay and what it costs to live. Last I heard, new workers at Walmart are briefed on how to apply for food stamps and other government services they’ll likely need if they depend on a Walmart job.

    1. WalMart opposed a law in D.C. that would have forced it to pay higher wages while allowing its competition to pay their employees about 2/3 of what WalMart would have to. Being opposed to that law is not by itself an indication that the company opposes increasing the minimum wage in general, just that it objects to being told that it is uniquely guilty of paying low wages.

      1. Quite aware if that, J. Michael. I was citing that opposition more as a general example of what Walmart does versus what it says. No happy face on that.

        Considering that minimum wage leaves people no choice but dependence and a living wage just a pittance more and a pittance less dependence if one is supporting a family, actions speak louder than words. There’s actually nothing keeping Walmart from paying more than the minimum wage right now. They’re simply wedded to the idea that they’ll only accept a wage raise for their workers that leaves them in either the same or better position on wages than their competitors. And they only started making noise about that when the issue of inequality finally surfaced in the dominant media after Occupy Wall St. Walmart is and likely will always be a bottom-feeder even among America’s greedy class.

        1. I was citing that opposition more as a general example of what Walmart does versus what it says.

          I realize that. Your explanation doesn’t change the fact that you chose an entirely irrelevant example. WalMart’s opinion as to whether it should be legally required to pay higher wages than its competitors do says nothing at all about its opinion as to whether or not it believes that the minimum wage should be raised for all employers and not just itself.

          Similarly, your argument about why WalMart is arguing for an increase in the minimum wage is in no way a refutation of the fact that they are so arguing. I never claimed that their motives were altruistic. And I have no idea why you think WalMart shouldn’t be wedded to the idea that the legal regime should treat them the same as their competitors.

          1. J. Michael wrote:
            “And I have no idea why you think WalMart shouldn’t be wedded to the idea that the legal regime should treat them the same as their competitors.”

            My point is this isn’t simply a legal issue, it’s a moral issue. Walmart can go ahead and take some of the “personal responsibility” conservatives are always whipping out and run with it — or they or other can make phony statements about their support for a rise in the minimum wage as indicative of where their heart really is. I’m just saying the fact of their opposition to a living wage probably says more about the real level of their support for reasonable compensation for their workers beyond any statements they might make about the minimum wage.

            I’ve yet to hear why conservatives think “personal responsibility” only applies to the 99%.

            Also, my mom just made me quit using the “But everyone else is doing it!” excuse when I was about 7 years old. It never ceases to amaze me that adults use it everyday to excuse the excesses of capitalism. Maybe mom forgot to tell me there’s some fine print that applies to that?

            And you might as a well get used to my argumentative style, which often relies on the tangential to make a point, which you may or may not notice and may not necessarily appreciate when you do.

          2. My point is this isn’t simply a legal issue, it’s a moral issue. Walmart can go ahead and take some of the “personal responsibility” conservatives are always whipping out and run with it . . .

            Fine and dandy but this is not the claim you initially made and that I objected to. If you want to disagree with my response, you need to actually address that and not that WalMart should do other things. The company’s opposition to the specific D.C. bill does not mean that they oppose a general increase in the legal minimum wage. It just doesn’t and no matter how many valid arguments you make about something else that isn’t going to change.

            If you want to rebut me you are going to have to address that single, specific claim, not anything about what WalMart’s ethical obligations ought to be. You haven’t actually done that and, in fact, are moving farther and farther away from doing so.

  7. There’s a lot of free lunchism in these conversations that is unfortunate – and that hucksters like McArdle can take advantage of. It’s not necessarily true that a business can thrive by paying people a living wage.

    But employees can certainly be paid more than they are by thriving businesses. The value of their labor is higher than what they are able to bargain for.

    Poor folks are in a particularly difficult position to bargain for fair wages because of their vulnerability to job disruptions. The minimum wage isn’t a great substitute for unionism, but the US seems to have rejected the idea of fair bargaining, so a reasonable minimal wage seems particularly important.

    1. The value of their labor is higher than what they are able to bargain for.

      Value to whom? Surely the value of anything is what people are willing to pay for it and what those who have it are willing to sell it for? The main reason low-paid workers make so little is that there are plenty of people who will take the low wages for their work. When you can be replaced by somebody with a day of training and relative little in the way of special skills, it’s very hard to persuade anybody to pay you a lot.

      I think my employers should (and can afford to) pay me more, but so far I’ve not been willing to stop working for what they do pay me. That’s the situation the vast majority of workers are in.

