The McMyth of the McPoverty Calculator

The Daily Beast has come up with what they surely must have thought was a brainstorm in the ongoing debate over a “living wage” in the United States, though what the end goal of the experiment is seems to be something of a mystery. In it, they posit a wonderful, sunshine and rainbow filled world where all of the workers at McDonald’s could take home significantly higher wages if only their mean old corporate taskmasters would simply raise the price of their products a bit. And in this offering – called The McPoverty Calculator – you get to join in on the fun and play along by entering an amount (in pennies) that you’d be willing to pay above the current cost for a Big Mac, and the tool helpfully translates that change into how much more the employees could earn. The pitch for it is just heart warming.

Paying cents more for a burger could mean big wage hikes for fast-food workers, many of whom live in poverty. So how much more would you pay for a Big Mac? How much more would you pay for a Big Mac if you knew the person serving it to you would be able to raise her children out of poverty?

This week has seen mass protests and job walk-outs across the fast-food industry, with employees from McDonald’s to Taco Bell demanding higher wages and better treatment. Some labor economists have said that a slight increase in the price of a burger could result in a big jump in wages—enough to raise the fortunes of thousands of $7.25-an-hour employees.

I actually stumbled across this article by way of Dr. Joyner at Outside the Beltway who decided to participate in the game.

The poll tells us that “The average price of a Big Mac is $4.56, and many fast-food workers make $7.25 an hour.” It then asks readers to select how many more cents they’d be willing to pay. According to the calculator, paying an additional 5 cents for the burger would bring workers to $8.03 an hour, or $16,696.79 a year–still below the poverty line. Still, that’s a pretty massive pay hike for a measly nickel a burger. Paying an additional 10 cents brings workers to $9.56 an hour, or $19,885.60–just above the poverty line. My initial answer, 20 cents*, almost doubles their salary to $14.12 an hour, a whopping $29,263.75 a year. That’s actually a decent wage in most of the country.

Joyner then gets to a bit of a caveat which he seems to play off as a lot less significant than I believe it to be.

Now, it’s not a slam dunk that people would really pay an additional 20 cents for the burger in practice, especially if competitors were holding the line on prices. But I suspect they would; for most of us, it’s simply a negligible amount. And, of course, there’s no guarantee that all of the increased revenue would go to the employees.

I’m sorry, but that’s kind of the whole point. Both of those issues would seem pivotal to the discussion, and not in favor of the premise put forward by the poll. (Not to mention missing the larger point entirely.) Let’s leave aside for the moment the problems inherent in having the federal government put its thumb on the scale of wages even further. The prices that McDonald’s (and their competitors) charge are where they are for a reason, and a lot of marketing and research work goes into it. Sure, plenty of sympathetic folks will say that they’d be willing to pay 20 cents more for for any of the products. But what happens to McDonald’s when their dollar menu suddenly becomes their “Dollar Twenty” menu? Joyner’s caveat about other competitors holding the line isn’t theoretical. It’s a given. They’d probably throw a party on the day McDonald’s announced it.

As for the money going to the employees, where to even begin? McDonald’s is charging what they charge because it is the most they can get away with charging without losing trade and delivering the maximum return to their shareholders which can be managed. If there was some magical way under their current business model and conditions to charge 20 cents more and remain competitive, they’d already be charging 20 cents more. And while that may not sound like a lot, they serve 23 million meals per day in the United States alone. If they could bring in another $4.6M dollars per day, their shareholders would be ecstatic. And not because the money was being handed out to the workers.

Finally, the wages they pay follow the same laws as the prices they charge. They pay their workers the least they can, either by law or because paying less would not attract the number of employees they require for operations. Just like every other business in the country. One point which seems to confuse the social justice battalion is this idea they seem to be stuck on that there is some sort of obligation or social contract which states that industry is obligated or intended to create jobs, and good paying ones at that. The fact is, job creation was never one of the driving factors in the evolution of industry. It was only a happy side effect. Business sees employees as expensive, problematic components in the corporate machine. (Sorry to be so harsh.) They get sick, they complain, they want raises, they make mistakes… robots are far preferable. But robots can’t do everything. One of the goals of any modern business model, I’m sad to say, is to reduce the number of employees to the minimum possible. All of these things render the McPoverty calculator pretty much irrelevant.