Wages Q&A: What Do McDonald’s, Wal-Mart and Target Pay Raises Mean for the Economy? – Real Time Economics

McDonald’s said that the planned wage increase wasn’t in response to labor protests, such as this one last year in New York City.

Time for a raise? Large U.S. companies, including McDonald’s , Wal-Mart and Target, have increased wages for their lowest-paid workers and more than half of states have raised the minimum wage. Should other large employers and the federal government follow suit? What effect will higher wages have on businesses, workers and consumers? Economics reporter Eric Morath answered your questions in Wal-Mart both currently pay below the average in their industry. So presumably, many smaller businesses offer better pay. A chart below shows the average hourly wage for several major industries.

Q: Are executives, politicians and celebrities the select few who should live comfortably in America?

A:  One interesting way to think about this is how much fast food can a fast-food worker buy at minimum-wage pay. In 1981, a minimum-wage worker could trade an hour’s pay—$3.35—for 12 White Castle hamburgers, and receive 23 cents back in change. At today’s federal minimum hourly wage—$7.25—the worker could buy 10.

Q: My take on this issue is if you increase your hourly rate, doesn’t that hurt your profit margin in the long run? It wouldn’t be good for businesses that have a lot of input cost. Sorry, but these jobs are not meant to support a family. Even I caught on to this very quickly when I worked a low-paying job. I started to go to trade school and now I make more money and more happy that I achieved something in my life.

A: In 2013, 35.5% of minimum wage employees worked full time, compared with 72.9% of all hourly workers.  So, yes, likely many minimum-wage workers aren’t the sole bread winners in their households. But minimum-wage earners are disproportionately women and minorities. That’s a reason why President Obama says raising the minimum wage would “helps families make ends meet.”

 Q: McDonald’s did not raise wages. Only 10 percent will get raises, which means nothing. Only a PR move. 

A: McDonald’s says it will raise wages for hourly employees at company-owned stores, but 90% of McDonald’s stores in the U.S. are operated by franchises. What is happening, though, is that fast-food workers across the board are seeing wages increase more quickly than the rest of the economy. Albeit, they are among the lowest-paid workers of any occupation.

I agree the public perception is playing a role here. This is the first time McDonald’s has made an across-the-board move on wages outside of federal wage increases. That probably suggests worker demands and protests are having some effect. The same may be true for Wal-Mart.

I will say McDonald’s officials said protests weren’t a factor in its decision.

Q: If a burger-flipper keeps asking for more money, then I’d replace him with a robot.

A: Food service might be one of the areas that is most difficult to replace workers with automation. That’s likely why almost half of minimum-wage workers are in that field.

Sheetz, a gas station and convenience store on the East Coast, has replaced some counter staff with touch screens. They’ve moved those workers into positions that make larger profits, like preparing cappuccinos.

Q: The effect is inflation. Everyone ends up back where they started except many no longer qualify for poverty benefits, and those on fixed incomes get screwed.

A:  Higher labor costs certainly can contribute to inflation. But keep in mind that inflation is historically weak right now, thanks to a fall in gasoline prices.

Q: Actually, since the minimum wage is so low in many states, raising it up to around $10 universally will not cause inflation, and will in fact benefit the economy. However, I do agree that raising the minimum wage to $15 might have unintended consequences.

A:  The minimum wage in many states is heading to $10 an hour or higher. The pay floor in Massachusetts will be $11 by 2017.

Q: A rising ride lifts all ships. If you raise wages for low-skilled jobs without doing the same for higher-skilled jobs, you’ve just effectively devalued higher-skilled jobs.

A: We are at an unusual point when wages are growing more swiftly at the bottom end of the pay scale. Economic theory would suggest that means there is greater demand for those workers. One possible reason is that higher-skilled workers were stuck in low-wage jobs, and are now returning to better-paying work, cutting the pool of workers willing to take a restaurant or retail job.

Thanks everyone for the great questions. Please continue to follow our coverage in The Wall Street Journal and on the Real Time Economics blog.

Related reading:

5 Things to Watch in the March Jobs Report

Behind McDonald’s Pay Boost: Growing Wage Pressure for Low-Skilled Jobs

What Wal-Mart’s Pay Raise May Mean For Other Workers

What’s Behind Restaurant Workers’ Faster-Rising Paychecks?

State of the Minimum Wage



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2 April 2015 | 7:23 pm – Source: blogs.wsj.com


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