      1. The amount workers will sell their labor for is one measure of value. Another is how much value the employer gains by their labor. If the enterprise is $20 better off (because the burgers got fried, or whatever), then the value added by that employee is $20, even if they’re only being paid $8. Taking the open-market price as the “real” value of the labor assumes perfect information, equal bargaining power, and other available options on both sides–those assumptions are routinely violated in practice.

        You imply as much yourself at the end: Your employers should pay you more (presumably because your labor on their behalf is ‘worth’ more) and can afford to do so; so why do you accept less than you deserve? Probably because your employer can more easily find someone else to do your job, than you can find another employer to pay you to do it. The lack of equal options and bargaining power results in lower wages, with the excess value of the labor accruing to the enterprise, not to the one doing the labor.

        1. Business have a lot of inescapable cost that adds little or no value. If all employees were paid the value of their labor to the business, a lot of business would be out of business.

      2. Surely the value of anything is what people are willing to pay for it and what those who have it are willing to sell it for?

        No, this is not surely true. “Value” is a concept that is not reducible to a single, objective definition. The one you provide is certainly A definition of “value” and it is surely a useful one that ought to be kept in mind. But in addition to what BrianH says, “value” as a concept his more dimensions than just being an economic concept. One of the things that we struggle with is that the conservative revolution since 1980 has tried to deny that there is anything to it beyond raw economics and this is unfortunate.

        “Value” also has social and ethical dimensions. Someone who works hard and is reliable should, ethically (at least in my view), be rewarded with a decent lifestyle even if what they do doesn’t add a lot of economic value. There are a lot of reasons for this, some of which are actually practical. But I also think that it is a fundamental requirement to produce a society that is morally defensible.

      3. FuzzyFace, “value” is a moving target. The government has structured markets so that fast food labor gets less than it otherwise might.

        You are able to make as much as you are because your employer is legally not allowed to band together with other employers to hold down wages. You are able to make as little as you are because the government fails to encourage collective bargaining.

        The government does a lot of things to influence the market value of labor. It prohibits slavery, for example.

        You don’t exist in some kind of neutral state of nature, where the amount you are willing to accept – and the amount your employer is willing to pay – is unaffected by government intervention. The question is: Which government interventions are appropriate.

  8. The reason starbucks make huge profits selling high-priced coffee is that the wages of their baristas is a small part of their total expense picture. Advertising and marketing, outfitting and refitting of stores, the coffee and other ingredients, the distribution chain and so forth. The same is true for Wendy’s and the other fast-food places. Employee wages are not really the cost driver compared to capital and operating costs, supply chain and so on. So the argument is wrong on the surface, but the analogy holds.

    1. Asserting that employee wages are not a significant cost center in the fast food industry does not make it so. Prove it.

      1. http://www.cjr.org/the_audit/a_big_mac_miss_by_the_huffingt.php

        Doubling pay for everyone, not just line workers, would increase prices by 20-25%. That means at least three quarters of your cost (and quite possibly rather more) is not line employee wages. Fast food might become somewhat less mindbogglingly profitable (20% of sales is pretty impressive) if wages were doubled, but the economic activity spurred by that increase might make up for it.

        1. You cannot make any serious assumptions based upon anything at that link. Worse, you misquote it. The profits of McDonald’s restaurants is not 20% of sales. What is listed on the income statement is not the sales at all McDonald’s restaurants; its the revenue generated by the McDonald’s Corporation. That means that sales by franchise restaurants is not included, only the fraction of sales that is paid to the Corporation as franchise fees. We do not know the sales figures for all of the franchises nor do we know their expenses.

          A lot of people make estimates of those, though, and they generally come up with figures that would mean that the overall profit margin for McDonald’s stores is under 10%. That would be a profit margin that is far more accurately described as “mundane” rather than as “mindboggling”. And, as your link points out, you can’t just assume an increase in price of 25% means that revenues go up 25%. Such a price increase would cause sales to go down; demand elasticity for fast food isn’t zero. If the price increase caused sales to drop by 5%, you’d have to raise prices by about 1/3 in order to get a 25% increase in revenues.

          1. That’s the profit on revenues for the corporation. Which is currently mindboggling, and would have to go down (probably in the form of reduced franchise fees). And even 10% on sales for a food operation is pretty impressive.

            We don’t know about the elasticity here, except that it’s likely low. The alternatives are not cost-free. But we also know that pumping a few billion dollars into the low end of the economy would give extra disposable income to exactly the kind of people who eat at fast food restaurants.

          2. That’s the profit on revenues for the corporation. Which is currently mindboggling, and would have to go down (probably in the form of reduced franchise fees). And even 10% on sales for a food operation is pretty impressive.

