Apparently, the Thursday before Labor Day was a day of organized protests by fast food workers demanding a “living wage” of $15 per hour for burger flippers and french fry slingers.
This post on Yahoo! Finance’s “Daily Ticker” caught my eye, especially the title:
McDonald’s Should Share Billions in Profits With Fast Food Workers: Labor Organizer
Maybe it’s just me, but whenever I see the term “organizer” immediately I conclude that the individual lacks basic understanding of mathematics and economics. Let’s see what he has to say.
Kendall Fells, the organizing director of Fast Food Forward, which is overseeing the New York City campaign, tells The Daily Ticker that these workers are not demanding that Congress raise the minimum wage but that the companies that employ them pay a living wage.
I was right. No understanding of mathematics, economics, and (likely) reality.
I actually applaud Kendall Fells for lobbying the company, rather than the government, to hike wages. In my mind, nothing is worse than lobbyists putting pressure on government officials to coerce a third-party to be required to act in a certain manner without their consent or input — even if it’s an “evil” corporation. If workers and a company agree to pay certain wages through an arms-length negotiation between the two parties, there is nothing wrong with that.
There is, however, a misunderstanding — unintentional or otherwise — that fast food workers are being abused by corporations that aren’t paying them enough. A second misunderstanding is that fast food companies do not share their profits with their workers.
First, in order to accept the premise that workers are being abused by corporations, you must either believe (1) that Upton Sinclair’s novel The Jungle is based on contemporary goings-on or (2) that fast food workers aren’t entering into voluntary contracts with corporations to work for a certain sum of money per hour. Both are absurd beliefs. Working conditions in America are the envy of the world and credit is due to the early labor movement in this regard.
Also, at the risk of being flippant, slavery was abolished in the 1860s. People who are unemployed (particularly young people) would likely love to work for a fast food company if it meant not having food on their table if they did not. Beyond these two misunderstandings, I think Kendall Fells is sorely misguided with respect to the notion that McDonald’s doesn’t share its profits with workers.
McDonald’s, like all corporations, has a duty to make the corporation as profitable as possible. That’s the point of a for-profit corporation: make a profit. At the same time, though, it is disingenuous to suggest that McDonald’s doesn’t share any of its profits with the lower-level employees.
McDonalds Benefits And 401K
In fact, McDonald’s employees have a large range of benefits, which include vacation, paid holidays, health insurance, dental insurance, disability, and term life insurance. Most importantly, all McDonald’s employees are entitled to receive profit sharing through McDonald’s 401(k) program.
McDonald’s offers an incredible 401(k) match for its employees:
Our Profit Sharing and Savings Plan lets employees save from 1% to 50% of their pay on a tax-deferred basis in the 401(k) feature of the plan. McDonald’s matches eligible employees’ contributions with $3 for each $1 of the first 1% of pay they contribute, and $1 for each $1 on the next 4% they contribute. Eligible employees may also receive a discretionary profit sharing match of 0% to 4% based on the first 1% of pay they contribute. Employees are always 100% vested in their contributions and the company matches.
That’s a really good 401(k) program. I’ve written about the importance of Americans saving for their own retirement considering how Social Security is in such piss-poor shape. McDonald’s providing a 300% return on the first 1% that employees contribute to their 401(k) and 100% for each $1 that they contribute over the next 4% is as close to “free money” as one can get for retirement. That’s not assuming any discretionary contributions, which can really increase returns over the long run.
Some simple math and compounding: if an $8/hour employee were to set aside the full 5%, it would be a contribution of $832 per year from the employee. McDonald’s would contribute $499.20 for the first 1% contributed and $665.60 over the next 4% of contributions. That’s nearly $2,000 per year. This assumes (1) no pay increase, (2) no overtime, and (3) no promotion. Given time to compound (assuming historical rates of return), saving $2,000 per year from age 19 to 25 would compound to nearly a million dollars by age 65. That’s a lot of assumption, but the data over the last 100 years supports it.
Even US News notes that this is a generous 401(k) program:
The company that invented extra-large fries and soda provides many of its employees with a supersized 401(k) match. McDonald’s matches each dollar an employee contributes to the 401(k) plan with three dollars, up to the first 1 percent of pay. For employees age 21 and older who have been with the company for at least a year, the company also matches a dollar for each dollar saved on the next 4 percent of pay. Workers may also receive a discretionary profit sharing match, which was 3 percent last year. The frontloaded matching formula is designed to help employees without a lot of extra income to save to start building their nest egg. “That’s a tremendous way to inspire employees at all income levels to participate,” says Mellody Hobson, president of Ariel Investments, a Chicago investment firm. Salaried restaurant managers are automatically enrolled in the plan at 1 percent, unless they opt out or change their contribution level. Ninety-eight percent of these managers participate in the 401(k) plan.
“This plan is for everyone in the company, from the CEO to the restaurant worker,” says Ken Naatz, director of retirement plans at McDonald’s. Naatz saved 5 percent of his pay in the 401(k) plan last year and received a 10 percent employer match, including the 7 percent maximum guaranteed match and the 3 percent discretionary match.”This is our only retirement plan. We want it to be really good,” Naatz says. “It is designed to retain talented people at McDonald’s.”
I like the fact that executives participate in the McDonald’s 401(k) program and that it’s the only retirement plan at McDonald’s. There’s a “skin in the game” concept going on with that and all employees benefit.
Lastly, it is important to note this Bloomberg piece, which states that 40% of McDonald’s executives began as low-level employees. That’s the point of a low-level job. You start there and you move upward through hard work — or you leave to take another better-paying job. If burger flippers were paid like CEOs (or even $15/hour), the cost of a Big Mac would be prohibitively high. That makes everybody poorer, because the measure of wealth is the ability to purchase goods and necessities, and what you have left over. Simply earning more per hour is not enough if the costs of necessities and goods are rising faster than wages (looking at you, Ben Bernanke).
The Minimum Wage
Indeed, a wise opinion piece was (once upon a time) written on the subject of the minimum wage:
But there’s a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage by a substantial amount would price working poor people out of the job market. A far better way to help them would be to subsidize their wages or — better yet — help them acquire the skills needed to earn more on their own.
A free market setting wages and employees free to accept work at that wage (or not), thus forcing an increase in the wages required for the job to be performed. Supply and demand. Imagine that!
As always, free markets are better markets.
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This week has a slew of important economic data, including consumer confidence, retail store sales, construction spending, initial jobless claims, and the all-important August BLS Jobs Report on Friday at 8:30 a.m. This report will likely be a market-moving event, because it is the last BLS Jobs Report before the September Federal Reserve meeting where members of the central bank are expected to announce a “taper” of the Quantitative Easing program, meaning less bond purchases. Exciting stuff.