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Nuvendil on 28 May 2016
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Norris2k said:
Nuvendil said:

Ok so let's get down to brass tacks here with the whole $15 thing and examine it in relation to McDonalds.

So McDonalds has a variety of different pay levels with some entry positions making sub 8 and middle and lower-middle management making 11 or 12 so let's say the average $9 an hour. So assuming a 30 hour or so week (McDonald's standard for full time), an increase to $15 an hour would result in a 3.93 *billion* dollar increase in payroll costs alone for McDonalds from their 420000 direct employees (remember that, that's important). This is before taxes so that means this 3.93 billion comes out of McDonalds' operating income, which sits at 7.1 billion. So before taxes, that brings us down to 3.2 billion dollars. Taxes and interests and other post-operating income expenses currently takes up 2.6 billion dollars. So we are looking at a total of 600 *million* left over in true profits.

And that's only from the impacts of the pay raise for the direct employees. It does *not* factor in the rest of the employees in the states. The vast majority of McDonalds' 1.7 million employees through franchises and company owned and operated locations are in the States. So let's say roughly 1,000,000 more employees are in the States. That means that there's a total payroll cost expense cumulatively of 9.63 billion dollars. However, each franchise will bear the weight of it's cost increase largely on its own. Meaning many locations of middling business will become unsustainable and thus close. Which means McDonalds the company will suffer losses as a result of loss of franchise fees and sales cuts. Which brings us lower than that 600 million dollar bottom line. We're talking sub 500 or even 400 million. And that's being awfully generous and assuming the vast majority of McDonalds locations at this time make more than enough to support the payroll cost increase.

But that's not the end. You see the next issue comes up with crew management/leadership (swing/shift managers) costs. Many such managers at this moment don't make $15 either. So all these expenses are going to just be for bringing the whole crew at these places to the same exact level and it doesn't take a business wiz to see that's just not going to work. Right now, being a middle manager or leader in a crew brings you up some $2 an hour. So that's tens of millions or more in direct payroll expenses add to McDonalds from its direct employees and another burden to pile on to franchises.

So then we get to that last tidbit that people bring up: those greedy, grubby CEOs and executives hogging all that sweet cash. Well, to help you people out who are making this argument I am going to set aside the reality for a moment and give you the ideal situation. Let's assume - despite all evidence to the contrary - the executives at McDonalds make similar to the Chipotle executives, whose CEO makes upwards of 25 million dollars a year. That is less than 1% of the payroll increase cost caused by the $15 wage. 1/157 to be fairly exact. And the thing is, the McDonalds CEO doesn't make anything close to that as his base salary. So unless they are giving him hundreds of millions in bonuses a year (they aren't), he could lower his own pay to $15 an hour and effect next to *nothing* in terms of McDonald's bottom line. It would be a drop in the bucket. This idea that a handful of people at the top of McDonalds - or most big companies (almost all, actually) - are hogging enough money to pay their employees immensely more is just not accurate.

And this is *MCDONALDS*, the poster child for miserliness. And yet their bottom line would be devastated by a pay increase. Could they *survive*? Certainly, but it would require a LOT of changes. Thousands of locations would need to close, prices would need to go up, jobs and structure would need to be changed or cut. It's not like the 1.4 million US employees would just start making more $15, it is always, always, always more than that. Your talking about over 10 BILLION dollars in new payroll costs just to facilitate the new wage. Much less the other pay increases common sense demands. McDonalds and many companies would have to fundamentally change their business to accommodate this and they wouldn't all be pleasant changes.

All that to say this whole thing is not as simple as "make the rich people give us the money," cause as I just pointed out they don't have the money. Which is why I say we have to avoid the class-warfare mindset. It's a kneejerk reaction to find out x CEO makes millions and demand bigger pay checks but it is a mistake to assume that the former is the reason you don't have the latter.

Edit:  To be clear, I don't agree with the current minimum wage.  But I am trying to show two things:  1) this $15 an hour is no small change and 2) there's a reason I say Federal needs to low ball and States need to make the ultimate minimum wage decision.

I appreciate you put in the perspective of an argumentation and calculation, and clearly we agree it's not a small change, it's a big change with multiple secondary effects. You explain pretty well the impact it will have on other salaries. But you miss the point of the tremendous impact a rise of salaries would have on the society, fiscal system, investment, scholar system. Because all those working poor, they are a burden for the fiscal system (stamps, medicare), they can't contribute enough to the consumer society (can they even afford a mac donald ?), thier children will have it hard at school, and they divert companies like Mac Donald to invest because they can rely on cheap labor.

Perhaps it would be better for Mc Donald to think about and invest in their production chain, the way they did when they revolutionized the fast food market and influenced companies like Burger King or Tacos bell. Low wages made them lazy, they don't invest in robotic, the production chain is mostly the same for decades. And they didn't have any new product as successful as the big mac or quarter pander for the last 30 years.

Perhaps it would be better for Mc Donald to not lead to a government default, part because the State is required to spend so much on that that millions of working poor (not just their employees).

Perhaps it would be better for Mc Donald to have more clients because instead of relying on food stamps, every people will be able to eat at the Mac Donald.

And last but not least, perhaps it would be better for them to die... because  “No business which depends for existence on paying less than living wages to its workers has any right to continue in this country.” (Roosevelt) If very low wages is the base of their business, they don't really have a viable business model. We don't have to sponsor them with poverty and taxes.

Sponsor them with taxes?  Taxes are one of the largest expenses they face.  McDonalds and other large companies face a tax rate in excess 35% of taxable income (that's billions of dollars, their taxable income exceeds 7 billion) and that's just federal.  State goes on top of that and varies.  

As for the bits about raising wages and stuff, as I said I am fine with a raise to something survivable but that's not what people keep demanding.  They want a minimum wage that makes everyone middle class but my point is the cost of that plan is astronomical and it would have to be recouped somewhere.  And that somewhere is going to be product prices.  And if the cost of goods goes up on average significantly what's the point?  You can't forcibly make the economy pay out more than it is able.  Which is why it must fall to the States to set the minimum wage according to the cost of living and economic health.  Keep the federal low to allow for that.

And in the case of McDonalds, as I explained before they aren't looking to provide all their employees with careers or even most.  They are capitalizing on the fluidity of the work force, that there are always people either just entering the workforce or in between jobs or otherwise just looking for *some* work.  In other words, these are jobs and products that otherwise wouldn't exist, many currently working at McDos wouldn't have a job if not for that very business model.  It's not a model you have to agree with.  And as I said I would be fine with (and McDos could survive with) a moderate increase in minimum wage.

Also, food for thought, the old minimum wages were set in a time where one person per household supported the household.  Now a much larger percentage of households have two or more sources of income.  Which does effect the dynamics here.  Not only does that mean lower amounts support more, but also that more money is payed out via payroll than many think.  Not saying this swings the debate either way.  Just another thing to throw into the mix of highly complicated factors that go into discussing such large, impactful changes to laws regarding business.