            Fine, but raising prices doesn’t happen at the corporate level. It happens at the individual store level. Any discussion about overall profit margins on McDonald’s food that relies upon the corporate financial statements as a sole source is utterly pointless.

            We don’t know about the elasticity here, except that it’s likely low.

            Funny. Given their customer base, I suspect that it’s pretty high. However, that’s just a guess. Do you have any evidence that would raise your statement above that level?

          3. Fine, but raising prices doesn’t happen at the corporate level. It happens at the individual store level

            I’m pretty sure some franchise operations do indeed impose very strict controls on pricing by local stores – especially with the nationally advertised campaigns such as the dollar menu or the five dollar footlong.

          4. We don’t know about the elasticity here, except that it’s likely low

            This is the upper-class Starbucksian’s assumption…are you are regular customer at Wendy’s? Are you sure that the typical Wendy’s customer is insensitive to price?

  9. The purpose of labor unions is to squeeze profits to re-distribute among workers. The goal of the fast food workers is to raise their wages, which they also hope will cause other workers at Wal-Mart, Target and even Costco to start demanding a bigger piece of the profits.

    It will be alright, Keith, if the workers win several battles over wages and benefits in a row. And Brett, when the robots come, it will actually move us closer to Karl Marx’s dream that capitalism where he spoke about moving statues that do all the work and the income and products generated can be distributed among the populace. Brett’s line of thinking is the classic conservative’s dodge against doing something for workers today.

    1. Right. The idea that public policy should aim to depress wages in order to retard improvements in technology is wrong in every possible way.

  10. One big problem with very low wage levels is that such encourages inefficiency. The nation would be better off with higher wages at McD’s and more automation there and similar operations. Low wage levels discourage the substitution of machines for low paid workers. And, such substitution should be encouraged to raise productivity. Take a look at higher than USA wage countries such as Switzerland, Denmark and, yes, even France to see how this works.

    Of course, we also need to figure out how to deal with the loss of low paying jobs which automation entails. The claim is often made that the future of the US economy lies in higher tech jobs at higher wages. Cheap fast food is not helping us get there.

    1. That’s the question, isn’t it: if we could replace low-wage work with cheap mechanization, would the savings ever reach the displaced worker? In a utopian vision, certainly – but in the world we live in, in which lives are literally lost so The Gap can save less than 0.1% of retail price in manufacturing costs? We can’t even make hedge fund billionaires report their income as earned income – and yet we’re meant to hope that increased profits and fewer workers at fast food restaurants would mean society redistributing the resulting profits to society’s losers? In the world I’d build by fiat that would happen; but in this one?

  11. When Apple is scraping pennies in labor costs on the construction of a $500 iPhone through abusive labor practices; when the Gap is scraping a few pennies on a $50 pair of jeans by using child labor in unsafe sweatshops, we know what part of the culture needs to change. I don’t know the score at McDonalds or Subway, but in our corporate culture more generally there is an almost parodic willingness to inflict suffering in order to save a small fraction of one percent in labor costs.

  12. Keith, I don’t disagree with your main thesis (about higher coffee prices), but there’s evidence that the following isn’t right:

    There may not therefore be a way for Wendy’s et al. to raise wages without losing a significant chunk of their customer base, which in turn would probably lead to employee layoffs (Megan McArdle argues that Wal-Mart is in the same boat).

    This brings me to the Big Mac index as a measure of PPP. Right now, you pay virtually the same money in the US and in Germany for a Big Mac (sometimes more in America, sometimes more in Germany, depending on where the exchange rate currently is). The same cannot be said of the income situation of McDonalds employees in these two countries.

    German McDonalds employees are unionized. The collective bargaining agreement of their union (wage agreement, framework agreement, both are in English) provides the following minimum wages and conditions:

    (1) A €7.71 ($10.29) hourly wage in West Germany and a €7.06 ($9.42) hourly wage in East Germany (wages and cost of living are generally both lower in East Germany).
    (2) A 39 hour workweek.
    (3) 25 working days of paid annual leave.
    (4) A €416 annual holiday bonus.
    (5) A €416 annual end of year bonus.
    (6) A 15% night shift bonus for time worked between 11 pm and 6 am.

    Plus, of course, any statutory benefits.

    Additionally, employers also have to pay their share of social taxes (similar to how FICA taxes are split between employers and employees), adding some 20% to the cost of an employee.

    Altogether, German McDonalds employees are a fair bit more expensive than their American counterparts, yet that isn’t reflected in a price increase for a Big Mac. And the situation in Australia is similar (Australia is also close to the US on the Big Mac Index).

