McDonald’s is raising wages for 90,000 employees.
In a statement on Wednesday, the company said that as of July 1, it would raise starting wages and offer employees personal time off at McDonald’s company-owned restaurants in the US by $US1 over the local minimum wage.
The bold part is essential: McDonald’s only owns 10% of its US locations. Franchisees, which own around 90% of the company’s more than 14,000 US locations, will not be required to raise wages.
This is the “but.”
And it is wrong.
This is happening for two reasons: minimum wages are going up around the country and retail trade workers are quitting their jobs.
And while the first point can’t be ignored (there is, of course, a political and practical motivation behind every decision that every major company makes and wages are no different), the second point is what really matters for the economy.
No amount of “but actually” is going to take away the fact that 90,000 McDonald’s employees are getting a raise. These employees, often making minimum wage, will now make more money come July than they currently do. And there is more to come.
If workers continue to quit their jobs, then there is nothing that companies are going to be able to do but raise wages to retain talent.
Last week we highlighted a series of charts from Deutsche Bank’s Torsten Sløk that indicated that wage growth is here, and among Sløk’s charts was one with the NFIB’s measure showing the number of companies planning to raise wages.
Additionally, many commentators will decry the “quality” of a jobs at a place like McDonald’s or Wal-Mart, but the fact is that these are jobs that pay actual money to people who would otherwise be paid minimum wage or nothing at all.
As part of this discussion, there is an economic theory that often gets overlooked when people complain about what kinds of jobs have been created during the current recovery: marginal propensity to consume.
The marginal propensity to consume, or MPC, is basically the idea that with increased disposable income, consumers will increase their spending.
So let’s take someone who is making $US8 and hour and increase their wage to $US9. You can look at this two ways: they are either getting a $US1 per hour raise or a ~15% raise. A raise of $US1 per hour seems small, but a 15% is not. (If you, dear reader, have a job, think about what you would do if you got a 15% raise? Spend? Save? Invest? Do nothing?)
And if you’re making minimum wage, trying to pay rent, pay for healthcare, food, and so on, your disposable income is likely limited. But add 15% to that, and there is potential for your habits and quality of life to change. Perhaps dramatically.
Additionally, the accrual of personal time for employees that work at a McDonald’s restaurant for at least a year means that people who wouldn’t be able to take their hard-earned money and do what economists really want — spend it — will now have a chance to do that.
Following Wal-Mart’s announcement, its CEO Doug McMillon said, “I think it’s important to remember that we react one store at a time to whatever wage rates we need to attract and retain the talent that is required to run our business.”
And McDonald’s CEO Steve Easterbrook said nearly the same thing in a statement on Wednesday, saying, “We are acting with a renewed sense of energy and purpose to turn our business around … We know that a motivated workforce leads to better customer service.”
So you can say that McDonald’s is giving 90,000 workers raises. Or you can say it is giving raises to 10% of its employees. Or you can say it is not giving raises to 90% of its employees.
But the point that matters is that someone is getting a raise, and these employees will eventually spend that money and pay taxes and become bigger players in the economy.
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