    I would also like to add that regularly eating at McDonalds isn’t a good idea for most people. While the calories-per-dollar ratio is pretty good, the same cannot be said for what a burger contributes to a balanced diet. You really want to get that from a proper supermarket with, let’s say, a more diverse offering of food choices.

    Which allows me to segue into discussing why Megan McArdle may be wrong with respect to Walmart, too. Walmart famously and spectacularly flamed out trying to enter the German market [1]. Cultural cluelessness aside, they couldn’t compete against the established discount chains of Aldi and Lidl, despite the fact that Aldi and Lidl pay their employees above the collective bargaining rate elsewhere in the retail industry (currently they offer around €13 an hour for an unskilled employee, i.e. some $17). Note that Aldi and Lidl are as bad as Walmart in their own way (which is why they have to pay their employees more). Yet, even though they pay pretty high salaries by retail standards, as a result of the often brutal competition, German groceries are among the cheapest in the developed world. In contrast with the US market, low prices come from slashed profit margins, not low wages. And Aldi, Lidl, etc. is where Germany’s poor typically get their groceries (along with a large part of the middle class).

    Final note: This is really more a story about the combined superpowers of collective bargaining and effective competition than Germany. Germany, for example, doesn’t have a statutory minimum wage [2], which leads to non-unionized industries sometimes having unacceptably low wages (for example, €3-4 per hour for hairdressers without work experience in some parts of the country) and employee leasing (of non-unionized employees) being used to circumvent collective bargaining agreements in some industries. Which is why minimum wages and employee leasing have become hot topics in the current election year.

    [1] I freely admit to a bit of schadenfreude here.
    [2] Statutory minimum wages are, oddly enough, somewhat uncommon in the European social democracies; Sweden, Denmark, Finland, Germany, Austria, and Switzerland do not have minimum wage laws. Instead, cash and housing benefits are often used instead to bring low wages up to a minimum standard of living where collective bargaining fails to guarantee a living wage; in addition, jobs that pay less than the minimum level of social benefits are also unattractive and hard to hire for.

    1. Just adding that up:
      39 hours a week, 47 weeks a year (as there were 5 working weeks of paid vacation): 1833 hours of work.
      Pay for 52 weeks of 39 hours: $20,868 (West Germany, no night work)
      Two annual bonuses: $555 each
      Total: $21,978, or $12 / hour. Not counting any statutory benefits (mostly meaning health care, but I don’t know who funds their health care – themselves? their employers? higher-income taxpayers?)

      … though, even more than the pay, the five weeks annual paid leave and getting 5% of your pay in two annual bonuses are probably the bigger differences than he pay alone.

      1. There also some darn good healthcare included. That may or may not happen in the US, although you will be forced to buy insurance, just like in Germany. There, you can count on quality care in return. Here, it’s going to be like the wild, wild west.

      2. Well, I was thinking more about what the employer is paying than what the employee is getting (and thus, whether McDonald’s in the US could afford higher wages). If you’re interested in the gory details of effective employee remuneration, they’re about as follows:

        Social taxes/contributions in Germany run to about 20% of your pre-tax income (they’re deducted from your payroll, like FICA taxes). Almost half of that goes towards pensions (higher than FICA taxes, because Germany has a low fertility rate). Health insurance contributions make up 8.2% of your pre-tax income; the rest pays for long term care insurance and unemployment insurance.

        Income tax at that income level is about 5% (assuming you’re single without children). After-tax income (according to a handy online calculator that I used so I didn’t have to figure it out by hand) would be €1,022 per month, or about $1360 at the current exchange rate. It’s not a great income, but it’s a living wage. Also, it would go up a bit after 6/12/24 months (assuming you stay that long with McDonald’s in a non-managerial position).

        There are too many people in Germany who make less than that, however. The biggest problem is not that you wouldn’t be able to live on such an income, but that you may not get a pension out of it that you can live off of once you turn 65 (and then become dependent on welfare payments). Thus, the Social Democrats and the Greens are currently both advocating a statutory minimum wage of €8.50 (the “Linke” is pushing for €10.50, but that’s unrealistic and potentially harmful, and the conservatives want to have it set via collective bargaining). This would also reduce welfare payments (which currently effectively subsidize employers paying less than a living wage).

        To explain the last part, Germany currently has what is effectively a minimum income guarantee for anybody who is seeking a job, has a job or cannot work (the young, the old, and the disabled in particular). It currently comes out to rent + heating + health insurance + €382 per month for a single person. If you earn less than that (e.g., as a hairdresser in Saxony without work experience), you’re entitled to the difference between that and your actual income (there’s also an exemption for wages, so that if you work you still earn more than an unemployed person). This is essentially the same as a minimum wage, except that it’s paid for by the government (i.e., taxpayer money) and has other deleterious effects.

    2. The observations about McDonald’s in Germany certainly suggest that higher minimum wage laws wouldn’t hurt the fast food industry in general; while Germany may not have statutory minimum wages the way wages are centrally bargained upon has many of the same effects. It really doesn’t tell us anything about whether a specific fast food chain in the U.S. could raise its wages unilaterally and remain competitive. And the performance of Costco suggests that other retail outlets in the U.S. could radically alter their business model and be successful. Or maybe not.

      None of that means that just raising hourly wages would be a successful strategy for them to engage in. Frankly, I suspect that attempts to do so would likely prove to be abject failures at most of them given entrenched corporate cultures. Which is why I prefer to just shop at Costco.

    3. @Katja: I know little about Germany but do you have a hollowed out middle class, few social benefits and a bifurcated economy in which lower income people are the main customers of fast food? If so, I see the parallel. If not, I am not sure that this is relevant to the US situation. I mean that seriously, I am genuniely unsure it is relevant, maybe it is and I am just not seeing it (never been to Germany). Maybe it is the trump card, but the whole policy and economic surround seems different to me that I am not sure two numbers from one society can be plucked out and generalized to another.

      p.s. More generally, I always wonder about these sorts of suggestions: Afghanistan should have an opiate industry like Turkey, the US should have an educational system like Finland. Can we really account for or even know the cultural surround of policy enough to assume what happens in one country will happen in another? I don’t know.

      1. Keith, what I wrote is not really specific to Germany (see also the article about McDonald’s in Australia that I linked). When I said that it was about the combination of collective bargaining and effective competition, I meant that. Collective bargaining keeps wages at an acceptable level; effective competition keeps prices low.

    4. This post (and much of the discussion on this thread) assumes that “McDonalds” (Or “Walmart” or “Costco,” etc.) are monolithic entities that either are or are not viable at a certain level of wages.

      But retail and food services companies actually operate lots of locations, each of which is a business enterprise subject to local dynamics. And the company writ large faces an ongoing decision not just about whether to operate in general but how many locations to operate in particular.

      Each individual location can be expected to generate a certain level of demand. Locations in dense areas with lots of foot traffic and relatively few competitors will generate lots of foot traffic, while locations in less dense areas with lots of competition will generate less. Because much of the cost of running a retail or food service location is fixed, then there are presumably locations in which the business would be profitable paying all of its emloyees a certain wage level (say $12 an hour for the sake of argument), and locations where it would not be profitable at that exact same wage level.

      If a country sets a high statutory minimum wage, then a given retail operator may find that it is profitable to open up some number of locations in that country. But that same operator would almost certainly find that more locations would be viable if labor rates were materially lower.

      So the fact that McDonalds in Germany is required to pay workers a high wage and is still viable tells us nothing about the impact on employment if McDonalds in the US were required to pay the same wage. It could very well be that under similar minimum wage restrictions McDonalds would have to close a great many locations, thereby putting many workers out of a job.

      Similarly Costco pays much higher wages on average than Walmart, but Costco only operates a fraction of the number of locations as Walmart, almost all of them in affluent, high growth suburbs around major cities (vs. Walmart which operates in tons of small towns).

      Apples and Oranges.

      1. The comparison for Costco is not to Walmart but to their warehouse membership outlet, Sam’s Club. There are 632 Costco locations and 621 Sam’s Club locations.

        Admittedly, I’m cheating a bit there: all 621 Sam’s Club locations are in the US and Puerto Rico, and only 451 of the 632 total Costco locations are in the US (I don’t know whether that includes Puerto Rico).

        1. Warehouse clubs are Costco’s only format, and thus if it wishes to participate in a market that’s the only way it can do so. Walmart on the other hand presumably only puts Sams Club stores into locations where either the warehouse club is a better format or where it is accretive to a nearby Walmart Supercenter.

          And even limiting the analysis to Sam’s Club you find that those stores are in less dense, more rural, and lower income zip codes than are Costco stores.

          1. Stephen, that last sentence of yours is very interesting to me. I’d enjoy playing with the numbers a little. Do you have a source you can refer me to for detailed data?

          2. I can’t point you to any free, publicly available source on this but I’ve looked at this issue professionally (using data sources that are relatively expensive) and indeed Costco stores are in much more affluent, and much higher growth, zip codes than Walmart and/or Sam’s Club stores. In theory one could build up the data set to do this analysis if you had a lot of time – each company lists store locations on its website and census data on zip code demographics is relatively easy to come by.

            I’ve never done the math, but I suspect that a good chunk of the Costco / Sam’s Club wage disparity would go away if you controlled for this. After all, Sam’s Club pays its employees in the North Shore suburbs of Chicago substantially more than it pays its employees in rural Oklahoma. But it has lots of stores in both types of geographies, whereas Costco is much more heavily weighted toward places like the former.

      2. Stephen: So the fact that McDonalds in Germany is required to pay workers a high wage and is still viable tells us nothing about the impact on employment if McDonalds in the US were required to pay the same wage. It could very well be that under similar minimum wage restrictions McDonalds would have to close a great many locations, thereby putting many workers out of a job.

        First, I’m not sure where you get the idea that McDonald’s in Germany is required to pay workers a high wage (as opposed to Australia). There’s no statutory minimum wage in Germany. None. There’s no requirement to join a collective bargaining agreement, either (unlike, say, Switzerland, where collective bargaining agreements in the hospitality sector are regularly made into national law), and non-unionized employees don’t necessarily benefit from a collective bargaining agreement, unless employers choose to extend it to them. Starbucks Germany didn’t join the restaurant industry’s collective bargaining agreement until January 2013, for example.

        Second, while your theory looks nice on paper, this is not actually what happened. For example, McDonald’s in Germany has been especially targeting locations for its McCafés that Starbucks ignored (small towns, rural areas). Instead, there are two major factors that kept McDonald’s in Australia and Germany profitable with higher wages but the same prices as in the US:

        * The company diversified their clientele. A key contribution was the widespread introduction of McCafés, which Australia pioneered and Germany adopted. Another was changing its image from being a crappy burger joint to being a restaurant that happened to serve burgers; this required adherence to higher standards of cleanliness, cleaning up its image of being an exploiter of cheap labor, etc.

        * Higher per employee productivity. This is actually a persistent theme. While the exploitation of cheap unskilled labor is hardly unknown in Europe, companies in affluent European countries (or Australia and New Zealand) are overall more likely to improve their profit margins through higher productivity rather than throwing more cheap unskilled labor at the problem (at least not where customers can see it). This has a few reasons: with a better social safety net, there are fewer people desperate to take ANY job; and between near-universal VET and cheaper colleges, there’s less unskilled labor to begin with.

        Now, to be clear, higher productivity also means fewer jobs per dollar of GDP (which, of course, economic growth can and does offset if the beneficiaries of that growth aren’t primarily the already wealthy; which is where collective bargaining and/or minimum wages come in again). But (1) Keith was talking about and I was responding to the affordability of food and (2) relying so much on cheap unskilled labor is not sustainable if we don’t want to turn America into a second China with a slightly higher standard of living (after all, some European countries have already started to outsource these jobs to the US in the way they previously did to China and other Asian countries). If anything, increasing automation will kill most of these jobs in the long run, anyway.

  13. McArdle’s point about SKU’s is an interesting one, but she seems to be a little confused about Costco.

    First, she is under the impression that Costco charges premium prices:

    For one thing, it’s no accident that the high-wage favorites cited by activists tend to serve the affluent; lower income households can’t afford to pay extra for top-notch service.

    The “high-wage favorites” referrred to are Trader Joe’s and Costco. The latter, at least, offers very low prices indeed, and you do pick things up off pallets and the like. No “top-notch service” either.

    Further, McArdle claims, “no one expects to do all their shopping at Costco.”

    Well, you can do an awful lot. They sell a lot of grocery products, including bread, produce, meat, fish, canned goods, etc., as well as clothes, electronics, eyeglasses, and so on. I’m willing to bet that there are many families who could do all their shopping at Costco without much problem.

    One argument McArdle ignores is the simple one that turnover is costly. When you lose an employee you have to find another one, train them, and so on. You lose the accumulated experience of the worker who left. It’s easy to say that Wal-Mart know its business better than I do. They undoubtedly do. But there are also corporate cultures – ingrained ways of doing things – that sometimes don’t undergo the most rigorous analysis.

    1. you wrote: It’s easy to say that Wal-Mart know its business better than I do.

      Look, their prices are low. However,
      the service is crappy….impossible to find a knowledgeable employee.
      the floors are dirty.
      the folks at the checkout are harried.
      there’s never any parking.

      In sum it’s a bummer shopping there.

      1. None of which means they are not profitable.

        In fact, if “there’s never any parking,” as you say, doesn’t that mean the store is full? I’ve never seen a Wal-Mart that didn’t have a big parking lot.

        1. “Nobody goes there any more; it’s too crowded.”
          Yogi, on turning down an invitation to Ruggeri’s restaurant in St. Louis

    2. Average household income for Costco is high – 96k/yr. They only started accepting food stamps in 2009. So yeah, affluence customer base.

      But yeah, top notch service and high mark-up don’t have much to do with CostCo.

      1. I don’t see what the affluence of the customer base has to do with it. There is nothing to prevent poor people from shopping there, and the prices are quite low.

        It is possible, I suppose, that the fact that they sell in bulk plays a role. If you are going to buy groceries in large quantities you need storage space, and this could be a problem, especially for perishables, though maybe less so for large households.

  14. While Costco does have a relatively affluent customer base, the stores are not, at least in my area, located in affluent neighborhoods.

    Instead the locations are in kinda crummy areas.

    Around me are four Costcos. One is in a sleazy area of Van Nuys where there are plenty of hookers around. One is in a somewhat seedy area of Canoga Park, certainly not affluent and well-known for gang bangers. One is in a somewhat decent area of Northridge, mostly just a commercial strip with the surrounding area industrial. And one is in Pacoima, a generally poor, seedy and gang ridden area.

    1. Just as an FYI,
      * Costco needs at least 5 acres of land with good access and high traffic volumes. Sometimes, co-located with other
      anchors in a large complex.

      * Affluence = mobility, as in customers drive to Costco. Lines at the Costco gas station?
      Public transportation or walking is not needed.

      * Why “bad” areas, full of bad, brown people aka gang bangers? Less NIMBYs and cheap land putting in a 5+ acre concrete warehouse with tons of
      traffic. Imagine trying to put in a Costco somewhere in Westwood. Representing, for my peeps at UCLA!

      * On the brighter side, a Costco store does hire about 150-200 people with room for advancement,
      brings in lots of tax revenue, cheap booze, and brings in development jobs and island of pacification in a bad area.
      Plus, a $1.50 hotdog with soda that I am quite sure at any income level would be difficult to say no.

      For another day, structural changes, skills mismatch, globalization, educational arms race, dysfunctional Federal government, low IQ, welfare, etc.
      why little Jimmy is still flipping burgers at age 40.

  15. CoffeeJunkie:

    Apparently, you are in L.A. So I find it hard to believe that you really think having a car here means you are affluent.

    I know many folks who have cars (with or without insurance or license) because they can’t really work/survive without one.

    Personally, I like to think I would not drive without a license or insurance, but, I don’t have to start a shift at Wendy’s at 4 AM in a location with no bus service until 6 AM.

    When I did work at Beefy 19 in Chicago the Western Avenue bus took me right to the door. Of course, as you can tell from the 19 cent price, that was so long ago that I was too young to drive.

  16. I find the argument that higher wages would put the fast-food restaurants out of business to be implausible. Short of actually doing time-and-motion studies, one can observe at a fast-food location, like a secret spy, and make approximate estimates of how much labor they are using. The answer is usually– not very much, on the order of a minute per meal.

    The major chains seem to use all kinds of labor-saving devices. There are self-service soda fountains, bar-code scanners, customer-ordering by computer touchscreen terminals which enable the customer to place his own order into the computer system, coin-dispenser machines for making change, etc. A high proportion of the food is pre-cooked, or otherwise pre-prepared. The various cooking apparatus is all fitted with timers, and increasingly fitted with mechanical means of removing the food when cooked, so that the kitchen help do not have to stand around and wait for things to cook. They can just come along, collect whatever is done, and assemble/wrap it. There are even machines while take raw food from a storage compartment and dump cooked food into a collection basket, for example, McDonalds’ new french-fry machine. The remaining kitchen work is often reduced to an assembly line, and the menu is simplified sufficiently to make assembly-line operation feasible. Assembly is simplified with specially designed scoops, ladles, etc., one scoop being one serving. Barbara Garson has a good, if somewhat dated, discussion of McDonald’s in _The Electronic Sweatshop_ (1988). Particularly in high-traffic locations, where there are a lot of labor-saving devices, the labor input is measured in single minutes per order, not in tens of minutes. The time required to wrap up a taco is measured in seconds. That said, the question is whether labor costs ten cents per minute, or twenty-five cents per minute.

    In practice, a fast-food burger is really a rent-burger. Food, labor, and fixtures do not account for more than twenty percent or so of the burger’s price. The lion’s share of the money goes into rents, and things which resemble rents, eg. legal bills for getting zoning variances; or certain types of local taxes, not based on net income. Now most fast-food premises are not really very suitable for anything except fast-food. If fast-food operators collectively refuse to pay high rents, the rentiers are not likely to have alternative tenants at hand.

  17. While we are speaking about the working poor, my peeps:

    http://blog.oregonlive.com/myoregon/2013/09/letter_cellphones_dont_always.html#incart_river

    Letter: Cellphones don’t always signal prosperity

    So commentary columnist Elizabeth Hovde thinks that we should stop giving food stamps to the not so needy, whom we can all recognize because they have both cellphones and SNAP cards (“Stop feeding the not so needy,” Sept. 8)? Whenever the well-off write about how the not-really-needy folks are sponging off public benefits for their lavish cellphone-using lifestyle, I know that these writers have never been in the death grip of a boa constrictor service contract. 
    Boa constrictor contracts work like this: The company advertises a great monthly rate that you can easily afford when things are going OK for you financially. That’s the rate that is splashed all over the flyers and posters and TV and radio ads. That rate is just sucker bait. 

    Then something happens: You’re laid off, your hours cut or your partner’s are, you come down with a bad case of the doctor copays or car repairs, your bus system quits running on weekends. It doesn’t matter why you can no longer afford the service that you could once handle. Because no matter why, you are going to be told that you can only cancel or switch to a cheaper plan by paying several hundred dollars first. And if you just cancel the traditional way, by not paying, you are going to find yourself hounded by collection agencies for the monthly charges, plus the penalties, and then sued for them, plus court costs and attorney fees, and you’ll have your wages garnished and your credit ruined. All because you couldn’t afford to pay a penalty to stop a service contract you could no longer handle. 

    We need to do two things: Force companies to fully disclose how much their service contracts really cost, and let struggling folks cancel without getting hammered with penalties. 

    On the first, our motto should be “Service Contracts Oughta Reveal Everything,” which spells SCORE. 

    SCORE would mean that anything that comes with an early-cancel penalty — cellphone, Internet, satellite TV, gym membership, alarm system — the company would have to tell you, in big bold type, at signup time, the true total of all the payments you must make to get past any penalties. That’s first. 

    Second, we should require that contracts with early-cancel penalties must have waivers so that any customer on public benefits (such as SNAP, Medicaid, public housing) can cancel a contracted service without penalty. 

    Until we do a much better job of making sure that everyone knows what they’re getting into with service contracts (with SCORE disclosures) and until we prevent early-cancel penalties from putting the squeeze on the poor, I suggest that Hovde just be thankful for the privilege that allows her to casually equate having a cellphone with being “not so needy.” I see plenty of consumers who are being squeezed to death by contracts that they would love to escape, if it didn’t cost more to cancel the contracts than to keep paying. 

    JOHN GEAR   

    Gear is a Salem attorney.

    1. I think there is a more insidious level at which new electronics is reverse-statused. The most expensive new things are pocket-sized. I am writing this on a desktop computer whose fair-market value would be optimistically estimated at fifty dollars _But_ it is sitting on a desk in a private study, with additional components sprawling over a couple of tables, and a rats-nest of cables connecting everything together, to the point that I find it expedient to label both ends of a given cable. Real estate is much more expensive than electronics. You cannot estimate the status-value of an automobile, until you discover whether someone is living in it or not. The same principle applies to the kind of electronics which will fit in a pocket. At a certain level, they are pitched to people who have neither a room nor a desk to call their own.

      By the same token, if I should become thirsty, I would wander into the kitchen, take a half-gallon jug of house-brand apple juice out the refrigerator, and pour myself a glass, at a much lower cost than anything which comes out of a typical vending machine. Because it’s my kitchen.

  18. In my comments to McArdle’s blog posting, I said: “Typically sloppy work. [MM cites] the number of US employees, the square footage per US employee, and then, in the next two lines, detail revenue and net profit per employee. Reading the chart, one would assume that these line entries refer to revenue and net profit per US employee. Of course, that’s not correct, these numbers refer to revenue and net profit per all employees worldwide.”

    The problem I see with the “let the market” rule crowd is that it takes seriously the old Jack Benny joke. It seems that Benny was held up at gun point with the robber demanding “Your money or your life.” When Benny did not respond immediately, the robber asked “Well, what is it?” Benny replied, “I’m thinking, I’m thinking.”

    The joke is funny because it is obvious to everyone that Benny has no real choice. People who work at minimum wage at FF operations have no choice. Raise the minimum wage (in real, adjusted dollars) over time and workers will have more money, will spend more money, and the FF restaurants will be able to get their fair share by raising prices. Henry Ford knew this about 100 years ago.

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